Release Date: September 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Matrix Service Co (MTRX, Financial) reported a 30% year-over-year increase in backlog, adding $176 million in new project awards in the fourth quarter.
- The company has a strong opportunity pipeline of $6.1 billion, indicating robust future growth potential.
- Matrix Service Co (MTRX) generated $47 million in cash from operations in the fourth quarter, increasing its cash balance by 48% to $141 million.
- The company expects significant revenue growth in fiscal 2025, with guidance between $900 million and $950 million, representing a 24% to 30% increase year-over-year.
- Matrix Service Co (MTRX) has no debt, maintaining a strong balance sheet and liquidity position to support anticipated growth.
Negative Points
- The company reported a net loss of $4.4 million or $0.16 per fully diluted share for the fourth quarter.
- Gross margin was impacted by under-recovered construction overheads, resulting in a gross margin of only 6.6%.
- Revenue in the process and industrial facilities segment decreased by 17% compared to the third quarter.
- The utility and power infrastructure segment experienced a softer market in the Northeastern geographic areas, impacting revenue.
- The company anticipates a slow start to fiscal 2025, with lower revenue expected in the first quarter due to seasonality and the completion of a large project.
Q & A Highlights
Q: Can you talk a little bit about why the Process gross margin was still outstanding at 15.4% in the quarter, and how does that look like on a go-forward basis?
A: The fourth quarter performance in the process industrial facilities segment was extremely strong due to excellent execution across all phases of projects. Normally, we expect gross margins in the 9% to 11% range for this segment. The mix of work in the quarter, particularly lower reimbursable refinery maintenance activity, also contributed to the higher margins.
Q: Are the jobs that we're executing now on, are they back to normalized gross margins or are there still some jobs that you'll be delivering that are still under recovery of absorbed costs?
A: We are past the issues of unusually competitively bid margins. The projects added in the last 18-24 months are within the historical 10% to 12% range. While there will always be some projects bid more aggressively for strategic reasons, the overall mix of work now supports the expected margins.
Q: As we think about the cadence of revenue recognition in the coming year, it seems two things to me. One, we're looking at a sizable uptick in the storage business. Is that the case and is that completely weighted in the second half of the year? And secondly, that it looks like the process is going to probably be at a lower diminished level through much of 2025. Am I reading that right?
A: For storage, we expect significant growth throughout the entire year, starting strong in the first quarter and continuing to grow. For the process and industrial facilities segment, we are in a lag period with a substantial decrease expected in the first half of the year, picking up again in the third and fourth quarters.
Q: Would you expect some sequential revenue growth into the first fiscal quarter?
A: No, due to summer month activity for both the power delivery business and the refining business, and the completion of a large project in the process industrial facilities segment. While there is growth in storage, overall, we expect the first quarter to be a little bit lower.
Q: Can you talk through the challenges in the electrical delivery business and how quickly do you think we can get this business back on a better footing?
A: Our electrical infrastructure business is in a tight geography with some long-term clients whose spending patterns are currently down. We are expanding our footprint and client base in the Northeast and other regions. Over the next two to three quarters, we expect to see more strength return to this business.
Q: Are you starting to identify projects that may be associated with meeting the power needs of data centers?
A: Yes, we are seeing opportunities in transmission, distribution, and substation work related to data centers. Additionally, there is demand for small-scale power generating turbines and backup fuel infrastructure at data centers, which fits within our skill sets.
Q: Does the opportunity pipeline include service revenue or jobs less than $5 million? What percentage of fiscal 2024 revenue is that service component and smaller book and turn business?
A: Our business traditionally runs in the 40% book and burn maintenance activity and 60% lump sum projects. Currently, it's more like 30-70 due to the size of our lump sum portfolio, which is more sustainable and drives better consolidated margins.
Q: Can you give us an update on your thoughts on the hydrogen market?
A: Hydrogen will be part of the global fuel mix, and we have opportunities in building hydrogen infrastructure. We are cautious about developer-led projects and focus on long-term clients with strong balance sheets. The Federal Infrastructure Act has influenced the pace of hydrogen projects.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
