Matrix

Matrix Service Company Reports Third Quarter Results

Press release




Matrix Service Company Reports Third Quarter Results

TULSA, Okla., May 09, 2018 (GLOBE NEWSWIRE) -- Matrix Service Company (Nasdaq:MTRX), a leading contractor to the energy, power and industrial markets across North America, today reported financial results for its third quarter ended March 31, 2018.

Key highlights:

  • Reported a net loss of $0.19 per fully diluted share in the third quarter; earned $0.12 year-to-date
  • Book-to-bill was 1.8 on awards of $434.8 million in the quarter and 1.3 year-to-date on awards of $1.030 billion, with significant project awards in the Storage Solutions and Industrial segments
  • Backlog of $914.2 million is the highest since March 31, 2016 and 26.1% higher than December 31, 2017
  • Strength in project awards continues post-quarter
  • Liquidity increased to $133.7 million, up 34.2% from December 31, 2017

“As expected, our third quarter results were the lowest of the year, but the actual results, which were primarily impacted by lower revenue volumes, proved more disappointing relative to our earlier forecast,” said Matrix Service Company President and CEO John R. Hewitt.  “Results were also impacted by non-routine tax adjustments and lower margin work bid in a highly competitive environment that allowed us to maintain market position and critical resources.”

Hewitt added, “The strong project awards in the quarter and year-to-date has pushed our backlog to its highest point since March 2016. This momentum has continued since the end of the third quarter and we expect a similar award performance in the fourth quarter.  The improving size and quality of our backlog and the strength of our opportunity pipeline will begin to marginally improve revenue volume and earnings in the fourth quarter and point to a much stronger fiscal 2019. Therefore, we expect the fourth quarter to return to profitability, with full year earnings per share between $0.15 and $0.20 on revenue of $1.075 to $1.1 billion.”

Third Quarter Fiscal 2018 Results

Consolidated revenue was $245.6 million for the three months ended March 31, 2018, compared to $251.2 million in the same period in the prior fiscal year.  Electrical Infrastructure segment revenue declined due to a reduction in revenue associated with the construction of a large power generating facility compared to the prior year and a reduction in high voltage revenue.  Oil Gas & Chemical and Storage Solutions revenue was essentially flat.  In Oil Gas & Chemical, lower volumes of capital work was offset with higher volumes of turnaround and maintenance work.  In Storage Solutions, a higher volume of tank construction work was largely offset by lower volumes of terminal and balance of plant work.  Revenue was higher in the Industrial segment due to increased volumes of work in the iron and steel industry.

Consolidated gross profit was $14.9 million in the three months ended March 31, 2018 compared to a loss of $2.6 million in the three months ended March 31, 2017.  The gross margin was 6.1% in the three months ended March 31, 2018 compared to (1.0)% in the same period in the prior fiscal year.  The fiscal 2018 gross margin was negatively impacted by revenue associated with low margin work bid in a highly competitive environment, increased levels of lower margin maintenance work, and lower than expected capital project volumes, which led to under recovery of construction overhead costs.  The fiscal 2017 gross margin was negatively affected by the financial impact of a large power generating facility charge in the Electrical Infrastructure segment, which decreased gross profit by $18.9 million, and lower than anticipated volumes, which led to under recovery of construction overhead costs.

Consolidated SG&A expenses were $20.8 million in the three months ended March 31, 2018 compared to $18.6 million in the same period a year earlier.  The increase in fiscal 2018 is primarily attributable to higher current year project pursuit costs.

Fiscal 2018 income tax expense included charges totaling $1.1 million, or $0.04 per fully diluted share, primarily relating to a valuation allowance placed on a deferred tax asset.

As a result of the factors discussed above, the Company reported a net loss of $5.2 million, or $0.19 per fully diluted share in the third quarter of fiscal 2018 compared to a net loss of $13.8 million, or $0.52 in the prior year.

Nine Month Fiscal 2018 Results

Consolidated revenue was $798.5 million for the nine months ended March 31, 2018, compared to $905.7 million in the same period in the prior fiscal year.  Storage Solutions revenue declined primarily as a result of delays in project awards which have prevented the Company from replacing higher revenue generated in the prior fiscal year in connection with work on the construction of a significant crude gathering terminals project.  Electrical Infrastructure segment revenue declined due to a reduction in revenue associated with the construction of a large power generating facility compared to the prior year and a reduction in high voltage revenue.  These decreases were partially offset by increases in revenue for the Oil Gas & Chemical segment attributable to higher maintenance, turnaround and construction volumes, and the Industrial segment on higher volumes of work in the iron and steel industry.

Consolidated gross profit was $70.5 million in the nine months ended March 31, 2018 compared to $57.9 million in the nine months ended March 31, 2017.  The gross margin was 8.8% in the nine months ended March 31, 2018 compared to 6.4% in the same period in the prior fiscal year.  The fiscal 2017 gross margin was impacted by an Electrical Infrastructure project which decreased gross profit by $13.7 million and under-recovery of overhead costs.

Consolidated SG&A expenses were $63.9 million in the nine months ended March 31, 2018 compared to $56.5 million in the same period a year earlier.  The increase in fiscal 2018 is primarily attributable to the acquired overhead and amortization on intangible assets associated with a December 2016 acquisition that expanded the Company's engineering business as well as higher project pursuit costs across the business.

As a result of the factors discussed above, the Company earned net income of $3.2 million, or $0.12 per fully diluted share during the nine months ended March 31, 2018 compared to $0.8 million, or $0.03 in the prior year.

Backlog

Backlog at March 31, 2018 was $914.2 million compared to $725.0 million at December 31, 2017.   The quarterly book-to-bill ratio was 1.8 on project awards of $434.8 million.  In the quarter, the Company received project awards of $229.1 million in the Storage Solutions segment, resulting in a book-to-bill ratio of 3.0 and received project awards of $117.8 million in the Industrial segment, resulting in a book-to-bill ratio of 2.8. The nine month ended March 31, 2018 book-to-bill ratio was 1.3 on project awards of $1.030 billion.  Backlog at the end of the quarter was at its highest level since March 31, 2016.

Financial Position

The cash balance combined with availability under the credit facility provides the Company with liquidity of $133.7 million at March 31, 2018, an increase of $34.1 million since December 31, 2017.  This increase in liquidity is primarily attributable to a reduction in the credit facility capacity constraint combined with positive cash flow from operations.  During the quarter, the Company made net repayments on the credit facility of $41.3 million.  At March 31, 2018, borrowings under the credit facility were $9.3 million.  The Company's liquidity continues to support its long-term strategic growth plans.

Earnings Guidance

The Company is revising fiscal 2018 earnings and revenue guidance.  We now expect full year earnings to be between $0.15 and $0.20 per fully diluted share and full year revenue to be $1.075 to $1.1 billion.  The Company had previously projected earnings to be between $0.55 and $0.75 per fully diluted share and revenue to be between $1.150 and $1.225 billion.

Conference Call / Webcast Details

In conjunction with the earnings release, Matrix Service Company will host a conference call / webcast with John R. Hewitt, President and CEO, and Kevin S. Cavanah, Vice President and CFO.  The call will take place at 10:30 a.m. (Eastern) / 9:30 a.m. (Central) on Thursday, May 10, 2018 and will be simultaneously broadcast live over the Internet which can be accessed at the Company’s website at matrixservicecompany.com on the Investors’ page under Conference Calls/Events.  Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the Internet broadcast.  The conference call will be recorded and will be available for replay within one hour of completion of the live call and can be accessed following the same link as the live call.

About Matrix Service Company

Founded in 1984, Matrix Service Company is parent to a family of companies that include Matrix Service Inc., Matrix NAC, Matrix PDM Engineering and Matrix Applied Technologies.  Our subsidiaries design, build and maintain infrastructure critical to North America's energy, power and industrial markets. Matrix Service Company is headquartered in Tulsa, Oklahoma with subsidiary offices located throughout the United States and Canada, as well as Sydney, Australia and Seoul, South Korea.

The Company reports its financial results based on four key operating segments: Electrical Infrastructure, Storage Solutions, Oil Gas & Chemical and Industrial.  To learn more about Matrix Service Company, visit matrixservicecompany.com.

This release contains forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are generally accompanied by words such as “anticipate,” “continues,” “expect,” “forecast,” “outlook,” “believe,” “estimate,” “should” and “will” and words of similar effect that convey future meaning, concerning the Company’s operations, economic performance and management’s best judgment as to what may occur in the future. Future events involve risks and uncertainties that may cause actual results to differ materially from those we currently anticipate. The actual results for the current and future periods and other corporate developments will depend upon a number of economic, competitive and other influences, including those factors discussed in the “Risk Factors” and “Forward Looking Statements” sections and elsewhere in the Company’s reports and filings made from time to time with the Securities and Exchange Commission. Many of these risks and uncertainties are beyond the control of the Company, and any one of which, or a combination of which, could materially and adversely affect the results of the Company's operations and its financial condition. We undertake no obligation to update information contained in this release, except as required by law.

For more information, please contact:

Matrix Service Company
Kevin S. Cavanah
Vice President and CFO
T: 918-838-8822
Email:kcavanah@matrixservicecompany.com

         
Matrix Service Company
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except per share data)
         
    Three Months Ended   Nine Months Ended
    March 31,
 2018
  March 31,
 2017
  March 31,
 2018
  March 31,
 2017
Revenues   $ 245,645     $ 251,237     $ 798,466     $ 905,673  
Cost of revenues   230,754     253,851     727,981     847,797  
Gross profit (loss)   14,891     (2,614 )   70,485     57,876  
Selling, general and administrative expenses   20,753     18,596     63,852     56,548  
Operating income (loss)   (5,862 )   (21,210 )   6,633     1,328  
Other income (expense):                
Interest expense   (643 )   (833 )   (2,080 )   (1,573 )
Interest income   130     73     234     111  
Other   370     (51 )   384     3  
Income (loss) before income tax expense   (6,005 )   (22,021 )   5,171     (131 )
Provision (benefit) for federal, state and foreign income taxes   (852 )   (8,521 )   1,968     (1,223 )
Net income (loss)   $ (5,153 )   $ (13,500 )   $ 3,203     $ 1,092  
Less: Net income attributable to noncontrolling interest       321         321  
Net income (loss) attributable to Matrix Service Company   $ (5,153 )   $ (13,821 )   $ 3,203     $ 771  
                 
Basic earnings (loss) per common share   $ (0.19 )   $ (0.52 )   $ 0.12     $ 0.03  
Diluted earnings (loss) per common share   $ (0.19 )   $ (0.52 )   $ 0.12     $ 0.03  
Weighted average common shares outstanding:                
Basic   26,817     26,594     26,747     26,511  
Diluted   26,817     26,594     27,054     26,838  
                         


 
Matrix Service Company
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands)
 
  March 31,
 2018
  June 30,
 2017
Assets      
Current assets:      
Cash and cash equivalents $ 46,885     $ 43,805  
Accounts receivable, less allowances (March 31, 2018— $6,294 and June 30, 2017—$9,887) 189,156     210,953  
Costs and estimated earnings in excess of billings on uncompleted contracts 66,985     91,180  
Inventories 5,339     3,737  
Income taxes receivable 5,627     4,042  
Other current assets 6,812     4,913  
Total current assets 320,804     358,630  
Property, plant and equipment at cost:      
Land and buildings 40,641     38,916  
Construction equipment 90,453     94,298  
Transportation equipment 48,442     48,574  
Office equipment and software 38,618     36,556  
Construction in progress 2,514     5,952  
Total property, plant and equipment - at cost 220,668     224,296  
Accumulated depreciation (146,290 )   (144,022 )
Property, plant and equipment - net 74,378     80,274  
Goodwill 113,615     113,501  
Other intangible assets 24,438     26,296  
Deferred income taxes 3,927     3,385  
Other assets 2,077     3,944  
Total assets $ 539,239     $ 586,030  
       


       
Matrix Service Company
Condensed Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
       
  March 31,
 2018
  June 30,
 2017
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable $ 67,605     $ 105,649  
Billings on uncompleted contracts in excess of costs and estimated earnings 88,626     75,127  
Accrued wages and benefits 25,040     20,992  
Accrued insurance 8,863     9,340  
Income taxes payable     169  
Other accrued expenses 4,281     7,699  
Total current liabilities 194,415     218,976  
Deferred income taxes 3,288     128  
Borrowings under senior secured revolving credit facility 9,304     44,682  
Other liabilities 309     435  
Total liabilities 207,316     264,221  
Commitments and contingencies      
Stockholders’ equity:      
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of March 31, 2018, and June 30, 2017; 26,817,618 and 26,600,562 shares outstanding as of March 31, 2018 and June 30, 2017 279     279  
Additional paid-in capital 130,330     128,419  
Retained earnings 226,177     222,974  
Accumulated other comprehensive loss (6,498 )   (7,324 )
  350,288     344,348  
Less: Treasury stock, at cost — 1,070,599 shares as of March 31, 2018, and 1,287,655 shares as of June 30, 2017 (18,365 )   (22,539 )
Total stockholders' equity 331,923     321,809  
Total liabilities and stockholders’ equity $ 539,239     $ 586,030  
       


 
Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
 
    Three Months Ended   Nine Months Ended
    March 31,
 2018
  March 31,
 2017
  March 31,
 2018
  March 31,
 2017
Gross revenues                
Electrical Infrastructure   $ 58,378     $ 82,032     $ 203,201     $ 273,215  
Oil Gas & Chemical   68,689     69,295     242,946     164,036  
Storage Solutions   78,859     74,431     221,664     403,008  
Industrial   41,976     26,501     134,507     74,254  
Total gross revenues   $ 247,902     $ 252,259     $ 802,318     $ 914,513  
Less: Inter-segment revenues                
Oil Gas & Chemical   $ 299     $ 407     $ 544     $ 6,892  
Storage Solutions   1,958     379     3,307     677  
Industrial       236     1     1,271  
Total inter-segment revenues   $ 2,257     $ 1,022     $ 3,852     $ 8,840  
Consolidated revenues                
Electrical Infrastructure   $ 58,378     $ 82,032     $ 203,201     $ 273,215  
Oil Gas & Chemical   68,390     68,888     242,402     157,144  
Storage Solutions   76,901     74,052     218,357     402,331  
Industrial   41,976     26,265     134,506     72,983  
Total consolidated revenues   $ 245,645     $ 251,237     $ 798,466     $ 905,673  
Gross profit (loss)                
Electrical Infrastructure   $ 1,759     $ (13,371 )   $ 15,567     $ (896 )
Oil Gas & Chemical   4,744     4,333     27,550     6,765  
Storage Solutions   4,166     5,456     17,004     48,980  
Industrial   4,222     968     10,364     3,027  
Total gross profit (loss)   $ 14,891     $ (2,614 )   $ 70,485     $ 57,876  
Operating income (loss)                
Electrical Infrastructure   $ (2,422 )   $ (16,306 )   $ 2,234     $ (13,085 )
Oil Gas & Chemical   (648 )   (2,199 )   8,684     (7,054 )
Storage Solutions   (4,025 )   (1,552 )   (6,709 )   23,463  
Industrial   1,233     (1,153 )   2,424     (1,996 )
Total operating income (loss)   $ (5,862 )   $ (21,210 )   $ 6,633     $ 1,328  
                                 

Backlog

We define backlog as the total dollar amount of revenue that we expect to recognize as a result of performing work that has been awarded to us through a signed contract, notice to proceed or other type of assurance that we consider firm.  The following arrangements are considered firm:

  • fixed-price awards;
  • minimum customer commitments on cost plus arrangements; and
  • certain time and material arrangements in which the estimated value is firm or can be estimated with a reasonable amount of certainty in both timing and amounts.

For long-term maintenance contracts with no minimum commitments and other established customer arrangements, we include only the amounts that we expect to recognize into revenue over the next 12 months.  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 for the three months ended March 31, 2018:

                   
  Electrical
Infrastructure
  Oil Gas &
Chemical
  Storage
Solutions
  Industrial   Total
  (In thousands)
Backlog as of December 31, 2017 $ 94,873     $ 238,681     $ 186,265     $ 205,215     $ 725,034  
Project awards 44,652     43,347     229,060     117,761     434,820  
Revenue recognized (58,378 )   (68,390 )   (76,901 )   (41,976 )   (245,645 )
Backlog as of March 31, 2018 $ 81,147     $ 213,638     $ 338,424     $ 281,000     $ 914,209  
Book-to-bill ratio(1) 0.8     0.6     3.0     2.8     1.8  
                             
(1) Calculated by dividing project awards by revenue recognized during the period.
 

The following table provides a summary of changes in our backlog for the nine months ended March 31, 2018:

                   
  Electrical
Infrastructure
  Oil Gas &
Chemical
  Storage
Solutions
  Industrial   Total
  (In thousands)
Backlog as of June 30, 2017 $ 162,637     $ 287,007     $ 141,551     $ 91,078     $ 682,273  
Project awards 121,711     169,033     415,230     324,428     1,030,402  
Revenue recognized (203,201 )   (242,402 )   (218,357 )   (134,506 )   (798,466 )
Backlog as of March 31, 2018 $ 81,147     $ 213,638     $ 338,424     $ 281,000     $ 914,209  
Book-to-bill ratio(1) 0.6     0.7     1.9     2.4     1.3  
                             
(1) Calculated by dividing project awards by revenue recognized during the period.
                             

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Source: Matrix Service Company