What changed in this filing

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Item 1. Business

2020-09-03 compared with 2019-09-04 · 59 added, 16 removed, 143 unchanged (34% of the section changed)

6 unchanged sentences

• the impact to our business of changes in crude oil, natural gas and other commodity prices;

amounts and nature of future revenues and margins from each of our segments;

• the impact to our business of the COVID-19 pandemic;

• amounts and nature of future revenue and margins from each of our segments;

• trends in the industries we serve;

• the likely impact of new or existing regulations or market forces on the demand for our services;

expansion and other trends of the industries we serve;

• our expectations with respect to the likelihood of a future impairment;

• expansion and other trends of the industries we serve;

• our ability to comply with the covenants in our credit agreement.

2 unchanged sentences

• the risk factors discussed in Item 1A of this Annual Report and listed from time to time in our filings with the Securities and Exchange Commission;

economic, market or business conditions in general and in the oil, natural gas, power, iron and steel, agricultural and mining industries in particular;

the under-utilization of our work force;

delays in the commencement of major projects, whether due to permitting issues or other factors;

reduced creditworthiness of our customer base and the higher risk of non-payment of receivables due to volatility of crude oil, natural gas, steel and other commodity prices to which our customers' businesses are affected;

• economic, market or business conditions in general (including the length and severity of the current economic slowdown) and in the oil, natural gas, power, agricultural and mining industries in particular;

• the transition to renewable energy sources and its impact on our current customer base;

• the under- or over-utilization of our work force;

• delays in the commencement or progression of major projects, whether due to COVID-19 concerns, permitting issues or other factors;

• reduced creditworthiness of our customer base and the higher risk of non-payment of receivables due to volatility of crude oil, natural gas, and other commodity prices to which our customers' businesses are affected;

• the inherently uncertain outcome of current and future litigation;

14 unchanged sentences

Unless the context otherwise requires, all references herein to “Matrix Service Company”, “Matrix”, the “Company” or to “we”, “our”, and “us” are to Matrix Service Company and its subsidiaries.

We believe we have an obligation to better the world in which we live and work – to do today’s work in a manner that advances and protects tomorrow’s world for future generations.

Across the ideals of environmental stewardship, social responsibility, and governance, we are committed to ensuring our business strategies, policies, and practices align with sustainability goals where we can have the greatest impact globally and in our own local communities.

We are committed to fulfilling our purpose today by safely engineering, constructing, and maintaining essential infrastructure that provides a better, brighter future for tomorrow.

WEBSITE ACCESS TO REPORTS

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We make available free of charge through the "Investor Relations" section of our website our annual reports to stockholders, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC").

Any materials we file with or furnish to the SEC is also maintained on the SEC website ( sec.gov ).

Any materials we file with or furnish to the SEC are also maintained on the SEC website ( sec.gov ).

The information contained on our website, or available by hyperlink from our website, is not incorporated into this Form 10-K or other documents we file with, or furnish to, the SEC.

1 unchanged sentence

Such disclosures will be included on our website in the "Investor Relations" section.

Investors should monitor such portions of our website for press releases, SEC filings and public conference calls and webcasts.

Investors should monitor such portions of our website for press releases, investor presentations, SEC filings and public conference calls and webcasts.

While not our primary means of communication, investors can also learn more about the Company by visiting our social media channels.

2 unchanged sentences

OPERATING SEGMENTS

We operate our business through four reportable segments:

In fiscal 2020, we operated our business through four reportable segments:

Electrical Infrastructure;

5 unchanged sentences

The Oil Gas & Chemical segment serves customers primarily in the downstream and midstream petroleum industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas and natural gas liquids.

We also perform work in the petrochemical, upstream petroleum, and sulfur extraction, recovery and processing markets.

We also perform work in the petrochemical, and sulfur extraction, recovery and processing markets.

Our services include plant maintenance, turnarounds, engineering and capital construction.

4 unchanged sentences

Finally, we offer AST products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

The Industrial segment consists of work for integrated iron and steel companies, major mining and minerals companies engaged primarily in the extraction of copper, as well as companies in other industries, including aerospace and defense, cement, and agriculture and grain.

The Industrial segment consists of work for various industries, including major mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and various industrial facilities.

Our services include engineering, fabrication and construction, and maintenance and repair, which includes planned and emergency services.

We also design instrumentation and control systems and offer specialized expertise in the design and construction of bulk material handling systems.

Due to changing markets facing our clients and to better align the financial reporting of the Company with our long-term strategic growth areas, we are changing our reporting segments.

Beginning in fiscal 2021, the Company’s financial results will be reported under the following three segments:

Utility and Power Infrastructure;

Process and Industrial Facilities;

and Storage and Terminal Solutions.

The services provided by each of these segments is described below.

The Utility and Power Infrastructure segment includes services provided in power delivery and power generation, as well as natural gas utility peak shaving.

This segment is similar to the former Electrical Infrastructure segment described above, but includes natural gas utility peak shaving facilities that have been historically reported in the Storage Solutions segment.

The Process and Industrial Facilities segment includes engineering, maintenance, turnarounds and capital projects for the refining, chemical and petrochemical industries;

midstream natural gas processing;

other industrial processing facilities including biofuels, fertilizer, and sulfur;

mining and minerals infrastructure;

and thermal vacuum chambers.

This segment is similar to the former Oil Gas & Chemical segment described above, but includes mining and minerals, thermal vacuum chambers, and work in other industrial facilities which were historically reported in the Industrial segment.

The Storage and Terminal Solutions segment includes engineering, construction, maintenance and repair for aboveground storage tanks and terminals;

LNG facilities for import/export fueling and bunkering;

NGL and other specialty vessels;

aboveground storage tank products;

and other renewable energy storage and terminal solutions.

This segment is similar to the former Storage Solutions segment described above, but does not include the natural gas utility peak shaving facilities, which will be reported as part of the Utility and Power Infrastructure segment.

OTHER BUSINESS MATTERS

5 unchanged sentences

See Part II, Item 8.

Financial Statement and Supplementary Data, Note 13 - Segment Information for more information about concentration of revenues by segment.

Financial Statement and Supplementary Data, Note 13 - Segment Information for more information about concentration of revenue by segment.

Matrix markets its services and products primarily through its marketing and business development personnel, senior professional staff and its operating management.

12 unchanged sentences

For arrangements in which we have received a limited notice to proceed, we include the entire scope of work in our backlog if we conclude that the likelihood of the full project proceeding as high.

For all other arrangements, we calculate backlog as the estimated contract amount less revenues recognized as of the reporting date.

For all other arrangements, we calculate backlog as the estimated contract amount less revenue recognized as of the reporting date.

The following table provides a summary of changes in our backlog in fiscal 2020:

Infrastructure

Infrastructure Oil Gas &

Chemical Storage

Solutions Industrial Total

(In thousands)

1 unchanged sentence

Project awards 73,544 194,013 494,608 97,364 859,529

Project cancellations (1)

— (6,671) — (91,804) (98,475)

Revenue recognized (112,890) (200,950) (559,199) (227,899) (1,100,938)

1 unchanged sentence

Book-to-bill ratio (2)

0.7 1.0 0.9 0.4 0.8

(1) Industrial cancellations related to the deterioration of our relationship with a key customer in the iron and steel industry and the subsequent cancellation of work, the cancellation of a coke battery project in Canada, and cancellation of work due to the final wind-down of our domestic iron and steel maintenance business following our strategic decision to exit the business.

Cancellations in the Oil Gas & Chemical segment consist of turnaround work transferred to a local contractor as a result of COVID-19 precautions.

(2) Calculated by dividing project awards by revenue recognized.

Due to the impact of the COVID-19 pandemic and current market uncertainty, our customers have remained cautious with their spending levels.

Therefore, we have seen deferrals in award dates across the business and lengthening award cycles.

In the Oil Gas & Chemical segment, we saw a shift in the timing of turnarounds and lower levels of maintenance work.

The updated start dates on many of the delayed activities is uncertain and will depend on the needs of our clients, safety guidelines, and the market.

See Item 1A, Risk Factors Related to our Business, for more information about the risks we face as a result of the COVID-19 pandemic.

Project awards in all segments are cyclical and are typically the result of a sales process that can take several months to complete.

Backlog volatility may increase for some segments from time to time when individual project awards are less frequent, but more significant.

We expect to recognize approximately 85% of our total backlog reported as of June 30, 2019 as revenue within the next year.

We expect to recognize approximately 72% of our total backlog reported as of June 30, 2020 as revenue within fiscal 2021.

Seasonality and Other Factors

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The differing types, sizes, and durations of our contracts, combined with their geographic diversity and stages of completion, often results in fluctuations in the Company's operating results.

Our overhead cost structure is generally fixed.

Significant fluctuations in revenue volumes usually leads to over or under recovery of fixed overhead costs, which can have a material impact on our gross margin and profitability.

Material Sources and Availability

13 unchanged sentences

The number of employees varies significantly throughout the year because of the number, type and size of projects we have in progress at any particular time.

The Covid-19 pandemic has negatively impacted the volume of our work and as a result, the number of employees is significantly lower than in normal periods where employee counts can range from 4,000 to 5,000.

The Company’s subsidiaries include both merit and union companies.

11 unchanged sentences

Our patent for Spacerless or Geocomposite Double Bottom for Storage Tanks relates to a replacement bottom with leak detection and containment that allows for the retrofitting of an existing tank while minimizing the loss of capacity.

The patent for the Training Tank for Personnel Entry, Exit and Rescue relates to a training device that can be used to train personnel on equipment that is made to simulate confined space scenarios.

The patent for the

Training Tank for Personnel Entry, Exit and Rescue relates to a training device that can be used to train personnel on equipment that is made to simulate confined space scenarios.

The Company also holds a perpetual license to use various patents and technologies related to LNG storage tanks, liquid nitrogen/liquid oxygen storage tanks, liquid petroleum gas storage tanks and thermal vacuum chambers.

10 unchanged sentences

Environmental

We believe we have an obligation to better the world in which we live and work – to do today’s work in a manner that advances and protects tomorrow’s world for future generations.

Across our organization, from our project sites to our offices, the Company is committed to environmental stewardship and to continuously seeking better, more sustainable ways to perform our work in existing and new markets, including renewables.

The Company’s operations and the operations of its customers are subject to extensive and changing environmental laws and regulations.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business