September 6, 2017

Matrix Service Company Announces Fiscal 2017 Results; Provides Fiscal 2018 Guidance

  • Consistent with prior forecast, earnings per share is near breakeven for the full year at ($0.01) with fourth quarter at ($0.04)
  • Resolution achieved on Electrical Infrastructure project, as previously forecasted
  • Project awards for the three months and fiscal year ended June 30, 2017 up 34% compared to the same periods in the prior fiscal year
  • Fiscal 2018 guidance for revenue of $1.225 billion to $1.325 billion and fully diluted EPS of $0.55 to $0.75

TULSA, Okla., Sept. 06, 2017 (GLOBE NEWSWIRE) -- Matrix Service Company (Nasdaq:MTRX) today reported its financial results for the fourth quarter and year ended June 30, 2017.

"As we finish a very challenging year for our end markets, fourth quarter and full year results are in line with guidance provided on our third quarter call.  Full year results were driven primarily by a revenue shortfall across our end markets, however we are optimistic about an improving market outlook," said the Company's President and CEO John R. Hewitt. "We are encouraged by the 34% increase in project awards received during this fiscal year as compared to last year, and by signs of market recovery and increased activity across our operating segments."

In spite of the challenges presented in fiscal 2017, the Company once again achieved record safety results, with a Total Recordable Incident Rate of 0.49, which represents outstanding performance for our diverse portfolio of businesses. "Safety is our Company's number one core value and a critical competitive business differentiator," said Hewitt. "These safety results are a testament to the commitment of our employees and to our Company's values-centered culture."

Fourth Quarter Fiscal 2017 Results

Revenue for the fourth quarter ended June 30, 2017 was $291.8 million compared to $359.6 million in the same period a year earlier, a decrease of $67.8 million, or 18.9%.  Pretax income was $2.6 million in the fourth quarter of fiscal 2017 compared to $14.2 million in the same quarter a year earlier.  As described under the heading "Income Tax Expense" below, fiscal 2017 fourth quarter earnings were negatively impacted by an unusually high tax rate, resulting in a loss of $0.04 per fully diluted share compared to earnings of $0.34 in the same period a year earlier.

On a segment basis, revenue decreased $85.1 million and $4.4 million in the Storage Solutions and Industrial segments, respectively.  The decrease in Storage Solutions revenue was driven primarily by work on the construction of crude gathering terminals that support the Dakota Access Pipeline project, which has been winding down throughout fiscal 2017 and which was not replaced as planned due to delays in project awards.  These decreases were partially offset by increases of $19.2 million and $2.6 million in the Oil Gas & Chemical and Electrical Infrastructure segments, respectively.  The increase in Oil Gas & Chemical revenue was primarily driven by work on the previously announced Ultra-Low-Sulfur Gasoline Relocation Project and the addition of the acquired Houston Interests business, partially offset by lower volumes of turnaround work.

Consolidated gross profit was $23.1 million in the three months ended June 30, 2017 compared to $34.1 million in the three months ended June 30, 2016, as a result of lower revenue volume, primarily in the Storage Solutions segment.  In spite of strong project execution, fiscal 2017 gross margins were 7.9% compared to 9.5% in the same period a year earlier.  The decrease in gross margin in fiscal 2017 was due primarily to lower volumes of work leading to under recovery of construction overhead costs.

Selling, general and administrative costs were $19.6 million in the fourth quarter of both fiscal 2017 and fiscal 2016. Fiscal 2017 included an additional $3.0 million of recurring SG&A expense including $0.7 million of non-cash amortization expense that relates to the ongoing operations of the Houston Interests acquisition. These additional expenses were offset by overhead reductions that resulted from the Company's efforts to control its cost structure.

Fiscal 2017 Results

Revenue for the year ended June 30, 2017 was $1.198 billion compared to $1.312 billion in the same period a year earlier, a decrease of $114.4 million, or 8.7%.  Pretax income was $2.4 million in fiscal 2017 compared to $39.7 million in the same period a year earlier.  As described under the heading "Income Tax Expense" below, fiscal 2017 earnings were negatively impacted by an unusually high tax rate, resulting in a loss of $0.01 per fully diluted share in fiscal 2017 compared to earnings of $1.07 in the same period a year earlier.

On a segment basis, consolidated revenue decreased in the Storage Solutions, Industrial and Oil Gas & Chemical segments by $81.8 million, $47.7 million, and $9.3 million, respectively, which were partially offset by higher revenue in the Electrical Infrastructure segment of $24.4 million.  In the Storage Solutions segment, the decrease is primarily attributable to reduced activity during the second half of fiscal 2017 on the Dakota Access Pipeline project, which was not replaced as planned due to delays in project awards.  In the Industrial segment, the decline in revenue is primarily attributable to lower business volumes in the iron and steel and mining markets as a result of depressed commodity prices, and lower revenue recognized on a large fertilizer project.  In the Oil Gas & Chemical segment, the decrease in revenue is related to lower volume across the business as refiners continue to limit spending as the result of continued volatility in commodity prices and market uncertainty, partially offset by incremental revenues associated with Houston Interests, which was acquired in December 2016.  In the Electrical Infrastructure segment, the increase in revenue was primarily a result of higher volumes on a significant power generation project.

Consolidated gross profit was $81.0 million in the year ended June 30, 2017 compared to $126.0 million in fiscal 2016.  Fiscal 2017 gross margins were 6.8% compared 9.6% in fiscal 2016.  Fiscal 2017 gross margins were negatively impacted by the under recovery of overhead costs, particularly in the Storage Solutions and Oil Gas & Chemical segments, due to lower than anticipated revenue volumes.  Additionally, fiscal 2017 earnings were negatively impacted by the deterioration in the projected financial outcome of an Electrical Infrastructure project that occurred in the third quarter.  Fourth quarter financial results on this project were as projected and in July 2017 the Company reached a settlement agreement with the customer.  The agreement resolved open claims and modified the terms enabling the Company to recover all cost and overheads to perform the remainder of the work.

Consolidated SG&A expenses were $76.1 million in fiscal 2017 compared to $85.1 million in fiscal 2016.  The current fiscal year includes $6.2 million of recurring SG&A expense, including $1.6 million of non-cash amortization expense that relates to the on-going operations of Houston Interests. Current year SG&A expenses were also impacted by other overhead reductions that resulted from the Company's efforts to control its cost structure.  Fiscal 2016 SG&A included higher incentive compensation expenses and a bad debt charge of $5.2 million from a client bankruptcy.

Income Tax Expense

The effective tax rates were 137.0% and 94.4% for the three months and fiscal year ended June 30, 2017, respectively.  The unusually high tax rates are partially attributable to the magnified net impact of nondeductible permanent tax items due to low operating income. Additionally, the fiscal 2017 loss on the Electrical Infrastructure project produced a tax benefit in Canada, which has a lower tax rate than the U.S.  At the same time, the Company earned most of its taxable income domestically, which is taxed at a much higher rate. The Company estimates that its fiscal 2018 effective tax rate will approximate 38%.

Backlog

The June 30, 2017 backlog balance was reduced by $79.2 million to $682.3 million as a result of the scope adjustment attributable to the Electrical Infrastructure project settlement discussed above.  This balance compares to $868.7 million at June 30, 2016 and $790.4 million at March 31, 2017.  Project awards in the three months ended June 30, 2017 totaled $262.9 million compared to $195.8 million during the same period a year ago, an increase of 34.3%.  Project awards for the fiscal year ended June 30, 2017 totaled $1.061 billion compared to $793.6 million during the same period a year ago, an increase of 33.6%.

Financial Position

At June 30, 2017, the Company's cash balance was $43.8 million and borrowings under the senior revolving credit facility were $44.7 million.  The cash balance along with availability under the senior credit facility gives the Company liquidity of $122.2 million at June 30, 2017.  While the Company is in full compliance with all covenants, availability under the senior revolving credit facility is partially constrained as a result of lower earnings in the last half of fiscal 2017.  Despite this facility constraint, the Company maintains a strong balance sheet with the necessary liquidity to meet its fiscal 2018 business plan.  However, in keeping with its conservative approach to liquidity management and based on potential growth opportunities, in August the Company executed an amendment to its credit facility.  This amendment, which temporarily modifies certain covenant restrictions and increases projected availability, provides additional financial flexibility.

Earnings Guidance

While the market outlook is already showing signs of improvement, the Company expects operating performance to improve as the year progresses. The Company's fiscal 2018 revenue will be between $1.225 billion and $1.325 billion and that earnings will be between $0.55 and $0.75 per fully diluted share.

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 10:30 a.m. (Eastern) / 9:30 a.m. (Central) on Thursday, September 7, 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.


Matrix Service Company

Consolidated Statements of Income

(In thousands, except per share data)
 
  Three Months Ended Twelve Months Ended
  June 30,
2017
   June 30,
2016
   June 30,
2017
   June 30,
2016
Revenues $291,836  $359,635  $1,197,509  $1,311,917 
Cost of revenues 268,709  325,536  1,116,506  1,185,926 
Gross profit 23,127  34,099  81,003  125,991 
Selling, general and administrative expenses 19,596  19,600  76,144  85,109 
Operating income 3,531  14,499  4,859  40,882 
Other income (expense):        
Interest expense (638) (96) (2,211) (852)
Interest income 21  43  132  190 
Other (337) (256) (334) (567)
Income before income tax expense 2,577  14,190  2,446  39,653 
Provision for federal, state and foreign income taxes 3,531  5,056  2,308  14,116 
Net income (loss) (954) 9,134  138  25,537 
Less: Net income (loss) attributable to noncontrolling interest     321  (3,326)
Net income (loss) attributable to Matrix Service Company $(954) $9,134  $(183) $28,863 
Basic earnings (loss) per common share $(0.04) $0.35  $(0.01) $1.09 
Diluted earnings (loss) per common share $(0.04) $0.34  $(0.01) $1.07 
Weighted average common shares outstanding:        
Basic 26,600  26,434  26,533  26,597 
Diluted 26,600  26,774  26,533  27,100 


Matrix Service Company

Consolidated Balance Sheets

(In thousands)
 
  June 30,
2017
   June 30,
2016
Assets    
Current assets:    
Cash and cash equivalents $43,805  $71,656 
Accounts receivable, less allowances (2017 - $9,887; 2016 - $8,403) 210,953  190,434 
Costs and estimated earnings in excess of billings on uncompleted contracts 91,180  104,001 
Inventories 3,737  3,935 
Income taxes receivable 4,042  9 
Other current assets 4,913  5,411 
Total current assets 358,630  375,446 
Property, plant and equipment, at cost:    
Land and buildings 38,916  39,224 
Construction equipment 94,298  90,386 
Transportation equipment 48,574  49,046 
Office equipment and software 36,556  29,577 
Construction in progress 5,952  7,475 
Total property, plant and equipment - at cost 224,296  215,708 
Accumulated depreciation (144,022) (130,977)
Property, plant and equipment - net 80,274  84,731 
Goodwill 113,501  78,293 
Other intangible assets 26,296  20,999 
Deferred income taxes 3,385  3,719 
Other assets 3,944  1,779 
Total assets $586,030  $564,967 


Matrix Service Company

Consolidated Balance Sheets (continued)

(In thousands, except share data)
 
  June 30,
2017
   June 30,
2016
Liabilities and stockholders' equity    
Current liabilities:    
Accounts payable $105,649  $141,445 
Billings on uncompleted contracts in excess of costs and estimated earnings 75,127  58,327 
Accrued wages and benefits 20,992  27,716 
Accrued insurance 9,340  9,246 
Income taxes payable 169  2,675 
Other accrued expenses 7,699  6,621 
Total current liabilities 218,976  246,030 
Deferred income taxes 128  3,198 
Borrowings under senior revolving credit facility 44,682   
Other liabilities 435  173 
Total liabilities 264,221  249,401 
Commitments and contingencies    
Matrix Service Company Stockholders' equity:    
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares
issued as of June 30, 2017 and June 30, 2016; 26,600,562 and 26,297,145 shares
outstanding as of June 30, 2017 and June 30, 2016
 279  279 
Additional paid-in capital 128,419  126,958 
Retained earnings 222,974  223,257 
Accumulated other comprehensive income (7,324) (6,845)
  344,348  343,649 
Less treasury stock, at cost — 1,287,655 and 1,591,072 shares as of June 30, 2017 and
June 30, 2016
 (22,539) (26,907)
Total Matrix Service Company stockholders' equity 321,809  316,742 
Noncontrolling interest   (1,176)
Total stockholders' equity 321,809  315,566 
Total liabilities and stockholders' equity $586,030  $564,967 


Results of Operations
(In thousands)
 
      Electrical
 Infrastructure 
   Oil Gas &
  Chemical  
   Storage
Solutions
   Industrial   Total
Three Months Ended June 30, 2017          
Gross revenues $100,169  $83,387  $80,246  $29,195  $292,997 
Less: inter-segment revenues   8  881  272  1,161 
Consolidated revenues 100,169  83,379  79,365  28,923  291,836 
Gross profit 8,033  5,910  6,671  2,513  23,127 
Operating income (loss) $4,776  $(1,729) $(535) $1,019  $3,531 
           
Three Months Ended June 30, 2016          
Gross revenues $97,574  $64,291  $164,664  $33,369  $359,898 
Less: inter-segment revenues   76  186  1  263 
Consolidated revenues 97,574  64,215  164,478  33,368  359,635 
Gross profit 10,165  4,283  18,077  1,574  34,099 
Operating income (loss) $5,719  $74  $9,144  $(438) $14,499 
           
Twelve Months Ended June 30, 2017          
Gross revenues $373,384  $247,423  $483,254  $103,449  $1,207,510 
Less: inter-segment revenues   6,900  1,558  1,543  10,001 
Consolidated revenues 373,384  240,523  481,696  101,906  1,197,509 
Gross profit 7,137  12,675  55,651  5,540  81,003 
Operating income (loss) $(8,309) $(8,783) $22,928  $(977) $4,859 
           
Twelve Months Ended June 30, 2016          
Gross revenues $349,011  $252,973  $564,738  $149,744  $1,316,466 
Less: inter-segment revenues   3,178  1,226  145  4,549 
Consolidated revenues 349,011  249,795  563,512  149,599  1,311,917 
Gross profit 29,301  18,553  67,843  10,294  125,991 
Operating income (loss) $11,144  $(3,503) $33,449  $(208) $40,882 

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 amount.

For long-term maintenance contracts 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 revenues recognized as of the reporting date.

Three Months Ended June 30, 2017

The following table provides a summary of changes in our backlog for the three months ended June 30, 2017:

  Electrical
 Infrastructure 
   Oil Gas &
  Chemical  
   Storage
Solutions
   Industrial   Total
  (In thousands)
Backlog as of March 31, 2017   $314,011  $241,076  $164,420  $70,908  $790,415 
Project awards 27,974  129,310  56,496  49,093  262,873 
Project scope adjustment(1) (79,179)       (79,179)
Revenue recognized (100,169) (83,379) (79,365) (28,923) (291,836)
Backlog as of June 30, 2017 $162,637  $287,007  $141,551  $91,078  $682,273 
Book-to-bill ratio(2) 0.3  1.6  0.7  1.7  0.9 

________________

 (1) In July 2017, the Company reached a settlement agreement with the customer on a large project in the Electrical Infrastructure segment.  The agreement resolved open claims and modified the terms enabling the Company to recover all costs and overhead to perform the remainder of the work.  In addition, the execution strategy was revised and a significant portion of future work will no longer be performed by the Company.  The magnitude of the scope reduction is based on the Company's best estimate at this time but may change as the detailed execution plan continues to develop.
 (2) Calculated by dividing project awards by revenue recognized.
    

Twelve Months Ended June 30, 2017

The following table provides a summary of changes in our backlog for the twelve months ended June 30, 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 awards 245,409  409,550  264,234  141,399  1,060,592 
Acquired backlog from Houston Interests     26,502    3,195  29,697 
Project scope adjustment(1) (79,179)       (79,179)
Revenue recognized (373,384) (240,523) (481,696) (101,906) (1,197,509)
Backlog as of June 30, 2017 $162,637  $287,007  $141,551  $91,078  $682,273 
Book-to-bill ratio(2) 0.7  1.7  0.5  1.4  0.9 

________________

 (1) In July 2017, the Company reached a settlement agreement with the customer on a large project in the Electrical Infrastructure segment.  The agreement resolved open claims and modified the terms enabling the Company to recover all costs and overhead to perform the remainder of the work.  In addition, the execution strategy was revised and a significant portion of future work will no longer be performed by the Company.  The magnitude of the scope reduction is based on the Company's best estimate at this time but may change as the detailed execution plan continues to develop.
 (2) Calculated by dividing project awards by revenue recognized.
    
For more information, please contact:

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

Alpha IR Group
Investor Relations
Bobby Winters
T: 312-445-2870
E: MTRX@alpha-ir.com


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