Document


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) February 7, 2018
___________________ 
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 500, 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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected to not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 
 
 
 
 





Item 2.02
Results of Operations and Financial Condition.
On February 7, 2018 Matrix Service Company (the “Company”) issued a press release announcing financial results for the second fiscal quarter ended December 31, 2017. 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
  







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: February 7, 2018
 
By:
 
/s/ Kevin S. Cavanah
 
 
 
 
 
 
 
 
 
Kevin S. Cavanah
 
 
 
 
Vice President and Chief Financial Officer



Exhibit
Exhibit 99


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12030749&doc=3
MATRIX SERVICE COMPANY REPORTS SECOND QUARTER RESULTS; MAINTAINS FULL YEAR EPS GUIDANCE
TULSA, OK – February 7, 2018 – Matrix Service Company (Nasdaq: MTRX), a leading contractor to the energy, power and industrial markets across North America, today reported financial results for its second quarter ended December 31, 2017.
Key highlights:
Company earned $0.17 per fully diluted share in the second quarter
Consolidated gross margins increased year over year to 9.4%
Consolidated book-to-bill was 1.0 on awards of $279.1 million, with the largest quarterly awards in Storage Solutions since the fourth quarter of fiscal 2015
Industrial segment revenue increased 137% while Oil Gas & Chemical segment revenue increased 59% compared to the same period in the prior year
Net income and tax expense benefited by $1.9 million as a result of the Tax Cuts and Jobs Act
“Our diversified business model continues to serve us well, with strong second quarter results in our Industrial and Oil Gas & Chemical segments. These positive results were offset by an expected reduction in power generation revenue as well as less spending in the high voltage business," said Matrix Service Company President and CEO John R. Hewitt. "Additionally, in our Storage Solutions segment, while revenues were lower as a result of delayed project awards, we achieved a book-to-bill of 1.8 in the quarter. Subsequent to the closing of the quarter, we received a number of additional significant and strategic project awards; announcements on which will be forthcoming."
The delay in the award of these anticipated projects has shifted revenue to later periods. Said Hewitt, "These and other delayed awards, combined with lower than anticipated spending in our Northeastern based high voltage electrical business, will impact our full year revenue. Our EPS guidance remains unchanged, however we are modifying full year revenue guidance from between $1.225 billion and $1.325 billion to between $1.150 billion and $1.225 billion.”
Second Quarter Fiscal 2018 Results
Consolidated revenue was $282.9 million for the three months ended December 31, 2017, compared to $312.7 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 not allowed the Company to replace higher revenue experienced in the prior year in connection with work on the construction of crude gathering terminals for the Dakota Access pipeline. Electrical Infrastructure segment revenue also declined due to a combination of a reduction in high voltage revenue and revenue associated with the construction of a large power generating facility in the prior year. These decreases were partially offset by higher maintenance, turnaround and construction volumes in our Oil Gas & Chemical segment and higher volumes in our Industrial segment attributable to work in the iron and steel industry.
Consolidated gross profit was $26.7 million in the three months ended December 31, 2017 compared to $28.2 million in the three months ended December 31, 2016. The gross margin was 9.4% in the three months ended December 31, 2017 compared to 9.0% in the same period in the prior fiscal year. The increase in gross margin in fiscal 2018 is primarily attributable to improved construction overhead cost recovery. Consolidated SG&A expenses were $21.5 million in the three months ended December 31, 2017 compared to $20.0 million in the same period a year earlier. The increase in fiscal 2018 is primarily attributable to overhead and amortization on intangible assets associated with a December 2016 acquisition that expanded the Company's engineering business.
As a result of the factors discussed above, the Company earned net income of $4.5 million, or $0.17 per fully diluted share in the second quarter of fiscal 2018 compared to $5.3 million, or $0.20 in the prior year.

1


Six Month Fiscal 2018 Results
Consolidated revenue was $552.8 million for the six months ended December 31, 2017, compared to $654.4 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 not allowed the Company to replace higher revenue experienced in the prior year in connection with work on the construction of crude gathering terminals for the Dakota Access pipeline. Electrical Infrastructure segment revenue also declined due to a combination of a reduction in high voltage revenue and revenue associated with the construction of a large power generating facility in the prior year. These decreases were partially offset by higher maintenance, turnaround and construction volumes in our Oil Gas & Chemical segment and higher volumes in our Industrial segment attributable to work in the iron and steel industry.
Consolidated gross profit was $55.6 million in the six months ended December 31, 2017 compared to $60.5 million in the six months ended December 31, 2016. The gross margin was 10.1% in the six months ended December 31, 2017 compared to 9.2% in the same period in the prior fiscal year. The increase in gross margin in fiscal 2018 is primarily attributable to strong project execution as well as improved construction overhead cost recovery. Consolidated SG&A expenses were $43.1 million in the six months ended December 31, 2017 compared to $38.0 million in the same period a year earlier. The increase in fiscal 2018 is primarily attributable to overhead and amortization on intangible assets associated with a December 2016 acquisition that expanded the Company's engineering business.
As a result of the factors discussed above, the Company earned net income of $8.4 million, or $0.31 per fully diluted share during the six months ended December 31, 2017 compared to $14.6 million, or $0.54 in the prior year.
Impact of Tax Cuts and Jobs Act
The Company’s financial statements have been adjusted to account for the Tax Cuts and Jobs Act (the “Act”). The Act affected the Company’s second quarter and full year results as follows:
Resulted in a reduced effective tax rate of 32% for fiscal 2018 based on a blended statutory tax rate of 28%.
Resulted in a $1.2 million tax benefit related to the remeasurement of the Company’s domestic deferred tax assets and liabilities.
Resulted in a $0.7 million tax benefit related to reducing the first half of the year income tax expense to the new reduced fiscal 2018 effective rate of 32%.
The Company does not expect to record a one-time transition tax on unrepatriated earnings of certain foreign entities.
Backlog
Backlog at December 31, 2017 was $725.0 million compared to $728.8 million at September 30, 2017. Quarterly book-to-bill ratio was 1.0 on project awards of $279.1 million. The six month ended December 31, 2017 book-to-bill ratio was 1.1 on project awards of $595.6 million.
Financial Position
The Company's cash balance increased to $74.1 million in the quarter. The cash balance combined with availability under the credit facility provides the Company with liquidity of $99.7 million at December 31, 2017, a decrease of $32.1 million since September 30, 2017. This decrease in liquidity is primarily attributable to an increase in the capacity constraint of the credit facility along with an increase in project related letters of credit. The Company's liquidity continues to support its long-term strategic growth plans. The Company expects liquidity improvement as we work through the third and fourth quarters of fiscal 2018. Since December 31, 2017, the Company repaid $35.0 million of borrowings under the credit facility while maintaining a cash balance in excess of $60.0 million, further strengthening the Company's liquidity.
Earnings Guidance
The Company is maintaining fiscal 2018 earnings guidance of between $0.55 and $0.75 per fully diluted share. Revenue guidance is being reduced from between $1.225 billion and $1.325 billion to between $1.150 billion and $1.225 billion.

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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, February 8, 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

3


Matrix Service Company
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except per share data) 
 
 
Three Months Ended
 
Six Months Ended
 
 
December 31,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Revenues
 
$
282,911

 
$
312,655

 
$
552,821

 
$
654,436

Cost of revenues
 
256,208

 
284,443

 
497,227

 
593,946

Gross profit
 
26,703

 
28,212

 
55,594

 
60,490

Selling, general and administrative expenses
 
21,529

 
19,975

 
43,099

 
37,952

Operating income
 
5,174

 
8,237

 
12,495

 
22,538

Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(819
)
 
(497
)
 
(1,437
)
 
(740
)
Interest income
 
65

 
26

 
104

 
38

Other
 
(135
)
 
47

 
14

 
54

Income before income tax expense
 
4,285

 
7,813

 
11,176

 
21,890

Provision (benefit) for federal, state and foreign income taxes
 
(247
)
 
2,563

 
2,820

 
7,298

Net income
 
$
4,532

 
$
5,250

 
$
8,356

 
$
14,592

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.17

 
$
0.20

 
$
0.31

 
$
0.55

Diluted earnings per common share
 
$
0.17

 
$
0.20

 
$
0.31

 
$
0.54

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
26,771

 
26,553

 
26,713

 
26,470

Diluted
 
27,078

 
26,832

 
26,933

 
26,842


4


Matrix Service Company
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands) 

 
December 31,
2017
 
June 30,
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
74,087

 
$
43,805

Accounts receivable, less allowances (December 31, 2017— $6,342 and June 30, 2017—$9,887)
183,451

 
210,953

Costs and estimated earnings in excess of billings on uncompleted contracts
64,221

 
91,180

Inventories
4,525

 
3,737

Income taxes receivable
3,396

 
4,042

Other current assets
7,826

 
4,913

Total current assets
337,506

 
358,630

Property, plant and equipment at cost:
 
 
 
Land and buildings
39,622

 
38,916

Construction equipment
90,710

 
94,298

Transportation equipment
48,647

 
48,574

Office equipment and software
37,169

 
36,556

Construction in progress
3,719

 
5,952

Total property, plant and equipment - at cost
219,867

 
224,296

Accumulated depreciation
(143,680
)
 
(144,022
)
Property, plant and equipment - net
76,187

 
80,274

Goodwill
113,845

 
113,501

Other intangible assets
25,364

 
26,296

Deferred income taxes
2,794

 
3,385

Other assets
2,170

 
3,944

Total assets
$
557,866

 
$
586,030

 
 
 
 


5


Matrix Service Company
Condensed Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
 
December 31,
2017
 
June 30,
2017
Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
71,253

 
$
105,649

Billings on uncompleted contracts in excess of costs and estimated earnings
66,376

 
75,127

Accrued wages and benefits
19,378

 
20,992

Accrued insurance
8,691

 
9,340

Income taxes payable
17

 
169

Other accrued expenses
4,183

 
7,699

Total current liabilities
169,898

 
218,976

Deferred income taxes
1,158

 
128

Borrowings under senior secured revolving credit facility
50,908

 
44,682

Other liabilities
316

 
435

Total liabilities
222,280

 
264,221

Commitments and contingencies


 


Stockholders’ equity:
 
 
 
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of December 31, 2017, and June 30, 2017; 26,811,676 and 26,600,562 shares outstanding as of December 31, 2017 and June 30, 2017
279

 
279

Additional paid-in capital
128,235

 
128,419

Retained earnings
231,330

 
222,974

Accumulated other comprehensive loss
(5,788
)
 
(7,324
)
 
354,056

 
344,348

Less: Treasury stock, at cost — 1,076,541 shares as of December 31, 2017, and 1,287,655 shares as of June 30, 2017
(18,470
)
 
(22,539
)
Total stockholders' equity
335,586

 
321,809

Total liabilities and stockholders’ equity
$
557,866

 
$
586,030

 
 
 
 



6


Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
 

 
 
Three Months Ended
 
Six Months Ended
 
 
December 31,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Gross revenues
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
64,852

 
$
103,158

 
$
144,823

 
$
191,183

Oil Gas & Chemical
 
88,396

 
56,913

 
174,257

 
94,741

Storage Solutions
 
71,233

 
128,927

 
142,805

 
328,577

Industrial
 
59,260

 
25,026

 
92,531

 
47,753

Total gross revenues
 
$
283,741

 
$
314,024

 
$
554,416

 
$
662,254

Less: Inter-segment revenues
 
 
 
 
 
 
 
 
Oil Gas & Chemical
 
$
37

 
$
1,199

 
$
245

 
$
6,485

Storage Solutions
 
792

 
170

 
1,349

 
298

Industrial
 
1

 

 
1

 
1,035

Total inter-segment revenues
 
$
830

 
$
1,369

 
$
1,595

 
$
7,818

Consolidated revenues
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
64,852

 
$
103,158

 
$
144,823

 
$
191,183

Oil Gas & Chemical
 
88,359

 
55,714

 
174,012

 
88,256

Storage Solutions
 
70,441

 
128,757

 
141,456

 
328,279

Industrial
 
59,259

 
25,026

 
92,530

 
46,718

Total consolidated revenues
 
$
282,911

 
$
312,655

 
$
552,821

 
$
654,436

Gross profit
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
5,541

 
$
7,225

 
$
13,808

 
$
12,475

Oil Gas & Chemical
 
11,768

 
2,431

 
22,806

 
2,432

Storage Solutions
 
5,298

 
17,071

 
12,838

 
43,524

Industrial
 
4,096

 
1,485

 
6,142

 
2,059

Total gross profit
 
$
26,703

 
$
28,212

 
$
55,594

 
$
60,490

Operating income (loss)
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
1,079

 
$
2,164

 
$
4,656

 
$
3,221

Oil Gas & Chemical
 
5,198

 
(1,950
)
 
9,332

 
(4,855
)
Storage Solutions
 
(2,609
)
 
8,242

 
(2,684
)
 
25,015

Industrial
 
1,506

 
(219
)
 
1,191

 
(843
)
Total operating income
 
$
5,174

 
$
8,237

 
$
12,495

 
$
22,538



7


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 December 31, 2017: 
 
Electrical
Infrastructure
 
Oil Gas &
Chemical
 
Storage
Solutions
 
Industrial
 
Total
 
(In thousands)
Backlog as of September 30, 2017
$
119,642

 
$
235,549

 
$
133,138

 
$
240,468

 
$
728,797

Project awards
40,083

 
91,491

 
123,568

 
24,006

 
279,148

Revenue recognized
(64,852
)
 
(88,359
)
 
(70,441
)
 
(59,259
)
 
(282,911
)
Backlog as of December 31, 2017
$
94,873

 
$
238,681

 
$
186,265

 
$
205,215

 
$
725,034

Book-to-bill ratio(1)
0.6

 
1.0

 
1.8

 
0.4

 
1.0

 
 
 
 
 
(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 six months ended December 31, 2017: 
 
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
77,059

 
125,686

 
186,170

 
206,667

 
595,582

Revenue recognized
(144,823
)
 
(174,012
)
 
(141,456
)
 
(92,530
)
 
(552,821
)
Backlog as of December 31, 2017
$
94,873

 
$
238,681

 
$
186,265

 
$
205,215

 
$
725,034

Book-to-bill ratio(1)
0.5

 
0.7

 
1.3

 
2.2

 
1.1

 
 
 
 
 
(1)
Calculated by dividing project awards by revenue recognized during the period.












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