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MS

MATRIX SERVICE CO (MTRX)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 revenue rose 21% YoY to $200.2M but missed S&P Global consensus by ~$14.9M (6.9%); diluted EPS of -$0.12 missed by $0.07 as adjusted EBITDA improved to roughly breakeven amid better overhead absorption . Consensus: revenue $215.1M*, EPS -$0.05*.
  • Backlog increased ~8% sequentially to a record ~$1.41B on $301.2M of awards (book-to-bill 1.5x), supporting growth into FY26 despite near-term timing friction .
  • FY25 revenue guidance cut a further 10% to $770–$800M (from $850–$900M in Feb and $900–$950M in Nov), driven by project timing, macro/trade policy uncertainty, and the wind-down of the Northeast T&D service line ($50M FY25 revenue impact) .
  • Liquidity strengthened to $247.1M (no debt) on $31.2M CFO; management expects Q4 positive adjusted EBITDA as volumes rise and overhead under-recovery (now 280 bps) further normalizes .

What Went Well and What Went Wrong

  • What Went Well

    • Execution improved: gross margin expanded to 6.4% (from 3.4% YoY) and adjusted EBITDA moved to breakeven; overhead under-recovery improved to 280 bps (lowest in 2 years) .
    • Demand/backlog momentum: record ~$1.41B backlog, $301.2M awards, 1.5x book-to-bill; Storage & Terminal Solutions (STS) awards of ~$205M drove STS backlog to a record ~$848M .
    • Strategic reshaping: consolidation into a leaner org; creation of President of Engineering & Construction role; pivot to strengthen “foundational” small-cap and maintenance work alongside large EPC .
    • Quote: “We are well positioned…however heightened macroeconomic uncertainty may affect the timing of customer decisions” — CEO John Hewitt .

  • What Went Wrong

    • Top-line miss vs consensus and guidance reduction: revenue $200.2M vs $215.1M*; FY25 revenue cut to $770–$800M from $850–$900M in Feb and $900–$950M in Nov .
    • STS margin headwinds: lower-than-anticipated labor productivity on a crude terminal project and continued under-recovery as resources are added for growth; STS GM 3.9% (vs 4.3% LY) .
    • Business line exit: wind-down of Northeast transmission & distribution service line (low-scale, capital-intensive, loss-making) removed ~$50M from FY25 revenue base .

Financial Results

Quarterly Trends and Profitability

MetricQ3 FY24Q1 FY25Q2 FY25Q3 FY25
Revenue ($M)$166.0 $165.6 $187.2 $200.2
Gross Margin %3.4% 4.7% 5.8% 6.4%
Net Income ($M)$(14.6) $(9.2) $(5.5) $(3.4)
Diluted EPS ($)$(0.53) $(0.33) $(0.20) $(0.12)
Adjusted EBITDA ($M)$(10.0) $(5.88) $(2.18) ~$0.00
Cash from Operations ($M)$24.8 $11.9 $33.6 $31.2

Actual vs S&P Global Consensus (Q3 FY25)

MetricActualConsensus*Surprise
Revenue ($M)$200.2 $215.1*-$14.9 (-6.9%)
Diluted EPS ($)$(0.12) $(0.05)*-$0.07

Values retrieved from S&P Global.

Segment Revenue and Margins

  • Revenue by segment ($M)
SegmentQ2 FY25Q3 FY25Q3 FY24
Storage & Terminal Solutions (STS)$95.5 $96.1 $54.3
Utility & Power Infrastructure (UPI)$61.1 $58.7 $46.1
Process & Industrial Facilities (PIF)$30.6 $45.4 $65.6
  • Gross margin (%) by segment
SegmentQ1 FY25Q2 FY25Q3 FY25
STS6.0% 7.6% 3.9%
UPI2.3% 5.6% 9.4%
PIF6.4% 1.2% 8.3%
  • Notes: STS Q3 GM negatively impacted by productivity on a crude terminal project; excluding that adjustment, year-to-date STS execution within 10–12% target; UPI margin expansion driven by peak shaving projects and overhead absorption .

Backlog, Awards, Book-to-Bill, Liquidity

KPIQ1 FY25Q2 FY25Q3 FY25
Backlog ($M)$1,411.9 $1,311.1 $1,412.2
Awards ($M)$148.0 $90.5 $301.2
Book-to-Bill (x)0.9x 0.5x 1.5x
Liquidity ($M)$181.2 $211.7 $247.1

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY2025$900–$950M (Nov-6) $850–$900M (Feb-5) Lowered
RevenueFY2025$850–$900M (Feb-5) $770–$800M (May-7) Lowered
CommentaryQ4 FY25—Expect positive adjusted EBITDA in Q4 (qualitative) —

Drivers cited: timing of awards/starts, U.S. trade/environmental policy uncertainty, and exit of Northeast T&D service line (~$50M FY25 impact) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1–Q2 FY25)Current Period (Q3 FY25)Trend
Macro/trade policy & timingQ2: permitting delays, pre-election policy uncertainty; ~5% FY25 revenue cut; awards pace slowed Further guidance cut (10%); clients assessing tariffs/environmental policy; expect temporary effect Macro still a headwind; tone: cautious but improving later
Organizational restructuring—Leaner org, eliminated senior roles; created President of Engineering & Construction; decentralizing BD to boost foundational services Structural improvement underway
Business portfolio actions—Exiting Northeast T&D service line (loss-making; scale mismatch) Portfolio focus, profitability-first
Backlog/awardsQ1–Q2: near-record backlog; Q2 book-to-bill 0.5x Backlog to $1.41B; 1.5x book-to-bill; STS awards ~$205M Strengthening pipeline
Overhead under-recoveryQ1–Q2: under-recovery pressured margins Under-recovery down to 280 bps (lowest in 2 years); path to elimination with higher volume Improving utilization
LNG/NGL demand—EIA: +45% U.S. LNG export demand; +8% U.S. gas demand over 6 years underpin $7B pipeline Structural demand tailwind

Management Commentary

  • “Our third quarter results reflect accelerating revenue, supported by backlog growth which advances our return to profitability…” — John Hewitt, CEO .
  • “Considering the current macroeconomic environment and our decision to exit the transmission and distribution business, we believe it’s prudent to revise our fiscal 2025 revenue guidance by 10% to $770–$800 million” — John Hewitt .
  • “As a result of the revenue growth in the quarter, the impact of under-recovered overhead decreased to 280 basis points…lowest level in 2 years” — Kevin Cavanah, CFO .
  • “We anticipate revenue growth to continue reaching $250 million and above” — Kevin Cavanah .
  • “We believe…the momentum…will support…positive adjusted EBITDA [in Q4]” — John Hewitt .

Q&A Highlights

  • T&D Exit: Wind-down chosen due to competitive dynamics (too big to be small, too small to be big), capital intensity, and lack of acceptable-margin awards; limited residual contracts into FY26; savings primarily from ceasing losses and reallocating resources to E&I .
  • Guidance deferrals vs cancellations: Some projects shifted later (e.g., a storage award slipped to late March; procurement/site mobilization pushed out), plus offtake-related delay tied to trade issues; management expects movement in coming quarters .
  • Mix and smaller jobs: Renewed emphasis on small-cap, maintenance, and construction-only work to deepen relationships, build teams, and absorb overhead alongside select large EPC .
  • Storage trajectory: Expect a “really strong” Q4 ramp in STS and growth in UPI; PIF to hold near Q3 levels, aiding overhead absorption and margins .

Estimates Context

  • Q3 FY25 vs consensus: Revenue $200.2M vs $215.1M*; EPS -$0.12 vs -$0.05*; both misses with EBITDA improving to breakeven per company non-GAAP .
  • Coverage thin: only 2 estimates on revenue and EPS for the quarter; FY25 revenue consensus $785.2M*, broadly consistent with the new $770–$800M guidance range .
  • Implication: Street likely lowers near-term revenue/EBITDA and lifts Q4 margin assumptions modestly given management’s positive adjusted EBITDA guide and improving overhead recovery .

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term: Results show tangible operational momentum (GM expansion, breakeven adj. EBITDA) but the revenue/EPS miss and a second guidance cut are likely overhangs until Q4 delivery and new awards confirm the trend .
  • Medium-term: Record backlog, strong STS awards, and a $7B opportunity pipeline in LNG/NGL storage and gas infrastructure underpin visibility into FY26+ .
  • Mix shift and restructuring should improve fixed-cost absorption and SG&A leverage; overhead under-recovery already down to 280 bps with a path to elimination as volumes approach $250M/quarter .
  • Portfolio focus: Exiting Northeast T&D removes a loss-making service line, improving quality of earnings and capital efficiency .
  • Watch Q4: Management targets positive adjusted EBITDA; STS and UPI ramps are key catalysts for margin and cash flow inflection .
  • Balance sheet strength (liquidity $247.1M, no debt) provides execution cushion and flexibility for organic growth .
  • Risk: Macro/trade/environmental policy uncertainty continues to affect award timing; monitoring award conversions and procurement timing remains critical .