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) May 9, 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 May 9, 2018 Matrix Service Company (the “Company”) issued a press release announcing financial results for the third fiscal quarter ended March 31, 2018. 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: May 9, 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=12241656&doc=3
MATRIX SERVICE COMPANY REPORTS THIRD QUARTER RESULTS
TULSA, OK – May 9, 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 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.


1


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.

2


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

3


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


4


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

 
 
 
 


5


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

 
 
 
 



6


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



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 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.












8