February 4, 2015

Matrix Service Company Announces Second Quarter Results; Maintains Revenue Guidance, Lowers Earnings Guidance Due to a Project Charge

  • Project charge reduces second quarter earnings per share by $0.29 to $0.12
  • Exclusive of project charge, Company experiences strong margin performance across all segments
  • Revenue increases from the first to second quarter lead to higher absorption of construction overhead costs
  • Year-to-date project awards total $587.7 million excluding recently announced construction award for TransCanada's Napanee Generating Station

TULSA, Okla., Feb. 4, 2015 (GLOBE NEWSWIRE) -- Matrix Service Company (Nasdaq:MTRX) today reported its financial results for the second quarter and six months ended December 31, 2014.

"While the second quarter of this fiscal year has been challenging, our performance and outlook remain strong across all segments. Higher quarterly revenue has resulted in improved segment margins due to better absorption of the construction overhead cost structure. Year-to-date project awards have been good and bid flow continues to be strong. Subsequent to the end of the quarter, we were awarded the construction work on a new 900 megawatt combined cycle gas-fired power generation station for TransCanada Energy, further enhancing our long-term backlog," said John Hewitt, President and CEO of Matrix Service Company.

"That said, the quarter was negatively impacted by a charge on an acquired EPC joint venture project in the Electrical Infrastructure segment which has resulted in our lowering the full year earnings guidance. This charge resulted from delays, technical impacts and additional work that has compressed our delivery schedule obligations. This project is scheduled to be complete within the current fiscal year. Exclusive of this project, the business continues to perform well. Our strategic vision for the Company as well as the long-term strength of our markets has not changed."

The following financial results include the acquired EPC joint venture project. The Company has a 65 percent controlling interest in the joint venture and consolidates the joint venture operating results into the Company's financial statements and reports the minority interest holder's 35 percent share of joint venture activity as a non-controlling interest. The information below represents the consolidated results of the Company and, unless noted otherwise, includes 100 percent of the joint venture activity.

Second Quarter Fiscal 2015 Results

Revenues for the second quarter ended December 31, 2014 were $342.9 million compared to $311.0 million in the same period a year earlier, an increase of $31.9 million, or 10.3%. Our share of the acquired EPC joint venture project charge reduced second quarter of fiscal 2015 net income by $7.9 million to $3.3 million, and reduced fully diluted earnings per share by $0.29 to $0.12. In the same period a year earlier, the Company earned $10.3 million, or $0.38 per fully diluted share.

On a segment basis, consolidated revenues increased in the Industrial, Electrical Infrastructure and Oil Gas & Chemical segments by $48.0 million, $21.3 million and $13.4 million respectively, partially offset by a decrease in the Storage Solutions segment of $50.8 million.

Consolidated gross profit was $16.0 million in the three months ended December 31, 2014 compared to $34.2 million in the three months ended December 31, 2013. Fiscal 2015 gross margins were reduced by 6.7% to 4.7% related to a charge of $22.9 million on an acquired EPC joint venture power generation project. Fiscal 2014 gross margins were 11.0%.

Selling, general and administrative costs were $19.6 million, in the second quarter of fiscal 2015 compared to $19.3 million in the same period a year earlier. SG&A expense as a percentage of revenue decreased to 5.7% in the three months ended December 31, 2014 compared to 6.2% for the three months ended December 31, 2013.

Six Month Fiscal 2015 Results

Revenues for the six months ended December 31, 2014 were $664.6 million compared to $537.2 million in the same period a year earlier, an increase of $127.4 million, or 23.7%. Our share of the acquired EPC joint venture project charge reduced net income for the six months ended December 31, 2014 by $9.0 million to $9.2 million, and reduced fully diluted earnings per share by $0.33 to $0.34. In the same period a year earlier, the Company earned $16.9 million, or $0.63 per fully diluted share.

On a segment basis, consolidated revenues increased in the Industrial, Electrical Infrastructure and Oil Gas & Chemical segments by $104.7 million, $44.1 million and $4.2 million respectively, partially offset by a decrease in the Storage Solutions segment of $25.6 million.

Consolidated gross profit was $44.3 million in the six months ended December 31, 2014 compared to $59.6 million in the six months ended December 31, 2013. Fiscal 2015 gross margins were reduced by 4.4% to 6.7% related to a charge of $26.2 million on an acquired EPC joint venture power generation project. Fiscal 2014 gross margins were 11.1%.

Consolidated SG&A expenses were $39.5 million in the six months ended December 31, 2014 compared to $34.0 million in the same period a year earlier. SG&A expense as a percentage of revenue was 5.9% in the six months ended December 31, 2014 compared to 6.3% in the same period a year earlier.

Backlog

Backlog at December 31, 2014 totaled $839.0 million, a decrease of $76.8 million, or 8.4%, compared to the backlog at June 30, 2014 of $915.8 million. Backlog decreased $145.7 million, or 14.8%, compared to September 30, 2014 backlog of $984.7 million. Project awards totaled $197.2 million and $587.7 million in the three and six months ended December 31, 2014. Backlog at December 31, 2014 does not include the recently announced construction award for the Napanee Generating Station discussed earlier in this earnings release.

Financial Position

Availability under the Company's credit facility of $145.9 million along with the Company's cash balance of $68.6 million provided liquidity of $214.5 million at December 31, 2014.

Earnings Guidance

The Company is maintaining its fiscal 2015 revenue guidance of between $1.425 billion and $1.525 billion and lowering earnings per fully diluted share guidance to between $1.10 and $1.25.

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 11:00 a.m. (Eastern) / 10:00 a.m. (Central) on Thursday, February 5, 2015 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 and Canada.

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
Consolidated Statements of Income
(In thousands, except per share data)
         
 Three Months EndedSix Months Ended
 December 31,December 31,December 31,December 31,
 2014201320142013
Revenues $ 342,880 $ 310,998 $ 664,563 $ 537,215
Cost of revenues 326,925 276,848 620,229 477,589
Gross profit 15,955 34,150 44,334 59,626
Selling, general and administrative expenses 19,626 19,333 39,458 34,047
Operating income (3,671) 14,817 4,876 25,579
Other income (expense):        
Interest expense (300) (351) (652) (574)
Interest income 308 8 350 13
Other (28) (68) 29 (156)
Income (loss) before income tax expense (3,691) 14,406 4,603 24,862
Provision for federal, state and foreign income taxes 1,155 4,095 4,779 7,999
Net income (loss) $ (4,846) $ 10,311 $ (176) $ 16,863
Less: Net income (loss) attributable to noncontrolling interest (8,132) 5 (9,376) 5
Net income attributable to Matrix Service Company $ 3,286 $ 10,306 $ 9,200 $ 16,858
         
Basic earnings per common share $ 0.12 $ 0.39 $ 0.35 $ 0.64
Diluted earnings per common share $ 0.12 $ 0.38 $ 0.34 $ 0.63
Weighted average common shares outstanding:        
Basic 26,600 26,245 26,535 26,180
Diluted 27,156 26,884 27,154 26,772
     
Matrix Service Company
Consolidated Balance Sheets
(In thousands)
     
 December 31,June 30,
 20142014
Assets    
Current assets:    
Cash and cash equivalents $ 68,568 $ 77,115
Accounts receivable, less allowances (December 31, 2014— $563 and June 30, 2014—$204) 215,142 204,692
Costs and estimated earnings in excess of billings on uncompleted contracts 69,573 73,008
Deferred income taxes 6,262 5,994
Inventories 3,013 3,045
Income taxes receivable 6,165 2,797
Other current assets 7,321 8,897
Total current assets 376,044 375,548
Property, plant and equipment at cost:    
Land and buildings 31,783 31,737
Construction equipment 85,966 82,745
Transportation equipment 45,098 42,087
Office equipment and software 27,145 26,026
Construction in progress 7,077 9,892
  197,069 192,487
Accumulated depreciation (109,844) (103,315)
  87,225 89,172
Goodwill 72,212 69,837
Other intangible assets 26,797 28,676
Other assets 3,804 5,699
Total assets $ 566,082 $ 568,932
     
Matrix Service Company
Consolidated Balance Sheets (continued)
(In thousands, except share data)
     
 December 31,June 30,
 20142014
Liabilities and stockholders' equity    
Current liabilities:    
Accounts payable $ 93,154 $ 111,863
Billings on uncompleted contracts in excess of costs and estimated earnings 127,614 108,440
Accrued wages and benefits 25,207 36,226
Accrued insurance 8,437 8,605
Income taxes payable 2,013 --
Other accrued expenses 9,334 4,727
Total current liabilities 265,759 269,861
Deferred income taxes 6,740 5,167
Borrowings under senior credit facility 11,789 11,621
Total liabilities 284,288 286,649
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, 2014, and June 30, 2014 279 279
Additional paid-in capital 119,852 119,777
Retained earnings 186,437 177,237
Accumulated other comprehensive loss (3,453) (182)
  303,115 297,111
Less: Treasury stock, at cost— 1,193,039 shares as of December 31, 2014, and 1,453,770 shares as of June 30, 2014 (13,712) (16,595)
Total Matrix Service Company stockholders' equity 289,403 280,516
Noncontrolling interest (7,609) 1,767
Total stockholders' equity 281,794 282,283
Total liabilities and stockholders' equity $ 566,082 $ 568,932
         
Matrix Service Company
Results of Operations
(In thousands)
         
 Three Months EndedSix Months Ended
 December 31,December 31,December 31,December 31,
 2014201320142013
Gross revenues        
Electrical Infrastructure $ 58,533 $ 37,180 $ 114,206 $ 70,057
Oil Gas & Chemical 76,419 62,121 130,618 124,913
Storage Solutions 129,987 180,655 263,337 289,201
Industrial 79,972 31,130 159,332 53,821
Total gross revenues $ 344,911 $ 311,086 $ 667,493 $ 537,992
Less: Inter-segment revenues        
Electrical Infrastructure $ -- $ -- $ -- $ --
Oil Gas & Chemical 962 10 1,802 307
Storage Solutions 182 78 241 470
Industrial 887 -- 887 --
Total inter-segment revenues $ 2,031 $ 88 $ 2,930 $ 777
Consolidated revenues        
Electrical Infrastructure $ 58,533 $ 37,180 $ 114,206 $ 70,057
Oil Gas & Chemical 75,457 62,111 128,816 124,606
Storage Solutions 129,805 180,577 263,096 288,731
Industrial 79,085 31,130 158,445 53,821
Total consolidated revenues $ 342,880 $ 310,998 $ 664,563 $ 537,215
Gross profit (loss)        
Electrical Infrastructure $ (16,058) $ 3,854 $ (16,547) $ 7,184
Oil Gas & Chemical 7,352 6,686 11,738 14,217
Storage Solutions 14,231 19,788 28,749 32,625
Industrial 10,430 3,822 20,394 5,600
Total gross profit $ 15,955 $ 34,150 $ 44,334 $ 59,626
Operating income (loss)        
Electrical Infrastructure $ (18,522) $ 860 $ (22,178) $ 2,160
Oil Gas & Chemical 2,682 2,407 3,260 5,670
Storage Solutions 6,627 10,760 13,730 16,592
Industrial 5,542 790 10,064 1,157
Total operating income $ (3,671) $ 14,817 $ 4,876 $ 25,579
     
Matrix Service Company
Consolidated Statements of Cash Flows
(In thousands)
     
 Six Months Ended
 December 31,December 31,
 20142013
Operating activities:    
Net income (loss) $ (176) $ 16,863
Adjustments to reconcile net income to net cash provided (used) by operating activities:    
Depreciation and amortization 11,540 7,551
Deferred income tax 1,011 (2,102)
Gain on sale of property, plant and equipment (120) (57)
Provision for uncollectible accounts 451 (36)
Stock-based compensation expense 3,168 2,515
Excess tax benefit of exercised stock options and vesting of deferred shares (1,731) 1,069
Other 118 100
Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from acquisitions:    
Accounts receivable (9,243) 11,665
Costs and estimated earnings in excess of billings on uncompleted contracts 3,435 (4,835)
Inventories 32 (159)
Other assets and liabilities 3,247 (123)
Accounts payable (19,429) 32,712
Billings on uncompleted contracts in excess of costs and estimated earnings 19,174 (9,525)
Accrued expenses (6,099) (5,174)
Net cash provided by operating activities 5,378 50,464
Investing activities:    
Acquisition of property, plant and equipment (7,711) (11,965)
Acquisition (Note 2) (5,551) (51,398)
Proceeds from asset sales 290 326
Net cash used by investing activities $ (12,972) $ (63,037)
     
Matrix Service Company
Consolidated Statements of Cash Flows (continued)
(In thousands)
     
 Six Months Ended
 December 31,December 31,
 20142013
Financing activities:    
Issuances of common stock $ 364 $ 602
Excess tax benefit of exercised stock options and vesting of deferred shares 1,731 6
Advances under credit agreement 9,272 33,318
Repayments of advances under credit agreement (9,104) (10,127)
Proceeds received for treasury shares sold to Employee Stock Purchase Plan 134 38
Treasury shares purchased from employees to satisfy tax withholding obligations (2,439) (1,638)
Net cash provided (used) by financing activities (42) 22,199
Effect of exchange rate changes on cash (911) (84)
Net increase (decrease) in cash and cash equivalents (8,547) 9,542
Cash and cash equivalents, beginning of period 77,115 63,750
Cash and cash equivalents, end of period $ 68,568 $ 73,292
Supplemental disclosure of cash flow information:    
Cash paid during the period for:    
Income taxes $ 5,905 $ 6,812
Interest $ 748 $ 462
Non-cash investing and financing activities:    
Purchases of property, plant and equipment on account $ 185 $ 1,079

Backlog

We define backlog as the total dollar amount of revenues 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 revenues recognized as of the reporting date.

Three Months Ended December 31, 2014

The following table provides a summary of changes in our backlog for the three months ended December 31, 2014:

 ElectricalOil Gas &Storage    
 InfrastructureChemicalSolutionsIndustrial Total 
 (In thousands)
Backlog as of September 30, 2014 $ 150,023 $ 145,499 $ 538,038 $ 151,100 $ 984,660
Project awards 32,668 77,665 38,644 48,214 197,191
Revenue recognized (58,533) (75,457) (129,805) (79,085) (342,880)
Backlog as of December 31, 2014 $ 124,158 $ 147,707 $ 446,877 $ 120,229 $ 838,971

Six Months Ended December 31, 2014

The following table provides a summary of changes in our backlog for the six months ended December 31, 2014:

 ElectricalOil Gas &Storage    
 InfrastructureChemicalSolutionsIndustrialTotal
 (In thousands)
Backlog as of June 30, 2014 $ 162,136 $ 110,217 $ 482,631 $ 160,842 $ 915,826
Project awards 76,228 166,306 227,342 117,832 587,708
Revenue recognized (114,206) (128,816) (263,096) (158,445) (664,563)
Backlog as of December 31, 2014 $ 124,158 $ 147,707 $ 446,877 $ 120,229 $ 838,971
CONTACT: 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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