February 3, 2016

Matrix Service Company Reports Second Quarter Results; Revises Fiscal 2016 Guidance

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TULSA, Okla., Feb. 03, 2016 (GLOBE NEWSWIRE) -- Matrix Service Company (Nasdaq:MTRX), a leading contractor to the energy, power and industrial markets across North America, today reported its financial results for its second quarter and six months ended December 31, 2015.

Key highlights:

  • Consolidated gross profit for the three and six months ended December 31, 2015 was $30.0 million and $64.6 million compared to $16.0 million and $44.3 million for the same periods in fiscal 2015, respectively
  • Consolidated revenue for the three and six months ended December 31, 2015 was $323.5 million and $642.9 million compared to $342.9 million and $664.6 million for the same periods in fiscal 2015, respectively  
  • Unexpected client bankruptcy results in $5.2 million bad debt charge, reducing second quarter earnings per share by $0.12 to $0.20 
  • Company completes acquisition of internationally-based Baillie Tank Equipment
  • Total liquidity increased to $215.6 million at December 31, 2015, a fiscal 2016 increase of $40.8 million or 23.3%
  • Financial strength, strategic focus and market position creates opportunity for long-term expansion


"We had another solid operating quarter overall and results were in line with our expectations, excluding various close-out costs on the Garrison Energy Center project as well as a bad debt charge resulting from an unexpected client bankruptcy.  This performance was achieved despite slower ramp ups on certain projects in the quarter and the continued weakening of our industrial segment end markets," said John Hewitt, President and CEO. "As a result of slower project ramp ups, revenue and profit recognition gets shifted across future quarters without necessarily changing the ultimate outcome. This shift in timing, along with the weakening industrial segment and the bad debt charge, requires that we adjust our guidance."

"As discussed in prior periods, bidding opportunities in our Electrical Infrastructure, Storage Solutions and Oil Gas & Chemical segments continue to be robust. The combination of today's regulatory environment and current market conditions have some owners taking a more cautious approach to the timing of awards, especially on larger projects, but the projects themselves remain critical to our clients' infrastructure," he said.

Despite the challenges, Hewitt also sees significant opportunity for growth. "Our position in the market, our conservative approach to managing our balance sheet and our deliberate, measured approach to diversification has and will continue to serve us well," he said. "The company's financial position is strong and, as such, allows us to continue with our strategic growth plans as evidenced by the recently announced acquisition of Baillie Tank Equipment. Additionally, it enables us to take advantage of larger acquisition opportunities."

Second Quarter Fiscal 2016 Results

Consolidated revenue was $323.5 million for the three months ended December 31, 2015, compared to consolidated revenue of $342.9 million in the same period in the prior fiscal year. On a segment basis, consolidated revenue increased in the Electrical Infrastructure segment by $32.9 million.  This increase was offset by decreased revenue in the Industrial, Oil Gas & Chemical and Storage Solutions segments of $30.7 million, $14.0 million and $7.6 million, respectively.

Consolidated gross profit increased from $16.0 million in the three months ended December 31, 2014 to $30.0 million in the three months ended December 31, 2015. Gross margins were 9.3% in the three months ended December 31, 2015 compared to 4.7% for the three months ended December 31, 2014. Fiscal 2016 gross profit was negatively impacted by the $5.4 million Garrison Energy Center project charge discussed above.  Our share of the project charge reduced second quarter of fiscal 2016 net income by $2.0 million and fully diluted earnings per share by $0.07 to $0.20. In the prior fiscal year, we recorded a charge on this project which reduced gross profit by $22.9 million, net income by $7.9 million and fully diluted earnings per share by $0.29 to $0.12.

A non-routine bad debt charge of $5.2 million from an unexpected client bankruptcy increased consolidated SG&A expenses to $25.1 million in the three months ended December 31, 2015 compared to $19.6 million in the same period a year earlier.

Six Month Fiscal 2016 Results

Consolidated revenue for the six months ended December 31, 2015 was $642.9 million compared to $664.6 million in the same period a year earlier, a decrease of $21.7 million, or 3.3%. On a segment basis, consolidated revenue increased in the Electrical Infrastructure, Storage Solutions and Oil Gas & Chemical segments by $42.8 million, $3.3 million and $1.1 million, respectively. These increases were offset by a reduction in the Industrial segment of $68.9 million.

Consolidated gross profit increased from $44.3 million in the six months ended December 31, 2014 to $64.6 million in the six months ended December 31, 2015. Gross margins were 10.0% in the six months ended December 31, 2015 compared to 6.7% for the six months ended December 31, 2014.  Fiscal 2016 gross profit was reduced due to a $5.5 million project charge related to the Garrison Energy Center.  Our share of the project charge reduced fiscal 2016 net income by $2.0 million and fully diluted earnings per share by $0.07 to $0.56. In the prior fiscal year, we recorded charges on this project which reduced gross profit by $26.2 million, net income by $9.0 million and fully diluted earnings per share by $0.33 to $0.34.

A non-routine bad debt charge of $5.2 million from an unexpected client bankruptcy increased consolidated SG&A expenses to $44.6 million compared to $39.5 million in the same period a year earlier.

Backlog

Backlog at December 31, 2015 was $1.12 billion, compared to $1.28 billion at September 30, 2015 and $1.42 billion at June 30, 2015.  Project awards totaled $177.9 million and $372.9 million for the three and six months ended December 31, 2015.

Financial Position

Availability under the Company's credit facility of $133.2 million along with the Company's cash balance of $82.4 million provided liquidity of $215.6 million at December 31, 2015, an increase of $40.8 million, or 23.3%, in fiscal 2016.

Earnings Guidance

Primarily as a result of the unexpected bankruptcy discussed above and the timing of revenue ramp up, the Company is reducing fiscal 2016 revenue guidance from between $1.4 billion and $1.6 billion to between $1.3 billion and $1.4 billion and is reducing fiscal 2016 earnings guidance from between $1.45 and $1.75 per fully diluted share to between $1.30 and $1.50 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, February 4, 2016 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
Consolidated Statements of Income
(unaudited)
(In thousands, except per share data)
     
  Three Months Ended Six Months Ended
  December 31,
 2015
 December 31,
 2014
 December 31,
 2015
 December 31,
 2014
Revenues $323,529  $342,880  $642,860  $664,563 
Cost of revenues 293,524  326,925  578,271  620,229 
Gross profit 30,005  15,955  64,589  44,334 
Selling, general and administrative expenses 25,070  19,626  44,553  39,458 
Operating income (loss) 4,935  (3,671) 20,036  4,876 
Other income (expense):        
Interest expense (252) (300) (515) (652)
Interest income 60  308  91  350 
Other (148) (28) (202) 29 
Income (loss) before income tax expense 4,595  (3,691) 19,410  4,603 
Provision for federal, state and foreign income taxes 1,477  1,155  6,553  4,779 
Net income (loss) $3,118  $(4,846) 12,857  (176)
Less: Net loss attributable to noncontrolling interest (2,313) (8,132) (2,515) (9,376)
Net income attributable to Matrix Service Company $5,431  $3,286  $15,372  $9,200 
         
Basic earnings per common share $0.20  $0.12  $0.58  $0.35 
Diluted earnings per common share $0.20  $0.12  $0.56  $0.34 
Weighted average common shares outstanding:        
Basic 26,721  26,600  26,598  26,535 
Diluted 27,248  27,156  27,229  27,154 






Matrix Service Company
Consolidated Balance Sheets
(unaudited)
(In thousands)
 
 December 31,
 2015
 June 30,
 2015
Assets   
Current assets:   
Cash and cash equivalents$82,431  $79,239 
Accounts receivable, less allowances (December 31, 2015— $6,105 and June 30, 2015—$561)207,425  199,149 
Costs and estimated earnings in excess of billings on uncompleted contracts81,743  86,071 
Inventories2,688  2,773 
Income taxes receivable5,123  579 
Other current assets7,236  5,660 
Total current assets386,646  373,471 
Property, plant and equipment at cost:   
Land and buildings32,712  32,746 
Construction equipment89,027  87,561 
Transportation equipment46,991  47,468 
Office equipment and software28,292  28,874 
Construction in progress9,235  5,196 
Total property, plant and equipment - at cost206,257  201,845 
Accumulated depreciation(123,416) (116,782)
Property, plant and equipment - net82,841  85,063 
Goodwill70,605  71,518 
Other intangible assets21,986  23,961 
Deferred income taxes3,467  3,729 
Other assets6,603  3,947 
Total assets$572,148  $561,689 
    






Matrix Service Company
Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
    
 December 31,
 2015
 June 30,
 2015
Liabilities and stockholders' equity   
Current liabilities:   
Accounts payable$109,336  $125,792 
Billings on uncompleted contracts in excess of costs and estimated earnings114,140  96,704 
Accrued wages and benefits18,875  26,725 
Accrued insurance8,898  8,100 
Income taxes payable57  3,268 
Other accrued expenses6,710  6,498 
Total current liabilities258,016  267,087 
Deferred income taxes1,988  1,244 
Borrowings under senior credit facility7,226  8,804 
Total liabilities267,230  277,135 
Commitments and contingencies   
Stockholders' equity:   
Matrix Service Company stockholders' equity:   
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of December 31, 2015, and June 30, 2015; 26,914,918 and 26,440,823 shares outstanding as of December 31, 2015 and June 30, 2015279  279 
Additional paid-in capital124,168  123,038 
Retained earnings209,766  194,394 
Accumulated other comprehensive loss(9,741) (5,926)
 324,472  311,785 
Less: Treasury stock, at cost— 973,299 shares as of December 31, 2015, and 1,447,394 shares as of June 30, 2015(16,730) (18,489)
Total Matrix Service Company stockholders' equity307,742  293,296 
Noncontrolling interest(2,824) (8,742)
Total stockholders' equity304,918  284,554 
Total liabilities and stockholders' equity$572,148  $561,689 
    






Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
 
 
  Three Months Ended Six Months Ended
  December 31,
 2015
 December 31,
 2014
 December 31,
 2015
 December 31,
 2014
Gross revenues        
Electrical Infrastructure $91,398  $58,533  $157,023  $114,206 
Oil Gas & Chemical 63,472  76,419  132,431  130,618 
Storage Solutions 122,647  129,987  267,217  263,337 
Industrial 48,390  79,972  89,725  159,332 
Total gross revenues $325,907  $344,911  $646,396  $667,493 
Less: Inter-segment revenues        
Electrical Infrastructure $  $  $  $ 
Oil Gas & Chemical 1,932  962  2,580  1,802 
Storage Solutions 478  182  812  241 
Industrial (32) 887  144  887 
Total inter-segment revenues $2,378  $2,031  $3,536  $2,930 
Consolidated revenues        
Electrical Infrastructure $91,398  $58,533  $157,023  $114,206 
Oil Gas & Chemical 61,540  75,457  129,851  128,816 
Storage Solutions 122,169  129,805  266,405  263,096 
Industrial 48,422  79,085  89,581  158,445 
Total consolidated revenues $323,529  $342,880  $642,860  $664,563 
Gross profit (loss)        
Electrical Infrastructure $4,021  $(16,058) $8,729  $(16,547)
Oil Gas & Chemical 5,971  7,352  11,654  11,738 
Storage Solutions 14,426  14,231  34,658  28,749 
Industrial 5,587  10,430  9,548  20,394 
Total gross profit $30,005  $15,955  $64,589  $44,334 
Operating income (loss)        
Electrical Infrastructure $(723) $(18,522) $477  $(22,178)
Oil Gas & Chemical (3,029) 2,682  (1,613) 3,260 
Storage Solutions 6,374  6,627  17,923  13,730 
Industrial 2,313  5,542  3,249  10,064 
Total operating income $4,935  $(3,671) $20,036  $4,876 






Matrix Service Company
Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
  
 Six Months Ended
 December 31,
 2015
 December 31,
 2014
Operating activities:   
Net income (loss)$12,857  $(176)
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization10,720  11,540 
Deferred income tax1,390  1,011 
Gain on sale of property, plant and equipment(37) (120)
Provision for uncollectible accounts5,544  451 
Stock-based compensation expense3,509  3,168 
Excess tax benefit of exercised stock options and vesting of deferred shares(3,245) (1,731)
Other119  118 
Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from acquisitions:   
Accounts receivable(13,820) (9,243)
Costs and estimated earnings in excess of billings on uncompleted contracts4,328  3,435 
Inventories85  32 
Other assets and liabilities(8,861) 3,247 
Accounts payable(16,743) (19,429)
Billings on uncompleted contracts in excess of costs and estimated earnings17,436  19,174 
Accrued expenses(6,840) (6,099)
Net cash provided by operating activities6,442  5,378 
Investing activities:   
Acquisition of property, plant and equipment(7,516) (7,711)
Acquisition  (5,551)
Proceeds from asset sales145  290 
Net cash used by investing activities$(7,371) $(12,972)






Matrix Service Company
Consolidated Statements of Cash Flows (continued)
(Unaudited)
(In thousands)
  
 Six Months Ended
 December 31,
 2015
 December 31,
 2014
Financing activities:   
Capital contributions from noncontrolling interest$8,433  $ 
Issuances of common stock457  364 
Excess tax benefit of exercised stock options and vesting of deferred shares3,245  1,731 
Advances under credit agreement2,753  9,272 
Repayments of advances under credit agreement(4,331) (9,104)
Proceeds from issuance of common stock under employee stock purchase plan166  134 
      
Repurchase of common stock for payment of statutory taxes due on equity-based compensation(4,488) (2,439)
Net cash provided (used) by financing activities6,235  (42)
Effect of exchange rate changes on cash and cash equivalents(2,114) (911)
Increase (decrease) in cash and cash equivalents3,192  (8,547)
Cash and cash equivalents, beginning of period79,239  77,115 
Cash and cash equivalents, end of period$82,431  $68,568 
Supplemental disclosure of cash flow information:   
Cash paid during the period for:   
Income taxes$9,112  $5,905 
Interest$521  $748 
Non-cash investing and financing activities:   
Purchases of property, plant and equipment on account$726  $185 


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.

Three Months Ended December 31, 2015

The following table provides a summary of changes in our backlog for the three months ended December 31, 2015:

  Electrical
Infrastructure
 Oil Gas &
Chemical
 Storage
Solutions
 Industrial Total
  (In thousands)
Backlog as of September 30, 2015 $466,788  $129,038  $593,822  $95,062  $1,284,710 
Project awards 51,392  48,813  56,419  21,242  177,866 
Project delays and cancellations     (22,013)   (22,013)
Revenue recognized (91,398) (61,540) (122,169) (48,422) (323,529)
Backlog as of December 31, 2015 $426,782  $116,311  $506,059  $67,882  $1,117,034 


Six Months Ended December 31, 2015

The following table provides a summary of changes in our backlog for the six months ended December 31, 2015:

  Electrical
Infrastructure
 Oil Gas &
Chemical
 Storage
Solutions
 Industrial Total
  (In thousands)
Backlog as of June 30, 2015 $493,973  $132,985  $670,493  $123,147  1,420,598 
Project awards 89,832  113,177  123,984  45,922  372,915 
Project delays and cancellations     (22,013) (11,606) (33,619)
Revenue recognized (157,023) (129,851) (266,405) (89,581) (642,860)
Backlog as of December 31, 2015 $426,782  $116,311  $506,059  $67,882  $1,117,034 

 

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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