May 4, 2016

Matrix Service Company Reports Third Quarter Results; Lowers Fiscal 2016 Guidance

TULSA, Okla., May 04, 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 third quarter and nine months ended March 31, 2016.

Key highlights:

  • Year-to-date revenue in the Electrical and Storage Solutions segments increased 54.8% and 7.8%, respectively, while market conditions negatively impacted the Industrial and Oil Gas & Chemical segments
  • Consolidated gross profit for the three and nine months ended March 31, 2016 was $27.3 million and $91.9 million compared to $2.6 million and $47.0 million for the same periods in fiscal 2015
  • Fully diluted quarterly earnings per share increased to $0.16 from a loss of $0.11 a year earlier
  • Backlog remains healthy at $1.03 billion with an increase in project awards of 26.4% over the prior period
  • Total liquidity improved 11.3% to $239.9 million at March 31, 2016
  • Company completed $5.5 million in quarterly share repurchases for a total of $10.5 million over the last 12 months

"Third quarter gross margin performance in our primary segments was strong, we received new awards of nearly $225 million in the quarter, and we generated positive cash from operations while also closing an acquisition and repurchasing stock," said John R. Hewitt, Matrix Service Company's President and Chief Executive Officer. "That said, because of the negative impact of low commodity prices and reduced gross margins in our Oil Gas & Chemical and Industrial segments, earnings have trailed our expectations.  While we still expect overall improvement in operating results in the fourth quarter, low commodity prices will continue to impact our business. We are, therefore, adjusting guidance for the remainder of the fiscal year."

Hewitt added that despite continued market volatility, long-term opportunities for growth in the Company's diversified portfolio and proposal activity across its primary segments remain strong.

"We remain confident in our ability to win projects in an increasingly competitive environment," said Hewitt. "However, a more cautious approach to decision-making on the part of clients, together with more conservative financial and regulatory requirements, will impact the timing of those awards. Improvement in the global economy and the commodity supply demand imbalances will provide additional stimulus for consolidated backlog growth."

Third Quarter Fiscal 2016 Results

Consolidated revenue was $309.4 million for the three months ended March 31, 2016, compared to $314.2 million in the same period in the prior fiscal year.  On a segment basis, consolidated revenue increased in the Electrical Infrastructure and Storage Solutions segments by $46.2 million and $25.4 million, respectively.  These increases were offset by decreased revenue in the Oil Gas & Chemical and Industrial segments of $40.1 million and $36.3 million, respectively.

Consolidated gross profit increased to $27.3 million in the three months ended March 31, 2016 compared to $2.6 million in the three months ended March 31, 2015.  Consolidated gross margins were 8.8% in the three months ended March 31, 2016 compared to 0.8% for the three months ended March 31, 2015.

On a segment basis, gross profit increased by $32.8 million in the Electrical Infrastructure segment with a fiscal 2016 gross margin of 11.0%.  Electrical Infrastructure margins for fiscal 2015 were negatively impacted by a joint venture project charge of $28.5 million on the Garrison Energy Center project, of which $10.0 million was our joint venture partner's share and was reported as non-controlling interest. This charge reduced fiscal 2015 margins by 57.7% to (46.5%). Gross profit in the Storage Solutions segment increased $3.9 million with fiscal 2016 margins of 11.4%. Gross profit decreased in the Industrial and Oil Gas & Chemical segments by $7.4 million and $4.7 million respectively.  Fiscal 2016 gross margins of (3.1%) and 4.7% in the Industrial and Oil Gas & Chemical segments were the result of unfavorable market conditions including lower levels of maintenance and turnaround work, as well as fewer higher margin capital projects which resulted in less recovery of fixed overhead costs. Additionally, a project charge in our upstream business and a forecasted unfavorable customer settlement in the Industrial segment also impacted these margins.

Consolidated SG&A expenses increased to $21.0 million for the three months ended March 31, 2016 compared to $17.1 million in the same period a year earlier. The increase was primarily due to lower fiscal 2015 incentive compensation and fiscal 2016 acquisition related costs of $0.8 million.

Nine Month Fiscal 2016 Results

Consolidated revenue for the nine months ended March 31, 2016 was $952.3 million compared to $978.7 million in the same period a year earlier, a decrease of $26.4 million, or 2.7%.  On a segment basis, consolidated revenue increased in the Electrical Infrastructure and Storage Solutions segments by $89.0 million and $28.8 million, respectively.  These increases were offset by decreased revenue in the Industrial and Oil Gas & Chemical segments of $105.2 million and $39.0 million, respectively.

Consolidated gross profit increased to $91.9 million in the nine months ended March 31, 2016 compared to $47.0 million in the nine months ended March 31, 2015.  Consolidated gross margins were 9.6% in the nine months ended March 31, 2016 compared to 4.8% for the nine months ended March 31, 2015.

On a segment basis, gross profit increased by $58.1 million in the Electrical Infrastructure segment. Electrical Infrastructure margins for fiscal 2016 were negatively impacted by joint venture project charges of $7.1 million on the Garrison Energy Center project, of which $3.3 million was our joint venture partner's share and is reported as non-controlling interest. In fiscal 2015 these charges totaled $54.7 million of which $19.4 million was our joint venture partner's share and was reported as non-controlling interest. These charges reduced fiscal 2016 gross margins by 3.2% to 7.6 % and fiscal 2015 margins by 35.1% to (24.0%). Gross profit in the Storage Solutions segment increased $9.8 million for the nine months ended March 31, 2016 with margins of 12.5%. Gross profit decreased in the Industrial and Oil Gas & Chemical segments by $18.2 million and $4.7 million respectively.  Fiscal 2016 gross margins of 7.5% and 7.7% in the Industrial and Oil Gas & Chemical segments were negatively impacted by unfavorable market conditions which led to lower levels of maintenance and turnaround work, as well as fewer higher margin capital projects, and resulted in less recovery of fixed overhead costs.

Consolidated SG&A expenses increased to $65.5 million for the nine months ended March 31, 2016 compared to $56.5 million in the same period a year earlier.  The increase was primarily due to lower fiscal 2015 incentive compensation, a non-routine bad debt charge of $5.2 million from client bankruptcy that occurred in the second quarter of fiscal 2016, as well as fiscal 2016 acquisition related costs of $0.9 million related to closing on Baillie Tank Equipment. Integration of Baillie Tank Equipment is  moving ahead of plan and market acceptance is proving to be strong.

Backlog

Backlog at March 31, 2016 was $1.03 billion compared to $1.12 billion at December 31, 2015 on project awards of  $224.9 million.

Financial Position

Availability under the Company's credit facility of $166.5 million along with the Company's cash balance of $73.4 million provided liquidity of $239.9 million at March 31, 2016, an increase of $65.1 million, or 37.2%, in fiscal 2016. The increase in liquidity was achieved despite the funding of an acquisition for $13.0 million in cash, a share buyback of $5.5 million and the repayment of $6.8 million of long-term debt.

Earnings Guidance

Due to the negative impact of low commodity prices on the Company's business, primarily in the Oil Gas & Chemical and Industrial segments, the Company is reducing fiscal 2016 guidance.  Revenue guidance is being revised from between $1.3 billion and $1.4 billion to between $1.275 billion and $1.325 billion. Fiscal 2016 earnings guidance is being revised from between $1.30 and $1.50 per fully diluted share to between $1.00 and $1.10.

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, May 5, 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

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
(unaudited)
(In thousands, except per share data)
     
  Three Months Ended Nine Months Ended
  March 31,
 2016
 March 31,
 2015
 March 31,
 2016
 March 31,
 2015
Revenues $309,422  $314,155  $952,282  $978,718 
Cost of revenues 282,119  311,523  860,390  931,752 
Gross profit 27,303  2,632  91,892  46,966 
Selling, general and administrative expenses 20,956  17,080  65,509  56,538 
Operating income (loss) 6,347  (14,448) 26,383  (9,572)
Other income (expense):        
Interest expense (241) (294) (756) (946)
Interest income 56  40  147  390 
Other (109) 252  (311) 281 
Income (loss) before income tax expense 6,053  (14,450) 25,463  (9,847)
Provision for federal, state and foreign income taxes 2,507  (1,508) 9,060  3,271 
Net income (loss) $3,546  $(12,942) 16,403  (13,118)
Less: Net loss attributable to noncontrolling interest (811) (9,983) (3,326) (19,359)
Net income (loss) attributable to Matrix Service Company $4,357  $(2,959) $19,729  $6,241 
         
Basic earnings (loss) per common share $0.16  $(0.11) $0.74  $0.23 
Diluted earnings (loss) per common share $0.16  $(0.11) $0.73  $0.23 
Weighted average common shares outstanding:        
Basic 26,758  26,711  26,651  26,593 
Diluted 27,054  26,711  27,191  27,175 
             


Matrix Service Company
Consolidated Balance Sheets
(unaudited)
(In thousands)
 
 March 31,
 2016
 June 30,
 2015
Assets   
Current assets:   
Cash and cash equivalents$73,403  $79,239 
Accounts receivable, less allowances (March 31, 2016— $6,246 and June 30, 2015—$561)170,713  199,149 
Costs and estimated earnings in excess of billings on uncompleted contracts92,646  86,071 
Inventories3,464  2,773 
Income taxes receivable2,870  579 
Other current assets8,004  5,660 
Total current assets351,100  373,471 
Property, plant and equipment at cost:   
Land and buildings38,645  32,746 
Construction equipment89,046  87,561 
Transportation equipment48,187  47,468 
Office equipment and software29,168  28,874 
Construction in progress9,826  5,196 
Total property, plant and equipment - at cost214,872  201,845 
Accumulated depreciation(127,527) (116,782)
Property, plant and equipment - net87,345  85,063 
Goodwill78,845  71,518 
Other intangible assets21,936  23,961 
Deferred income taxes3,569  3,729 
Other assets6,847  3,947 
Total assets$549,642  $561,689 
    


Matrix Service Company
Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
 
    
 March 31,
 2016
 June 30,
 2015
Liabilities and stockholders' equity   
Current liabilities:   
Accounts payable$122,941  $125,792 
Billings on uncompleted contracts in excess of costs and estimated earnings66,809  96,704 
Accrued wages and benefits28,944  26,725 
Accrued insurance8,542  8,100 
Income taxes payable473  3,268 
Other accrued expenses5,393  6,498 
Total current liabilities233,102  267,087 
Deferred income taxes2,620  1,244 
Borrowings under senior credit facility3,845  8,804 
Other liabilities203   
Total liabilities239,770  277,135 
Commitments and contingencies   
Stockholders' equity:   
Matrix Service Company stockholders' equity:   
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of March 31, 2016, and June 30, 2015; 26,606,490 and 26,440,823 shares outstanding as of March 31, 2016 and June 30, 2015279  279 
Additional paid-in capital125,655  123,038 
Retained earnings214,123  194,394 
Accumulated other comprehensive loss(6,987) (5,926)
 333,070  311,785 
Less: Treasury stock, at cost— 1,281,727 shares as of March 31, 2016, and 1,447,394 shares as of June 30, 2015(22,022) (18,489)
Total Matrix Service Company stockholders' equity311,048  293,296 
Noncontrolling interest(1,176) (8,742)
Total stockholders' equity309,872  284,554 
Total liabilities and stockholders' equity$549,642  $561,689 
    


Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
 
  Three Months Ended Nine Months Ended
  March 31,
 2016
 March 31,
 2015
 March 31,
 2016
 March 31,
 2015
Gross revenues        
Electrical Infrastructure $94,414  $48,228  $251,437  $162,434 
Oil Gas & Chemical 56,251  97,612  188,682  228,230 
Storage Solutions 132,857  107,640  400,074  370,977 
Industrial 26,650  64,841  116,375  224,173 
Total gross revenues $310,172  $318,321  $956,568  $985,814 
Less: Inter-segment revenues        
Electrical Infrastructure $  $  $  $ 
Oil Gas & Chemical 522  1,854  3,102  3,656 
Storage Solutions 228  477  1,040  718 
Industrial   1,835  144  2,722 
Total inter-segment revenues $750  $4,166  $4,286  $7,096 
Consolidated revenues        
Electrical Infrastructure $94,414  $48,228  $251,437  $162,434 
Oil Gas & Chemical 55,729  95,758  185,580  224,574 
Storage Solutions 132,629  107,163  399,034  370,259 
Industrial 26,650  63,006  116,231  221,451 
Total consolidated revenues $309,422  $314,155  $952,282  $978,718 
Gross profit (loss)        
Electrical Infrastructure $10,407  $(22,429) $19,136  $(38,976)
Oil Gas & Chemical 2,616  7,261  14,270  18,999 
Storage Solutions 15,108  11,247  49,766  39,996 
Industrial (828) 6,553  8,720  26,947 
Total gross profit $27,303  $2,632  $91,892  $46,966 
Operating income (loss)        
Electrical Infrastructure $4,948  $(24,306) $5,425  $(46,484)
Oil Gas & Chemical (1,964) 2,563  (3,577) 5,823 
Storage Solutions 6,382  5,055  24,305  18,785 
Industrial (3,019) 2,240  230  12,304 
Total operating income $6,347  $(14,448) $26,383  $(9,572)
                 


Matrix Service Company
Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
  
 Nine Months Ended
 March 31,
 2016
 March 31,
 2015
Operating activities:   
Net income (loss)$16,403  $(13,118)
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization16,139  17,332 
Deferred income tax1,413  (1,026)
Gain on sale of property, plant and equipment(111) (305)
Provision for uncollectible accounts5,684  419 
Stock-based compensation expense5,023  4,730 
Excess tax benefit of exercised stock options and vesting of deferred shares(3,222) (1,764)
Other179  178 
Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from acquisitions:   
Accounts receivable23,684  17,353 
Costs and estimated earnings in excess of billings on uncompleted contracts(6,575) (4,332)
Inventories568  170 
Other assets and liabilities(5,461) 2,425 
Accounts payable(3,492) (23,025)
Billings on uncompleted contracts in excess of costs and estimated earnings(29,895) 31,006 
Accrued expenses983  6,932 
Net cash provided by operating activities21,320  36,975 
Investing activities:   
Acquisition of property, plant and equipment(11,746) (11,075)
Acquisitions(13,049) (5,551)
Proceeds from asset sales258  653 
Net cash used by investing activities$(24,537) $(15,973)
        


Matrix Service Company
Consolidated Statements of Cash Flows (continued)
(Unaudited)
(In thousands)
  
 Nine Months Ended
 March 31,
 2016
 March 31,
 2015
Financing activities:   
Capital contributions from noncontrolling interest$10,892  $7,802 
Issuances of common stock578  493 
Excess tax benefit of exercised stock options and vesting of deferred shares3,222  1,764 
Advances under credit agreement2,753  8,289 
Repayments of advances under credit agreement(7,712) (9,976)
Repayment of acquired long-term debt(1,858)  
Proceeds from issuance of common stock under employee stock purchase plan261  215 
Open market purchase of treasury shares(5,460)  
Repurchase of common stock for payment of statutory taxes due on equity-based compensation(4,540) (2,472)
Net cash provided (used) by financing activities(1,864) 6,115 
Effect of exchange rate changes on cash and cash equivalents(755) (1,049)
Increase (decrease) in cash and cash equivalents(5,836) 26,068 
Cash and cash equivalents, beginning of period79,239  77,115 
Cash and cash equivalents, end of period$73,403  $103,183 
Supplemental disclosure of cash flow information:   
Cash paid during the period for:   
Income taxes$9,192  $6,700 
Interest$789  $1,019 
Non-cash investing and financing activities:   
Purchases of property, plant and equipment on account$401  $1,104 
Acquisition of long-term debt$1,858  $ 
        

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 March 31, 2016

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

 Electrical
Infrastructure
 Oil Gas &
Chemical
 Storage
Solutions
 Industrial Total
 (In thousands)
Backlog as of December 31, 2015$426,782  $116,311  $506,059  $67,882  $1,117,034 
Project awards51,561  40,465  109,437  23,398  224,861 
Revenue recognized(94,414) (55,729) (132,629) (26,650) (309,422)
Backlog as of March 31, 2016$383,929  $101,047  $482,867  $64,630  $1,032,473 
                    

Nine Months Ended March 31, 2016

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

 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 awards141,393  153,642  233,421  69,320  597,776 
Project delays and cancellations    (22,013) (11,606) (33,619)
Revenue recognized(251,437) (185,580) (399,034) (116,231) (952,282)
Backlog as of March 31, 2016$383,929  $101,047  $482,867  $64,630  $1,032,473 
                    

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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