Matrix Service Company As A Shape-Shifter

Summary

• Like the shape-shifters from the Twilight Saga, Matrix Service is protecting its business with the fervor of a wolf. It continues to shift its growth strategy away from crude oil.
• In reaction to the pandemic, a cost structure review cut overhead costs by 18%, protecting the gross margin in fiscal 2020 despite Matrix not being able to recover overhead costs.
• It enters fiscal 2021 with a new organizational structure and its focus on acquisitions in its Utility and Power Infrastructure segment.

2020 has been the year of unveiling "shape-shifters". The transformation of shape-shifters in the mythical Twilight Saga is triggered by the need for protection. In reaction to the COVID-19 pandemic, companies have been forced to adapt their business model - for protection, for efficiency, for survival.

A few weeks ago, I dubbed Vertex Energy (VTNR) a shape-shifter because of its ongoing efforts to "high-grade" products and its current evaluation of expanding services utilizing existing assets. I also consider Matrix Service Company (NASDAQ:MTRX) a shape-shifter. Matrix Service provides engineering, fabrication, construction and repair & maintenance services in the energy and industrial markets.

Shape-Shifting At Matrix Service

Prior to the pandemic, Matrix Service had already been honing its business model to align with its long-term growth strategy. In fiscal 2018, in the Electrical Infrastructure segment, Matrix decided to shift focus from full EPC (engineering, procurement & construction) power generation projects toward smaller high-voltage projects. In fiscal 2020, it eliminated its exposure to the domestic iron and steel industry in the Industrial segment. These adjustments resulted in impairment charges in the first half of fiscal 2020 of over $38.5 million.

Pressures from the pandemic, specifically the impact from the dramatic decline in energy demand, forced Matrix Service to further protect its business. For the full year, consolidated revenue declined 22.3% and adjusted EPS fell 60% to just $0.40 per share.

We experienced delayed project awards and starts as well as significantly reduced near-term capital and maintenance spending by our clients.

In the second half of its fiscal 2020 (ending June 30, 2020), a cost structure review generated notable results.

The outcome of that review reduced our planned overhead costs by approximately $45 million or 18% through reductions in force, elimination of planned headcount additions, closure or consolidation of facilities, organization consolidation, reduction of capital spending, and significant reductions of other

Analyst’s Disclosure:I am/we are long MTRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.