Matrix Service Company: Record Order Backlog In Latest Quarter

Summary

• Matrix Service Company stock has increased by over 80% in the past year despite posting losses in FY2023.
• The company operates in three business segments and is expected to benefit from the transition to a lower carbon future.
• Matrix Service Company's second quarter results showed a decrease in net losses, improved margins, and a record order backlog.
• An analysis around Matrix Service Company follows in the paragraphs below.

Choice is an illusion created between those with power and those without" – Merovingian (The Matrix Reloaded).

Today, we put Matrix Service Company (NASDAQ:MTRX) in the spotlight for the first time. Despite posting losses in FY2023, the stock is up over 80% over the past 12 months. The company provided a quarterly update earlier this month. An analysis around Matrix Service Company follows below.

Company Overview:

Matrix Service Company is headquartered in Tulsa, OK, and has three primary business segments: Utility and Power Infrastructure; Process and Industrial Facilities; and Storage and Terminal Solutions. The company's fiscal year begins on July 1st. The stock currently trades at around $12.50 a share and sports an approximate market capitalization of $340 million.

The company should benefit from ongoing transition to a "lower carbon" future both by its work around LNG facilities as well as Hydrogen Hubs which have been the beneficiary of large government grants from the Department of Energy. Matrix Service Company will also continue to serve traditional fossil fuel customers via its terminal and storage work.

Second Quarter Results:

Matrix Service Company posted its fiscal 2Q2024 numbers on February 7th. The firm delivered a non-GAAP loss of 18 cents a share, eight cents a share below the consensus. Net loss did decrease to just under $3 million for the quarter compared to over $30 million in the prior period a year ago. Revenues fell nearly 10% on a year-over-year basis to $175 million, $25 million lower than expectations.

While sales fell and earnings came in less than expected, the company did substantially reduce its net losses and improved margins compared to the same period a year ago.

Sales were flat across the company's storage and terminal business but had significant declines across its other two business units.

The biggest positive for the quarter was the large increase in order backlog which now stands at $1.45 billion. This is an all-time record for the company spanning some 40 years. This is primarily due to its LNG work.

Analyst Commentary & Balance Sheet:

The company gets very sparse coverage on Wall Street. D.A. Davidson reiterated its Buy rating on the stock after quarterly results were posted this month. They are the only analyst firm I can find that has offered coverage on Matrix Service Company over the prior 12 months.

Four insiders have sold approximately $275,000 worth of shares collectively since the end of September. These are the first insider trades in the stock since February of 2022. Matrix Service Company ended the fiscal 2023 with approximately $47 million in cash and marketable securities on its balance sheet against no long-term debt according to the 10-Q filed for the quarter. Matrix generated positive cash flow during the quarter and paid off the remaining balance of a credit facility during the quarter as well.

Verdict:

Matrix Service Company lost $1.13 a share in FY2023 on $785 million worth of revenues. The current analyst firm consensus (two analyst firms) is the company will reduce losses to 36 cents a share in FY2024 as sales rise slightly to $810 million. They see a sharp rebound in both profits and earnings in FY2025, with earnings of 85 cents a share on sales growth of nearly 20%.

While the company is losing money, the stock could be considered reasonably valued on a price to sales basis especially in light of its record order backlog. If the few analyst firms that covered the firm are correct, the stock goes for just under 15 times FY2025E EPS. Matrix sports a "clean" balance sheet as well.

However, the run up in Matrix Service Company stock seems like investors are "betting on the come" as they would say at the crap tables in Las Vegas. I would like to see more progress on the profitability and sales growth fronts before I take an initial stake in MTRX. I also wonder how the administration's recent decision to suspend new LNG export terminal licenses pending environmental reviews, will eventually impact the industry. Therefore, I have no investment recommendation around Matrix Service Company at this time.

I can only show you the door, you're the one that has to walk through it"– Morpheus (The Matrix).