February 8, 2017

Matrix Service Company Reports Second Quarter Results; Revises Fiscal 2017 Guidance

TULSA, Okla., Feb. 08, 2017 (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 second quarter ended December 31, 2016.

Key highlights:

  • Revenue was $312.7 million and fully diluted earnings per share were $0.20 for the quarter
  • Backlog increased to $814.0 million on project awards in the quarter of $310.3 million
  • Acquisition of Houston Interests elevates engineering expertise across multiple operating segments and immediately expands project opportunities
  • Increased credit facility to $300.0 million to fund strategic growth objectives

"As reflected in our second quarter results, we are experiencing delays in the timing of awards, as well as ongoing conservative spending patterns by our customers caused by persistently challenging and uncertain market conditions. We expect these conditions to negatively impact our third quarter and, to a lesser degree, full year results," said Matrix Service Company President and Chief Executive Officer, John R. Hewitt.  "As a result, the Company is revising its fiscal 2017 guidance for revenue to between $1.20 billion and $1.30 billion and fully diluted earnings per share to between $0.75 and $1.05."

Hewitt added, "At the same time, we are seeing indicators that these uncertain market conditions are beginning to clear, with customer confidence improving. The opportunity pipeline is getting stronger as indicated by project awards of $310 million in the quarter - a book-to-bill of nearly one-to-one. Additionally, our diversified platform and financial strength, together with the engineering expertise and capacity we gained through Houston Interests, has opened up even more opportunities across our operating segments. We expect capital projects and maintenance spending to improve in fiscal 2018 and remain optimistic about the long term performance of the business."

Second Quarter Fiscal 2017 Results

Consolidated revenue was $312.7 million for the three months ended December 31, 2016, compared to $323.5 million in the same period in the prior fiscal year.  The decrease resulted from lower volumes in the Industrial and Oil Gas & Chemical segments, which was partially offset by higher volumes in the Electrical Infrastructure and Storage Solutions segments.  The Company earned $5.3 million, or $0.20 per fully diluted share in the second quarter of fiscal 2017 compared to $5.4 million, or $0.20 per fully diluted share in the prior year.

Consolidated gross profit was $28.2 million in the three months ended December 31, 2016 compared to $30.0 million in the three months ended December 31, 2015.  The gross margin was 9.0% in the three months ended December 31, 2016 compared to 9.3% in the same period in the prior fiscal year.  The reduction in gross margin in fiscal 2017 is primarily attributable to lower direct margins and increased under recovery of construction overhead costs in the Oil Gas & Chemical and Industrial segments, which were partially offset by higher direct margins in the Storage Solutions and Electrical Infrastructure segments.

Consolidated SG&A expenses were $20.0 million in the three months ended December 31, 2016 compared to $25.1 million in the same period a year earlier.  The decrease in SG&A expense in fiscal 2017 was primarily attributable to a non-routine bad debt charge of $5.2 million from a client bankruptcy in fiscal 2016.  Fiscal 2017 SG&A expense included $0.7 million of acquisition and integration costs from the Houston Interests acquisition mentioned above.

Six Month Fiscal 2017 Results

Consolidated revenue was $654.4 million for the six months ended December 31, 2016, compared to $642.9 million in the same period in the prior fiscal year.  The increase resulted from higher volumes in the Storage Solutions and Electrical Infrastructure segments, which were partially offset by lower volumes in the Industrial and Oil Gas & Chemical segments.  The Company earned $14.6 million, or $0.54 per fully diluted share during the six months ended December 31, 2016 compared to $15.4 million, or $0.56 per fully diluted share in the prior year.

Consolidated gross profit decreased from $64.6 million in the six months ended December 31, 2015 to $60.5 million in the six months ended December 31, 2016.  Gross margin decreased to 9.2% in the six months ended December 31, 2016 compared to 10.0% in the same period in the prior fiscal year.  The reduction in gross margin in fiscal 2017 is primarily attributable to lower direct margins and increased under recovery of construction overhead costs in the Oil Gas & Chemical and Industrial segments, which were partially offset by higher direct margins in the Storage Solutions segment.

Consolidated SG&A expenses were $38.0 million in the six months ended December 31, 2016 compared to $44.6 million in the same period a year earlier.  The decrease in SG&A expense in fiscal 2017 was primarily attributable to a non-routine bad debt charge of $5.2 million from a client bankruptcy in fiscal 2016.  Fiscal 2017 SG&A expense included $0.7 million of acquisition and integration costs from the Houston Interests acquisition.

Backlog

Backlog at December 31, 2016 was $814.0 million compared to $786.6 million at September 30, 2016 on project awards of $310.3 million, an increase of $27.4 million over the previous quarter.

Financial Position

Availability under the Company's credit facility of $162.2 million along with the Company's cash balance of $66.2 million provided liquidity of $228.4 million at December 31, 2016, an increase of $55.2 million, or 31.9%, since September 30, 2016.  Subsequent to December 31, 2016, the Company executed a new five year credit agreement increasing its credit facility to $300.0 million to fund strategic growth objectives.

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 9, 2017 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, Canada and other international locations.

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.



Matrix Service Company
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except per share data)
 
  Three Months Ended Six Months Ended
  December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Revenues $312,655  $323,529  $654,436  $642,860 
Cost of revenues 284,443  293,524  593,946  578,271 
Gross profit 28,212  30,005  60,490  64,589 
Selling, general and administrative expenses 19,975  25,070  37,952  44,553 
Operating income 8,237  4,935  22,538  20,036 
Other income (expense):        
Interest expense (497) (252) (740) (515)
Interest income 26  60  38  91 
Other 47  (148) 54  (202)
Income before income tax expense 7,813  4,595  21,890  19,410 
Provision for federal, state and foreign income taxes 2,563  1,477  7,298  6,553 
Net income $5,250  $3,118  14,592  12,857 
Less: Net loss attributable to noncontrolling interest   (2,313)   (2,515)
Net income attributable to Matrix Service Company $5,250  $5,431  $14,592  $15,372 
         
Basic earnings per common share $0.20  $0.20  $0.55  $0.58 
Diluted earnings per common share $0.20  $0.20  $0.54  $0.56 
Weighted average common shares outstanding:        
Basic 26,553  26,721  26,470  26,598 
Diluted 26,832  27,248  26,842  27,229 



Matrix Service Company
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands)
 
 December 31,
 2016
 June 30,
 2016
Assets   
Current assets:   
Cash and cash equivalents$66,230  $71,656 
Accounts receivable, less allowances (December 31, 2016— $8,313 and June 30, 2016—$8,403)248,712  190,434 
Costs and estimated earnings in excess of billings on uncompleted contracts80,296  104,001 
Inventories4,194  3,935 
Income taxes receivable486  9 
Other current assets8,318  5,411 
Total current assets408,236  375,446 
Property, plant and equipment at cost:   
Land and buildings39,348  39,224 
Construction equipment91,587  90,386 
Transportation equipment48,254  49,046 
Office equipment and software34,946  29,577 
Construction in progress4,563  7,475 
Total property, plant and equipment - at cost218,698  215,708 
Accumulated depreciation(137,414) (130,977)
Property, plant and equipment - net81,284  84,731 
Goodwill113,019  78,293 
Other intangible assets29,351  20,999 
Deferred income taxes2,512  3,719 
Other assets1,388  1,779 
Total assets$635,790  $564,967 
    



Matrix Service Company
Condensed Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
 
 December 31,
 2016
 June 30,
 2016
Liabilities and stockholders' equity   
Current liabilities:   
Accounts payable$108,260  $141,445 
Billings on uncompleted contracts in excess of costs and estimated earnings74,858  58,327 
Accrued wages and benefits21,162  27,716 
Accrued insurance9,171  9,246 
Income taxes payable1,293  2,675 
Other accrued expenses15,539  6,621 
Total current liabilities230,283  246,030 
Deferred income taxes2,855  3,198 
Borrowings under senior revolving credit facility72,412   
Other liabilities411  173 
Total liabilities305,961  249,401 
Commitments and contingencies   
Stockholders' equity:   
Matrix Service Company stockholders' equity:   
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued
as of December 31, 2016, and June 30, 2016; 26,588,643 and 26,297,145 shares outstanding
as of December 31, 2016 and June 30, 2016
279  279 
Additional paid-in capital124,659  127,058 
Retained earnings237,749  223,157 
Accumulated other comprehensive loss(8,842) (6,845)
 353,845  343,649 
Less: Treasury stock, at cost — 1,299,574 shares as of December 31, 2016, and 1,591,072
shares as of June 30, 2016
(22,840) (26,907)
Total Matrix Service Company stockholders' equity331,005  316,742 
Noncontrolling interest(1,176) (1,176)
Total stockholders' equity329,829  315,566 
Total liabilities and stockholders' equity$635,790  $564,967 
    



Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
 
  Three Months Ended Six Months Ended
  December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Gross revenues        
Electrical Infrastructure $103,158  $91,398  $191,183  $157,023 
Oil Gas & Chemical 56,913  63,472  94,741  132,431 
Storage Solutions 128,927  122,647  328,577  267,217 
Industrial 25,026  48,390  47,753  89,725 
Total gross revenues $314,024  $325,907  $662,254  $646,396 
Less: Inter-segment revenues        
Oil Gas & Chemical 1,199  1,932  $6,485  $2,580 
Storage Solutions 170  478  298  812 
Industrial   (32) 1,035  144 
Total inter-segment revenues $1,369  $2,378  $7,818  $3,536 
Consolidated revenues        
Electrical Infrastructure $103,158  $91,398  $191,183  $157,023 
Oil Gas & Chemical 55,714  61,540  88,256  129,851 
Storage Solutions 128,757  122,169  328,279  266,405 
Industrial 25,026  48,422  46,718  89,581 
Total consolidated revenues $312,655  $323,529  $654,436  $642,860 
Gross profit        
Electrical Infrastructure $7,225  $4,021  $12,475  $8,729 
Oil Gas & Chemical 2,431  5,971  2,432  11,654 
Storage Solutions 17,071  14,426  43,524  34,658 
Industrial 1,485  5,587  2,059  9,548 
Total gross profit $28,212  $30,005  $60,490  $64,589 
Operating income (loss)        
Electrical Infrastructure $2,164  $(723) $3,221  $477 
Oil Gas & Chemical (1,950) (3,029) (4,855) (1,613)
Storage Solutions 8,242  6,374  25,015  17,923 
Industrial (219) 2,313  (843) 3,249 
Total operating income $8,237  $4,935  $22,538  $20,036 

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.

The following table provides a summary of changes in our backlog for the three months ended December 31, 2016:

 Electrical
Infrastructure
 Oil Gas &
Chemical
 Storage
Solutions
 Industrial Total
 (In thousands)
Backlog as of September 30, 2016$354,286  $179,274  $198,141  $54,911  $786,612 
Project awards87,285  59,443  116,107  47,501  310,336 
Acquired backlog from Houston Interests  26,502    3,195  29,697 
Revenue recognized(103,158) (55,714) (128,757) (25,026) (312,655)
Backlog as of December 31, 2016$338,413  $209,505  $185,491  $80,581  $813,990 

The following table provides a summary of changes in our backlog for the six months ended December 31, 2016:

 Electrical
Infrastructure
 Oil Gas &
Chemical
 Storage
Solutions
 Industrial Total
 (In thousands)
Backlog as of June 30, 2016$369,791  $91,478  $359,013  $48,390  $868,672 
Project awards159,805  179,781  154,757  75,714  570,057 
Acquired backlog from Houston Interests  26,502    3,195  29,697 
Revenue recognized(191,183) (88,256) (328,279) (46,718) (654,436)
Backlog as of December 31, 2016$338,413  $209,505  $185,491  $80,581  $813,990 


 

For more information, please contact:

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


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