May 9, 2017

Matrix Service Company Reports Third Quarter Results

TULSA, Okla., May 09, 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 third quarter ended March 31, 2017.

Key highlights:

  • Increased cost estimate on an Electrical Infrastructure project results in profit reduction on work to date; minimal go forward profit margin expected on this project
  • Under recovery of overhead due to continued low revenue volume also impacts earnings
  • Results in the quarter generate a loss of $0.52 per share on consolidated revenue of $251.2 million
  • Consolidated backlog is $790.4 million on improving bookings in the Oil Gas & Chemical segment compared to $814.0 million at December 31, 2016
  • Company expects full year earnings per share to be near breakeven

"As we announced in our Business Update in late April, our third quarter results were negatively impacted by the forecasted financial outcome of a major project in our Electrical Infrastructure segment. The deterioration is a result of various factors that are impacting schedule progress, labor productivity, and turnover of key systems to the client. Despite these factors, we are very confident in our project team's ability to complete the project safely and to the high quality standards to which we hold ourselves," said John R. Hewitt, President and Chief Executive Officer of Matrix Service Company. "Given our strong relationship and historical experience with this customer, we believe we can reach an equitable outcome for both parties."

Hewitt added, "More impactful to annual results has been the ongoing delays in new project awards and starts as well as depressed maintenance spending. These impacts to revenue, alone, resulted in a small loss for the third quarter, and from an operating perspective we anticipate only modest improvement in the fourth quarter. While we are extremely disappointed with these overall results, we remain optimistic about the long-term performance of our business and our strategic vision. We are actively managing  our cost structure to meet our current and future customer commitments as markets improve. Continued strong bidding activity and other key indicators all point to improving capital project and maintenance spending in fiscal 2018."

Third Quarter Fiscal 2017 Results

Consolidated revenue was $251.2 million for the three months ended March 31, 2017, compared to $309.4 million in the same period in the prior fiscal year.  The decrease was caused by the quarterly impact of the project discussed above as well as lower volume in the Storage Solutions segment, which was nominally offset by higher volume in the Oil Gas & Chemical segment.  The Company lost $13.8 million, or $0.52 per fully diluted share in the third quarter of fiscal 2017 compared to earnings of $4.4 million, or $0.16 per fully diluted share in the prior year.

Consolidated gross profit (loss) was $(2.6) million in the three months ended March 31, 2017 compared to $27.3 million in the three months ended March 31, 2016.  The gross margin was (1.0)% in the three months ended March 31, 2017 compared to 8.8% in the same period in the prior fiscal year.  Very strong project execution throughout the business was offset by the Electrical Infrastructure project discussed above, as well as lower volumes, which led to significantly increased under recovery of construction overhead costs.

Consolidated SG&A expenses were $18.6 million in the three months ended March 31, 2017 compared to $21.0 million in the same period a year earlier.  The decrease in SG&A expense in fiscal 2017 was primarily attributable to a reversal of incentive compensation expense.

Nine Month Fiscal 2017 Results

Consolidated revenue was $905.7 million for the nine months ended March 31, 2017, compared to $952.3 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 were partially offset by higher volumes in the Electrical Infrastructure segment.  The Company earned $0.8 million, or $0.03 per fully diluted share during the nine months ended March 31, 2017 compared to $19.7 million, or $0.73 per fully diluted share in the prior year.

Consolidated gross profit decreased from $91.9 million in the nine months ended March 31, 2016 to $57.9 million in the nine months ended March 31, 2017.  The gross margin decreased to 6.4% in the nine months ended March 31, 2017 compared to 9.6% in the same period in the prior fiscal year.  Very strong project execution throughout the business was offset by the Electrical Infrastructure project discussed above, as well as lower volumes, which led to significantly increased under recovery of construction overhead costs.

Consolidated SG&A expenses were $56.5 million in the nine months ended March 31, 2017 compared to $65.5 million in the same period a year earlier.  The decrease in SG&A expense in fiscal 2017 was partially due to a reduction of fiscal 2017 incentive compensation expense. In addition, fiscal 2016 SG&A was impacted by a non-routine bad debt charge of $5.2 million from a client bankruptcy.

Backlog

Backlog at March 31, 2017 was $790.4 million compared to $814.0 million at December 31, 2016 on project awards of $227.7 million.

Financial Position

Availability under the Company's credit facility of $106.8 million along with the Company's cash balance of $39.7 million provided liquidity of $146.5 million at March 31, 2017, a decrease of $81.9 million since December 31, 2016.  This reduction is primarily attributable to a capacity constraint triggered by the Company's financial performance in the quarter.  During the quarter, the Company paid down debt in the amount of $28.3 million. The Company's liquidity continues to support its long-term strategic growth plans.

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 Wednesday, May 10, 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

Founded in 1984, Matrix Service Company is parent to a family of companies that include Matrix Service, 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.

Matrix Service Company
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except per share data)
 
  Three Months Ended Nine Months Ended
  March 31,
 2017
 March 31,
 2016
 March 31,
 2017
 March 31,
 2016
Revenues $251,237  $309,422  $905,673  $952,282 
Cost of revenues 253,851  282,119  847,797  860,390 
Gross profit (loss) (2,614) 27,303  57,876  91,892 
Selling, general and administrative expenses 18,596  20,956  56,548  65,509 
Operating income (loss) (21,210) 6,347  1,328  26,383 
Other income (expense):        
Interest expense (833) (241) (1,573) (756)
Interest income 73  56  111  147 
Other (51) (109) 3  (311)
Income (loss) before income tax expense (22,021) 6,053  (131) 25,463 
Provision (benefit) for federal, state and foreign income taxes (8,521) 2,507  (1,223) 9,060 
Net income (loss)  (13,500)  3,546  1,092  16,403 
Less: Net income (loss) attributable to noncontrolling interest 321  (811) 321  (3,326)
Net income (loss) attributable to Matrix Service Company $(13,821) $4,357  $771  $19,729 
         
Basic earnings (loss) per common share $(0.52) $0.16  $0.03  $0.74 
Diluted earnings (loss) per common share $(0.52) $0.16  $0.03  $0.73 
Weighted average common shares outstanding:        
Basic 26,594  26,758  26,511  26,651 
Diluted 26,594  27,054  26,838  27,191 


Matrix Service Company
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands) 
 
 March 31,
 2017
 June 30,
 2016
Assets   
Current assets:   
Cash and cash equivalents$39,697  $71,656 
Accounts receivable, less allowances (March 31, 2017— $9,247 and June 30, 2016—$8,403)223,338  190,434 
Costs and estimated earnings in excess of billings on uncompleted contracts69,986  104,001 
Inventories3,926  3,935 
Income taxes receivable5,314  9 
Other current assets7,373  5,411 
Total current assets349,634  375,446 
Property, plant and equipment at cost:   
Land and buildings39,826  39,224 
Construction equipment93,178  90,386 
Transportation equipment48,156  49,046 
Office equipment and software36,284  29,577 
Construction in progress5,827  7,475 
Total property, plant and equipment - at cost223,271  215,708 
Accumulated depreciation(141,308) (130,977)
Property, plant and equipment - net81,963  84,731 
Goodwill113,182  78,293 
Other intangible assets27,781  20,999 
Deferred income taxes5,663  3,719 
Other assets2,045  1,779 
Total assets$580,268  $564,967 
    


Matrix Service Company
Condensed Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
 
 March 31,
 2017
 June 30,
 2016
Liabilities and stockholders' equity   
Current liabilities:   
Accounts payable$97,271  $141,445 
Billings on uncompleted contracts in excess of costs and estimated earnings75,424  58,327 
Accrued wages and benefits25,102  27,716 
Accrued insurance8,804  9,246 
Income taxes payable148  2,675 
Other accrued expenses8,314  6,621 
Total current liabilities215,063  246,030 
Deferred income taxes377  3,198 
Borrowings under senior revolving credit facility44,139   
Other liabilities472  173 
Total liabilities260,051  249,401 
Commitments and contingencies   
Stockholders' equity:   
Matrix Service Company stockholders' equity:   
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of March 31, 2017, and June 30, 2016; 26,594,319 and 26,297,145 shares outstanding as of March 31, 2017 and June 30, 2016279  279 
Additional paid-in capital126,513  127,058 
Retained earnings223,928  223,157 
Accumulated other comprehensive loss(7,807) (6,845)
 342,913  343,649 
Less: Treasury stock, at cost — 1,293,898 shares as of March 31, 2017, and 1,591,072 shares as of June 30, 2016(22,696) (26,907)
Total Matrix Service Company stockholders' equity320,217  316,742 
Noncontrolling interest  (1,176)
Total stockholders' equity320,217  315,566 
Total liabilities and stockholders' equity$580,268  $564,967 
    


Matrix Service Company
Results of Operations
(unaudited)
(In thousands) 
 
  Three Months Ended Nine Months Ended
  March 31,
 2017
 March 31,
 2016
 March 31,
 2017
 March 31,
 2016
Gross revenues        
Electrical Infrastructure $82,032  $94,414  $273,215  $251,437 
Oil Gas & Chemical 69,295  56,251  164,036  188,682 
Storage Solutions 74,431  132,857  403,008  400,074 
Industrial 26,501  26,650  74,254  116,375 
Total gross revenues $252,259  $310,172  $914,513  $956,568 
Less: Inter-segment revenues        
Oil Gas & Chemical $407  $522  $6,892  $3,102 
Storage Solutions 379  228  677  1,040 
Industrial 236    1,271  144 
Total inter-segment revenues $1,022  $750  $8,840  $4,286 
Consolidated revenues        
Electrical Infrastructure $82,032  $94,414  $273,215  $251,437 
Oil Gas & Chemical 68,888  55,729  157,144  185,580 
Storage Solutions 74,052  132,629  402,331  399,034 
Industrial 26,265  26,650  72,983  116,231 
Total consolidated revenues $251,237  $309,422  $905,673  $952,282 
Gross profit (loss)        
Electrical Infrastructure $(13,371) $10,407  $(896) $19,136 
Oil Gas & Chemical 4,333  2,616  6,765  14,270 
Storage Solutions 5,456  15,108  48,980  49,766 
Industrial 968  (828) 3,027  8,720 
Total gross profit (loss) $(2,614) $27,303  $57,876  $91,892 
Operating income (loss)        
Electrical Infrastructure $(16,306) $4,948  $(13,085) $5,425 
Oil Gas & Chemical (2,199) (1,964) (7,054) (3,577)
Storage Solutions (1,552) 6,382  23,463  24,305 
Industrial (1,153) (3,019) (1,996) 230 
Total operating income (loss) $(21,210) $6,347  $1,328  $26,383 

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 March 31, 2017:

 Electrical
Infrastructure
 Oil Gas &
Chemical
 Storage
Solutions
 Industrial Total
 (In thousands)
Backlog as of December 31, 2016$338,413  $209,505  $185,491  $80,581  $813,990 
Project awards57,630  100,459  52,981  16,592  227,662 
Revenue recognized(82,032) (68,888) (74,052) (26,265) (251,237)
Backlog as of March 31, 2017$314,011  $241,076  $164,420  $70,908  $790,415 

The following table provides a summary of changes in our backlog for the nine months ended March 31, 2017:

 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 awards217,435  280,240  207,738  92,306  797,719 
Acquired backlog from Houston Interests (Note 2)  26,502    3,195  29,697 
Revenue recognized(273,215) (157,144) (402,331) (72,983) (905,673)
Backlog as of March 31, 2017$314,011  $241,076  $164,420  $70,908  $790,415 
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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