10-Q: Matrix Service Company Reports Net Loss in Latest 10-Q Filing, Revenue Mixed Across Segments

Sentiment:

Quarterly Report 6 February 2025 4:08 PM

Matrix Service Company's recent 10-Q filing reveals a net loss, with revenue fluctuations across its Storage and Terminal Solutions, Utility and Power Infrastructure, and Process and Industrial Facilities segments.

Worse than expectedThe company reported a net loss of $5.533 million for the three months ended December 31, 2024, compared to a net loss of $2.851 million for the same period in 2023.The company reported a net loss of $14.756 million for the six months ended December 31, 2024, compared to a net loss of $6.018 million for the same period in 2023.

Summary

Matrix Service Company reported a net loss of $5.533 million for the three months ended December 31, 2024, compared to a net loss of $2.851 million for the same period in 2023.
The company's revenue increased to $187.169 million for the quarter, up from $175.042 million in the prior year.
For the six months ended December 31, 2024, the net loss was $14.756 million, compared to $6.018 million in 2023.
Six-month revenue totaled $352.748 million, a decrease from $372.701 million in the previous year.
The Storage and Terminal Solutions segment saw revenue increases, while the Process and Industrial Facilities segment experienced a decline.
Project awards during the quarter were $90.5 million, the lowest in over three years, but the company anticipates strong award activity in coming quarters.
Backlog as of December 31, 2024, was $1.311 billion.
The company's liquidity position remains strong, with $211.7 million in total liquidity, including $156.8 million in unrestricted cash and cash equivalents and $54.9 million available under the ABL Facility.
The company is pursuing claims against Keyera Energy, Inc. and is defending against litigation commenced by 5E Boron Americas, LLC.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While revenue increased for the quarter, the company still reported a net loss, and project awards were down. The company expresses optimism about future performance, but there are also risks and uncertainties.

Positives

The Storage and Terminal Solutions segment experienced revenue growth, driven by increased volume of work for specialty vessel and LNG storage.
The Utility and Power Infrastructure segment also saw revenue increases, primarily due to a higher volume of work for LNG peak shaving projects.
The company's liquidity position remains strong, with $211.7 million in total liquidity.
The company anticipates strong award activity in the coming quarters due to strong market drivers.

Negatives

Matrix Service Company reported a net loss of $5.533 million for the three months ended December 31, 2024, and a net loss of $14.756 million for the six months ended December 31, 2024.
The Process and Industrial Facilities segment saw a revenue decrease due to the completion of a large renewable diesel project and lower revenue for thermal vacuum chambers.
Project awards were $90.5 million for the quarter, the lowest in over three years.
Gross margins were negatively impacted by the under-recovery of construction overhead costs.

Risks

The company faces risks related to economic, market, and business conditions in the natural gas, power, oil, petrochemical, industrial, and power industries.
The transition to renewable energy sources could impact the company's current customer base.
Delays in the commencement or progression of major projects could affect revenue recognition.
Reduced creditworthiness of the customer base and the higher risk of non-payment of receivables pose a risk.
The outcome of current and future litigation is inherently uncertain.
Changes in laws or regulations, including tariffs on imported goods, could impact the business.

Future Outlook

The company believes positive trends will continue, leading to enhanced leverage of the cost structure, improved operating margins, and bottom-line results. Strong market drivers are expected to result in strong award activity in the coming quarters.

Management Comments

Operating activity increased during the second quarter of fiscal 2025 as revenues showed a 13% increase from first quarter of 2025.
This increase marks the beginning of a ramp in activity, and was fueled by growth primarily in the Storage and Terminal Solutions segment, as well as the Utility and Power Infrastructure segment.
Combined with strong project execution, we believe the continued increase in activity will result in enhanced leverage of our cost structure, improved operating margins, and bottom-line results.
As a result, we believe we will have strong award activity in the coming quarters.

Industry Context

The company operates in the energy, power, and industrial sectors, which are subject to economic cycles, regulatory changes, and the transition to renewable energy sources. The company's performance is influenced by factors such as oil and gas demand, the clean energy transition, and infrastructure spending.

Comparison to Industry Standards

It is difficult to provide a precise comparison to industry standards without specific competitor data.
However, companies like McDermott International, Chicago Bridge & Iron (CBI, now part of McDermott), and Fluor Corporation are involved in similar construction and engineering projects.
Gross margins in the engineering and construction industry typically range from 5% to 15%, depending on the type of project and the company's efficiency.
Backlog is a key metric in this industry, and a healthy backlog provides visibility into future revenue.
Liquidity is also crucial, as these projects often require significant upfront capital.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Amendment of Bylaws	On February 4, 2025, the Board of Directors adopted and approved the Company's Amended and Restated Bylaws, effective as of such date. The Amended and Restated Bylaws, among other things: Enhance procedural mechanics and disclosure requirements in connection with stockholder nominations of directors and submissions of proposals regarding other business at stockholder meetings, including to define certain terms, to clarify or limit the scope of information required regarding proposing stockholders, proposed nominees and other related persons and to clarify a proposing stockholders obligation to update its notice; Specify the powers of the Board of Directors and the chair of a stockholder meeting to regulate conduct at a meeting and to adjourn a meeting; Clarify the power of the Company to hold virtual meetings of stockholders; Require director candidates to make themselves available for interviews with members of the Board of Directors; Permit special meetings of the Board of Directors to be called on less than 24 hours notice, if necessary or appropriate; and Implement non-substantive, technical, and conforming changes.	2025-02-04	The changes enhance corporate governance practices and provide more clarity on stockholder rights and board procedures.

Legal Proceedings

The company is pursuing claims against Keyera Energy, Inc. in an arbitration demand to collect outstanding balances of $32.7 million related to a crude oil storage project.
The customer, Keyera Energy, Inc., filed counterclaims seeking damages in a range of $69.6 million to $97.9 million.
The company is defending against litigation commenced by 5E Boron Americas, LLC, alleging breach of contract and breach of express warranty.
The company has filed a countersuit against 5E Boron Americas, LLC, for failure to pay amounts due of $5.6 million.

Stakeholder Impact

The financial results and future outlook may impact shareholders' investment decisions.
The company's performance and backlog can affect employees' job security and opportunities.
The company's ability to execute projects and maintain financial stability can impact customers and suppliers.
The company's compliance with debt covenants and access to credit facilities can affect creditors.

Next Steps

The company expects to recognize $558.9 million of its remaining performance obligations as revenue within the next twelve months.
The company intends to utilize treasury shares in connection with equity awards under stock incentive plans and for sales to the Employee Stock Purchase Plan.

Key Dates

Date	Description
2018-11-01	Board of directors approved the Stock Buyback Program.
2021-01-01	Mechanical completion achieved on a crude oil storage project.
2021-09-09	Company entered into an asset-based credit agreement.
2022-04-01	Arbitration demand filed against Keyera Energy, Inc.
2022-06-02	Customer filed counterclaims against Matrix Service Company.
2022-10-31	Customer amended its counterclaim claiming damages in a range of $18.8 million to $36.0 million.
2023-07-17	5E Boron Americas, LLC commenced litigation against Matrix Service Inc.
2024-05-03	Asset-based credit agreement was most recently amended.
2024-07-01	Customer filed a second amended counterclaim which significantly increased the amount of alleged damages to a range of $69.6 million to $97.9 million.
2024-12-31	End of the quarterly period.
2025-02-04	Board of Directors adopted and approved the Company's Amended and Restated Bylaws.
2025-02-05	As of this date, there were 27,606,852 shares of the Company's common stock outstanding.
2026-09-09	The ABL Facility matures, and any outstanding amounts become due and payable.

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