3.31.15 8-K


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 _________________
FORM 8-K
__________________ 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) May 7, 2015
___________________ 
Matrix Service Company
(Exact Name of Registrant as Specified in Its Charter)
___________________ 
 
 
 
 
 
DELAWARE
 
001-15461
 
73-1352174
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
5100 E Skelly Dr., Suite 700, Tulsa, OK
 
74135
(Address of Principal Executive Offices)
 
(Zip Code)
918-838-8822
(Registrant’s Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
__________________ 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 
 
 
 






Item 2.02
Results of Operations and Financial Condition.
On May 7, 2015, Matrix Service Company (the “Company”) issued a press release announcing financial results for the third quarter and nine months ended March 31, 2015. The full text of the press release is attached as Exhibit 99 to this Current Report on Form 8-K.
The information in this Item 2.02 and Exhibit 99 attached hereto is being furnished pursuant to Item 2.02 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
 
Item 9.01
Financial Statements and Exhibits.
The following exhibit is furnished herewith:
 
 
 
 
Exhibit No.
  
Description
99
  
Press Release dated May 7, 2015, announcing financial results for the third quarter and nine months ended March 31, 2015.







SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
Matrix Service Company
 
 
 
Dated: May 7, 2015
 
By:
 
/s/ Kevin S. Cavanah
 
 
 
 
 
 
 
 
 
Kevin S. Cavanah
 
 
 
 
Vice President and Chief Financial Officer







EXHIBIT INDEX
 
 
 
 
Exhibit No.
  
Description
99
  
Press Release dated May 7, 2015, announcing financial results for the third quarter and nine months ended March 31, 2015.


3.31.15 Exhibit 99
Exhibit 99


MATRIX SERVICE COMPANY REPORTS THIRD QUARTER RESULTS AND REVISES GUIDANCE

Additional project charge on acquired EPC joint venture project and other project delays reduce quarterly earnings to a loss of $0.11 per share
Record backlog of $1.24 billion
Project awards of $714.4 million in the quarter increase year-to-date bookings to $1.3 billion
Company's cash position improves to $103.2 million

TULSA, OK – May 7, 2015 – Matrix Service Company (Nasdaq: MTRX) today reported its financial results for the third quarter and nine months ended March 31, 2015.

"Our third quarter results were impacted by an additional charge related to the acquired EPC joint venture project in the Electrical Infrastructure segment," said John Hewitt, President and CEO of Matrix Service Company. "This charge is a result of labor compression and productivity losses, as well as technical issues that have created continued rework, installation and commissioning complexity, all of which has pushed the completion date beyond the previous forecast but still within fiscal 2015. In addition, the underlying results in the quarter and the balance of the fiscal year have been impacted by permitting delays, refinery strikes, high refinery utilization, weather disruption and slow project ramp ups."

In spite of these issues, the Company expressed confidence in its long-term strategy and with record backlog and a very robust proposal environment, expects continued growth in fiscal 2016.

"We have built a diversified foundation which, combined with the business environment and our strong financial position, ensures our long-term success. We will continue to invest in targeted acquisitions as well as our people, processes and systems to facilitate continuous improvement and sustainable success," said Hewitt.

The following financial results include the acquired EPC joint venture project. The Company has a 65 percent controlling interest in the joint venture and consolidates the joint venture operating results into the Company's financial statements and reports the minority interest holder's 35 percent share of joint venture activity as a non-controlling interest. The information below represents the consolidated results of the Company and, unless noted otherwise, includes 100 percent of the joint venture activity.

Third Quarter Fiscal 2015 Results

Revenue for the third quarter ended March 31, 2015 was $314.2 million compared to $381.5 million in the same period a year earlier, a decrease of $67.3 million, or 17.6%. In fiscal 2015, the Company recognized a net loss of $3.0 million or $0.11 per fully diluted share. In the same period a year earlier, the Company earned $11.4 million, or $0.42 per fully diluted share. The acquired EPC joint venture recorded a charge of $28.5 million in the third quarter. The Company's portion of this charge totaled $18.5 million which was partially offset by reductions in incentive compensation and reduced quarterly earnings by $0.36 per fully diluted share.

On a segment basis, revenue decreased in the Storage Solutions, Electrical Infrastructure and Industrial segments by $74.6 million, $13.9 million and $11.6 million respectively, partially offset by an increase in the Oil Gas & Chemical segment of $32.8 million.

Consolidated gross profit was $2.6 million in the three months ended March 31, 2015 compared to $39.9 million in the three months ended March 31, 2014. Fiscal 2015 gross margins were reduced by 8.9% to 0.8% related to a charge of $28.5 million on an acquired EPC joint venture power generation project. Fiscal 2014 gross margins were 10.5%.





Selling, general and administrative costs were $17.1 million, in the third quarter of fiscal 2015 compared to $21.1 million in the same period a year earlier. The reduction in SG&A expense is primarily attributable to lower incentive compensation expense in fiscal 2015. SG&A expense as a percentage of revenue decreased to 5.4% in the three months ended March 31, 2015 as compared to 5.5% for the three months ended March 31, 2014.

Nine Month Fiscal 2015 Results
Revenue for the nine months ended March 31, 2015 was $978.7 million compared to $918.7 million in the same period a year earlier, an increase of $60.0 million, or 6.5%. In fiscal 2015, the Company earned net income of $6.2 million or $0.23 per fully diluted share. In the same period a year earlier, the Company earned $28.3 million, or $1.05 per fully diluted share. The acquired EPC joint venture recorded charges totaling $54.7 million for the nine months. The Company's portion of these charges totaled $35.6 million which was partially offset by reductions in incentive compensation and reduced earnings for the period by $0.69 per fully diluted share.

On a segment basis, consolidated revenue increased in the Industrial, Oil Gas & Chemical and Electrical Infrastructure segments by $93.0 million, $37.0 million and $30.2 million respectively, partially offset by a decrease in the Storage Solutions segment of $100.2 million.

Consolidated gross profit was $47.0 million in the nine months ended March 31, 2015 compared to $99.6 million in the nine months ended March 31, 2014. Fiscal 2015 gross margins were reduced by 5.8% to 4.8% related to a charge of $54.7 million on an acquired EPC joint venture power generation project. Fiscal 2014 gross margins were 10.8%.

Consolidated SG&A expenses were $56.5 million in the nine months ended March 31, 2015 compared to $55.2 million in the same period a year earlier. SG&A expense as a percentage of revenue was 5.8% in the nine months ended March 31, 2015 compared to 6.0% in the same period a year earlier.
Backlog
Backlog at March 31, 2015 totaled $1.24 billion, an increase of $323.4 million, or 35.3%, compared to the backlog at June 30, 2014 of $915.8 million. Backlog increased $400.0 million, or 47.7%, compared to December 31, 2014 backlog of $839.0 million. Project awards totaled $714.4 million and $1.30 billion in the three and nine months ended March 31, 2015, respectively.
Financial Position
Availability under the Company's credit facility of $89.9 million along with the Company's cash balance of $103.2 million provided liquidity of $193.1 million at March 31, 2015.
Earnings Guidance
The Company expects revenue in the fourth quarter to be between $360.0 million and $400.0 million and earnings per fully diluted share to be between $0.25 and $0.30 and fiscal 2015 revenue to be between $1.34 billion and $1.38 billion and earnings per fully diluted share to be between $0.48 and $0.53.





Conference Call Details
In conjunction with the earnings release, Matrix Service Company will host a conference call with John R. Hewitt, President and CEO, and Kevin S. Cavanah, Vice President and CFO. The call will take place at 10:00 a.m. (Eastern) / 9:00 a.m. (Central) on Friday, May 8, 2015 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
Matrix Service Company provides engineering, fabrication, construction and repair and maintenance services to the Electrical Infrastructure, Oil Gas & Chemical, Storage Solutions and Industrial markets.
The Company is headquartered in Tulsa, Oklahoma, with regional operating facilities throughout the United States and Canada.
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
Consolidated Statements of Income
(In thousands, except per share data)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 31,
2015
 
March 31,
2014
 
March 31,
2015
 
March 31,
2014
Revenues
 
$
314,155

 
$
381,516

 
$
978,718

 
$
918,731

Cost of revenues
 
311,523

 
341,572

 
931,752

 
819,161

Gross profit
 
2,632

 
39,944

 
46,966

 
99,570

Selling, general and administrative expenses
 
17,080

 
21,125

 
56,538

 
55,172

Operating income (loss)
 
(14,448
)
 
18,819

 
(9,572
)
 
44,398

Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(294
)
 
(324
)
 
(946
)
 
(898
)
Interest income
 
40

 
44

 
390

 
57

Other
 
252

 
9

 
281

 
(147
)
Income (loss) before income tax expense
 
(14,450
)
 
18,548

 
(9,847
)
 
43,410

Provision for federal, state and foreign income taxes
 
(1,508
)
 
6,756

 
3,271

 
14,755

Net income (loss)
 
$
(12,942
)
 
$
11,792

 
$
(13,118
)
 
$
28,655

Less: Net income (loss) attributable to noncontrolling interest
 
(9,983
)
 
396

 
(19,359
)
 
401

Net income (loss) attributable to Matrix Service Company
 
$
(2,959
)
 
$
11,396

 
$
6,241

 
$
28,254

 
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
 
$
(0.11
)
 
$
0.43

 
$
0.23

 
$
1.08

Diluted earnings (loss) per common share
 
$
(0.11
)
 
$
0.42

 
$
0.23

 
$
1.05

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
26,711

 
26,374

 
26,593

 
26,244

Diluted
 
26,711

 
27,040

 
27,175

 
26,898





Matrix Service Company
Consolidated Balance Sheets
(In thousands)
 

 
 
March 31,
2015
 
June 30,
2014
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
103,183

 
$
77,115

Accounts receivable, less allowances (March 31, 2015— $492 and June 30, 2014—$204)
 
188,579

 
204,692

Costs and estimated earnings in excess of billings on uncompleted contracts
 
77,340

 
73,008

Deferred income taxes
 
6,705

 
5,994

Inventories
 
2,875

 
3,045

Income taxes receivable
 
7,326

 
2,797

Other current assets
 
6,831

 
8,897

Total current assets
 
392,839

 
375,548

Property, plant and equipment at cost:
 
 
 
 
Land and buildings
 
31,935

 
31,737

Construction equipment
 
86,304

 
82,745

Transportation equipment
 
46,524

 
42,087

Office equipment and software
 
26,968

 
26,026

Construction in progress
 
6,266

 
9,892

 
 
197,997

 
192,487

Accumulated depreciation
 
(112,234
)
 
(103,315
)
 
 
85,763

 
89,172

Goodwill
 
71,377

 
69,837

Other intangible assets
 
25,156

 
28,676

Other assets
 
3,871

 
5,699

Total assets
 
$
579,006

 
$
568,932





Matrix Service Company
Consolidated Balance Sheets (continued)
(In thousands, except share data)
 
March 31,
2015
 
June 30,
2014
Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
90,478

 
$
111,863

Billings on uncompleted contracts in excess of costs and estimated earnings
139,446

 
108,440

Accrued wages and benefits
32,067

 
36,226

Accrued insurance
8,946

 
8,605

Income taxes payable
1,955

 

Other accrued expenses
14,995

 
4,727

Total current liabilities
287,887

 
269,861

Deferred income taxes
5,484

 
5,167

Borrowings under senior credit facility
9,934

 
11,621

Total liabilities
303,305

 
286,649

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Matrix Service Company stockholders' equity:
 
 
 
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of March 31, 2015, and June 30, 2014
279

 
279

Additional paid-in capital
121,462

 
119,777

Retained earnings
183,478

 
177,237

Accumulated other comprehensive loss
(6,178
)
 
(182
)
 
299,041

 
297,111

Less: Treasury stock, at cost— 1,173,656 shares as of March 31, 2015, and 1,453,770 shares as of June 30, 2014
(13,550
)
 
(16,595
)
Total Matrix Service Company stockholders’ equity
285,491

 
280,516

Noncontrolling interest
(9,790
)
 
1,767

Total stockholders' equity
275,701

 
282,283

Total liabilities and stockholders’ equity
$
579,006

 
$
568,932






Matrix Service Company

Results of Operations

(In thousands)
 

 
 
Three Months Ended
 
Nine Months Ended
 
 
March 31,
2015
 
March 31,
2014
 
March 31,
2015
 
March 31,
2014
Gross revenues
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
48,228

 
$
62,144

 
$
162,434

 
$
132,201

Oil Gas & Chemical
 
97,612

 
63,112

 
228,230

 
188,025

Storage Solutions
 
107,640

 
182,129

 
370,977

 
471,330

Industrial
 
64,841

 
74,577

 
224,173

 
128,398

Total gross revenues
 
$
318,321

 
$
381,962

 
$
985,814

 
$
919,954

Less: Inter-segment revenues
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$

 
$

 
$

 
$

Oil Gas & Chemical
 
1,854

 
118

 
3,656

 
425

Storage Solutions
 
477

 
328

 
718

 
798

Industrial
 
1,835

 

 
2,722

 

Total inter-segment revenues
 
$
4,166

 
$
446

 
$
7,096

 
$
1,223

Consolidated revenues
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
48,228

 
$
62,144

 
$
162,434

 
$
132,201

Oil Gas & Chemical
 
95,758

 
62,994

 
224,574

 
187,600

Storage Solutions
 
107,163

 
181,801

 
370,259

 
470,532

Industrial
 
63,006

 
74,577

 
221,451

 
128,398

Total consolidated revenues
 
$
314,155

 
$
381,516

 
$
978,718

 
$
918,731

Gross profit (loss)
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
(22,429
)
 
$
5,971

 
$
(38,976
)
 
$
13,155

Oil Gas & Chemical
 
7,261

 
7,397

 
18,999

 
21,614

Storage Solutions
 
11,247

 
19,269

 
39,996

 
51,894

Industrial
 
6,553

 
7,307

 
26,947

 
12,907

Total gross profit
 
$
2,632

 
$
39,944

 
$
46,966

 
$
99,570

Operating income (loss)
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
(24,306
)
 
$
2,498

 
$
(46,484
)
 
$
4,658

Oil Gas & Chemical
 
2,563

 
3,252

 
5,823

 
8,922

Storage Solutions
 
5,055

 
10,084

 
18,785

 
26,676

Industrial
 
2,240

 
2,985

 
12,304

 
4,142

Total operating income
 
$
(14,448
)
 
$
18,819

 
$
(9,572
)
 
$
44,398






Matrix Service Company
Consolidated Statements of Cash Flows
(In thousands)
 
Nine Months Ended
 
March 31,
2015

March 31,
2014
Operating activities:
 
 
 
Net income (loss)
$
(13,118
)
 
$
28,655

Adjustments to reconcile net income to net cash provided (used) by operating activities:
 
 
 
Depreciation and amortization
17,332

 
12,945

Deferred income tax
(1,026
)
 
(4,501
)
Gain on sale of property, plant and equipment
(305
)
 
(39
)
Provision for uncollectible accounts
419

 
(81
)
Stock-based compensation expense
4,730

 
3,905

Excess tax benefit of exercised stock options and vesting of deferred shares
(1,764
)
 
(1,597
)
Other
178

 
150

Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from acquisitions:
 
 
 
Accounts receivable
17,353

 
(58,955
)
Costs and estimated earnings in excess of billings on uncompleted contracts
(4,332
)
 
(10,901
)
Inventories
170

 
(109
)
Other assets and liabilities
2,425

 
7,335

Accounts payable
(23,025
)
 
38,734

Billings on uncompleted contracts in excess of costs and estimated earnings
31,006

 
(4,684
)
Accrued expenses
6,932

 
9,298

Net cash provided by operating activities
36,975

 
20,155

Investing activities:
 
 
 
Acquisition of property, plant and equipment
(11,075
)
 
(17,834
)
Acquisition
(5,551
)
 
(51,398
)
Proceeds from asset sales
653

 
327

Net cash used by investing activities
$
(15,973
)
 
$
(68,905
)




Matrix Service Company
Consolidated Statements of Cash Flows (continued)
(In thousands)

 
Nine Months Ended
 
March 31,
2015
 
March 31,
2014
Financing activities:
 
 
 
Proceeds from noncontrolling interest
$
7,802

 
$

Issuances of common stock
493

 
1,076

Excess tax benefit of exercised stock options and vesting of deferred shares
1,764

 
1,597

Payment of debt amendment fees

 
(507
)
Advances under credit agreement
8,289

 
68,970

Repayments of advances under credit agreement
(9,976
)
 
(23,867
)
Proceeds from issuance of common stock under employee stock purchase plan
215

 
76

Repurchase of common stock for payment of statutory taxes due on equity-based compensation
(2,472
)
 
(1,678
)
Net cash provided (used) by financing activities
6,115

 
45,667

Effect of exchange rate changes on cash
(1,049
)
 
(909
)
Net increase (decrease) in cash and cash equivalents
26,068

 
(3,992
)
Cash and cash equivalents, beginning of period
77,115

 
63,750

Cash and cash equivalents, end of period
$
103,183

 
$
59,758

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Income taxes
$
6,700

 
$
11,445

Interest
$
1,019

 
$
579

Non-cash investing and financing activities:
 
 
 
Purchases of property, plant and equipment on account
$
1,104

 
$
965






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 and other established 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.

Three Months Ended March 31, 2015

The following table provides a summary of changes in our backlog for the three months ended March 31, 2015:

 
Electrical
Infrastructure
 
Oil Gas &
Chemical
 
Storage
Solutions
 
Industrial
 
Total
 
(In thousands)
Backlog as of December 31, 2014
$
124,158

 
$
147,707

 
$
446,877

 
$
120,229

 
$
838,971

Project awards
477,138

 
81,665

 
68,588

 
87,028

 
714,419

Revenue recognized
(48,228
)
 
(95,758
)
 
(107,163
)
 
(63,006
)
 
(314,155
)
Backlog as of March 31, 2015
$
553,068

 
$
133,614

 
$
408,302

 
$
144,251

 
$
1,239,235

Nine Months Ended March 31, 2015

The following table provides a summary of changes in our backlog for the nine months ended March 31, 2015:
 
Electrical
Infrastructure
 
Oil Gas &
Chemical
 
Storage
Solutions
 
Industrial
 
Total
 
(In thousands)
Backlog as of June 30, 2014
$
162,136

 
$
110,217

 
$
482,631

 
$
160,842

 
$
915,826

Project awards
553,366

 
247,971

 
295,930

 
204,860

 
1,302,127

Revenue recognized
(162,434
)
 
(224,574
)
 
(370,259
)
 
(221,451
)
 
(978,718
)
Backlog as of March 31, 2015
$
553,068

 
$
133,614

 
$
408,302

 
$
144,251

 
$
1,239,235