UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________
FORM 8-K
__________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 7, 2018
___________________
Matrix Service Company
(Exact Name of Registrant as Specified in Its Charter)
___________________
DELAWARE | 001-15461 | 73-1352174 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
5100 E Skelly Dr., Suite 500, Tulsa, OK | 74135 | |||
(Address of Principal Executive Offices) | (Zip Code) | |||
918-838-8822
(Registrant’s Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
__________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected to not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Item 2.02 | Results of Operations and Financial Condition. |
On February 7, 2018 Matrix Service Company (the “Company”) issued a press release announcing financial results for the second fiscal quarter ended December 31, 2017. The full text of the press release is attached as Exhibit 99 to this Current Report on Form 8-K.
The information in this Item 2.02 and Exhibit 99 attached hereto is being furnished pursuant to Item 2.02 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 | Financial Statements and Exhibits. |
The following exhibit is furnished herewith:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Matrix Service Company | ||||
Dated: February 7, 2018 | By: | /s/ Kevin S. Cavanah | ||
Kevin S. Cavanah | ||||
Vice President and Chief Financial Officer | ||||
Exhibit 99
MATRIX SERVICE COMPANY REPORTS SECOND QUARTER RESULTS; MAINTAINS FULL YEAR EPS GUIDANCE
TULSA, OK – February 7, 2018 – Matrix Service Company (Nasdaq: MTRX), a leading contractor to the energy, power and industrial markets across North America, today reported financial results for its second quarter ended December 31, 2017.
Key highlights:
• | Company earned $0.17 per fully diluted share in the second quarter |
• | Consolidated gross margins increased year over year to 9.4% |
• | Consolidated book-to-bill was 1.0 on awards of $279.1 million, with the largest quarterly awards in Storage Solutions since the fourth quarter of fiscal 2015 |
• | Industrial segment revenue increased 137% while Oil Gas & Chemical segment revenue increased 59% compared to the same period in the prior year |
• | Net income and tax expense benefited by $1.9 million as a result of the Tax Cuts and Jobs Act |
“Our diversified business model continues to serve us well, with strong second quarter results in our Industrial and Oil Gas & Chemical segments. These positive results were offset by an expected reduction in power generation revenue as well as less spending in the high voltage business," said Matrix Service Company President and CEO John R. Hewitt. "Additionally, in our Storage Solutions segment, while revenues were lower as a result of delayed project awards, we achieved a book-to-bill of 1.8 in the quarter. Subsequent to the closing of the quarter, we received a number of additional significant and strategic project awards; announcements on which will be forthcoming."
The delay in the award of these anticipated projects has shifted revenue to later periods. Said Hewitt, "These and other delayed awards, combined with lower than anticipated spending in our Northeastern based high voltage electrical business, will impact our full year revenue. Our EPS guidance remains unchanged, however we are modifying full year revenue guidance from between $1.225 billion and $1.325 billion to between $1.150 billion and $1.225 billion.”
Second Quarter Fiscal 2018 Results
Consolidated revenue was $282.9 million for the three months ended December 31, 2017, compared to $312.7 million in the same period in the prior fiscal year. Storage Solutions revenue declined primarily as a result of delays in project awards which have not allowed the Company to replace higher revenue experienced in the prior year in connection with work on the construction of crude gathering terminals for the Dakota Access pipeline. Electrical Infrastructure segment revenue also declined due to a combination of a reduction in high voltage revenue and revenue associated with the construction of a large power generating facility in the prior year. These decreases were partially offset by higher maintenance, turnaround and construction volumes in our Oil Gas & Chemical segment and higher volumes in our Industrial segment attributable to work in the iron and steel industry.
Consolidated gross profit was $26.7 million in the three months ended December 31, 2017 compared to $28.2 million in the three months ended December 31, 2016. The gross margin was 9.4% in the three months ended December 31, 2017 compared to 9.0% in the same period in the prior fiscal year. The increase in gross margin in fiscal 2018 is primarily attributable to improved construction overhead cost recovery. Consolidated SG&A expenses were $21.5 million in the three months ended December 31, 2017 compared to $20.0 million in the same period a year earlier. The increase in fiscal 2018 is primarily attributable to overhead and amortization on intangible assets associated with a December 2016 acquisition that expanded the Company's engineering business.
As a result of the factors discussed above, the Company earned net income of $4.5 million, or $0.17 per fully diluted share in the second quarter of fiscal 2018 compared to $5.3 million, or $0.20 in the prior year.
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Six Month Fiscal 2018 Results
Consolidated revenue was $552.8 million for the six months ended December 31, 2017, compared to $654.4 million in the same period in the prior fiscal year. Storage Solutions revenue declined primarily as a result of delays in project awards which have not allowed the Company to replace higher revenue experienced in the prior year in connection with work on the construction of crude gathering terminals for the Dakota Access pipeline. Electrical Infrastructure segment revenue also declined due to a combination of a reduction in high voltage revenue and revenue associated with the construction of a large power generating facility in the prior year. These decreases were partially offset by higher maintenance, turnaround and construction volumes in our Oil Gas & Chemical segment and higher volumes in our Industrial segment attributable to work in the iron and steel industry.
Consolidated gross profit was $55.6 million in the six months ended December 31, 2017 compared to $60.5 million in the six months ended December 31, 2016. The gross margin was 10.1% in the six months ended December 31, 2017 compared to 9.2% in the same period in the prior fiscal year. The increase in gross margin in fiscal 2018 is primarily attributable to strong project execution as well as improved construction overhead cost recovery. Consolidated SG&A expenses were $43.1 million in the six months ended December 31, 2017 compared to $38.0 million in the same period a year earlier. The increase in fiscal 2018 is primarily attributable to overhead and amortization on intangible assets associated with a December 2016 acquisition that expanded the Company's engineering business.
As a result of the factors discussed above, the Company earned net income of $8.4 million, or $0.31 per fully diluted share during the six months ended December 31, 2017 compared to $14.6 million, or $0.54 in the prior year.
Impact of Tax Cuts and Jobs Act
The Company’s financial statements have been adjusted to account for the Tax Cuts and Jobs Act (the “Act”). The Act affected the Company’s second quarter and full year results as follows:
• | Resulted in a reduced effective tax rate of 32% for fiscal 2018 based on a blended statutory tax rate of 28%. |
• | Resulted in a $1.2 million tax benefit related to the remeasurement of the Company’s domestic deferred tax assets and liabilities. |
• | Resulted in a $0.7 million tax benefit related to reducing the first half of the year income tax expense to the new reduced fiscal 2018 effective rate of 32%. |
• | The Company does not expect to record a one-time transition tax on unrepatriated earnings of certain foreign entities. |
Backlog
Backlog at December 31, 2017 was $725.0 million compared to $728.8 million at September 30, 2017. Quarterly book-to-bill ratio was 1.0 on project awards of $279.1 million. The six month ended December 31, 2017 book-to-bill ratio was 1.1 on project awards of $595.6 million.
Financial Position
The Company's cash balance increased to $74.1 million in the quarter. The cash balance combined with availability under the credit facility provides the Company with liquidity of $99.7 million at December 31, 2017, a decrease of $32.1 million since September 30, 2017. This decrease in liquidity is primarily attributable to an increase in the capacity constraint of the credit facility along with an increase in project related letters of credit. The Company's liquidity continues to support its long-term strategic growth plans. The Company expects liquidity improvement as we work through the third and fourth quarters of fiscal 2018. Since December 31, 2017, the Company repaid $35.0 million of borrowings under the credit facility while maintaining a cash balance in excess of $60.0 million, further strengthening the Company's liquidity.
Earnings Guidance
The Company is maintaining fiscal 2018 earnings guidance of between $0.55 and $0.75 per fully diluted share. Revenue guidance is being reduced from between $1.225 billion and $1.325 billion to between $1.150 billion and $1.225 billion.
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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 Thursday, February 8, 2018 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 Inc., 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.
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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Matrix Service Company
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except per share data)
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | |||||||||||||
Revenues | $ | 282,911 | $ | 312,655 | $ | 552,821 | $ | 654,436 | ||||||||
Cost of revenues | 256,208 | 284,443 | 497,227 | 593,946 | ||||||||||||
Gross profit | 26,703 | 28,212 | 55,594 | 60,490 | ||||||||||||
Selling, general and administrative expenses | 21,529 | 19,975 | 43,099 | 37,952 | ||||||||||||
Operating income | 5,174 | 8,237 | 12,495 | 22,538 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (819 | ) | (497 | ) | (1,437 | ) | (740 | ) | ||||||||
Interest income | 65 | 26 | 104 | 38 | ||||||||||||
Other | (135 | ) | 47 | 14 | 54 | |||||||||||
Income before income tax expense | 4,285 | 7,813 | 11,176 | 21,890 | ||||||||||||
Provision (benefit) for federal, state and foreign income taxes | (247 | ) | 2,563 | 2,820 | 7,298 | |||||||||||
Net income | $ | 4,532 | $ | 5,250 | $ | 8,356 | $ | 14,592 | ||||||||
Basic earnings per common share | $ | 0.17 | $ | 0.20 | $ | 0.31 | $ | 0.55 | ||||||||
Diluted earnings per common share | $ | 0.17 | $ | 0.20 | $ | 0.31 | $ | 0.54 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 26,771 | 26,553 | 26,713 | 26,470 | ||||||||||||
Diluted | 27,078 | 26,832 | 26,933 | 26,842 | ||||||||||||
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Matrix Service Company
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands)
December 31, 2017 | June 30, 2017 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 74,087 | $ | 43,805 | |||
Accounts receivable, less allowances (December 31, 2017— $6,342 and June 30, 2017—$9,887) | 183,451 | 210,953 | |||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 64,221 | 91,180 | |||||
Inventories | 4,525 | 3,737 | |||||
Income taxes receivable | 3,396 | 4,042 | |||||
Other current assets | 7,826 | 4,913 | |||||
Total current assets | 337,506 | 358,630 | |||||
Property, plant and equipment at cost: | |||||||
Land and buildings | 39,622 | 38,916 | |||||
Construction equipment | 90,710 | 94,298 | |||||
Transportation equipment | 48,647 | 48,574 | |||||
Office equipment and software | 37,169 | 36,556 | |||||
Construction in progress | 3,719 | 5,952 | |||||
Total property, plant and equipment - at cost | 219,867 | 224,296 | |||||
Accumulated depreciation | (143,680 | ) | (144,022 | ) | |||
Property, plant and equipment - net | 76,187 | 80,274 | |||||
Goodwill | 113,845 | 113,501 | |||||
Other intangible assets | 25,364 | 26,296 | |||||
Deferred income taxes | 2,794 | 3,385 | |||||
Other assets | 2,170 | 3,944 | |||||
Total assets | $ | 557,866 | $ | 586,030 | |||
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Matrix Service Company
Condensed Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
December 31, 2017 | June 30, 2017 | ||||||
Liabilities and stockholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 71,253 | $ | 105,649 | |||
Billings on uncompleted contracts in excess of costs and estimated earnings | 66,376 | 75,127 | |||||
Accrued wages and benefits | 19,378 | 20,992 | |||||
Accrued insurance | 8,691 | 9,340 | |||||
Income taxes payable | 17 | 169 | |||||
Other accrued expenses | 4,183 | 7,699 | |||||
Total current liabilities | 169,898 | 218,976 | |||||
Deferred income taxes | 1,158 | 128 | |||||
Borrowings under senior secured revolving credit facility | 50,908 | 44,682 | |||||
Other liabilities | 316 | 435 | |||||
Total liabilities | 222,280 | 264,221 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of December 31, 2017, and June 30, 2017; 26,811,676 and 26,600,562 shares outstanding as of December 31, 2017 and June 30, 2017 | 279 | 279 | |||||
Additional paid-in capital | 128,235 | 128,419 | |||||
Retained earnings | 231,330 | 222,974 | |||||
Accumulated other comprehensive loss | (5,788 | ) | (7,324 | ) | |||
354,056 | 344,348 | ||||||
Less: Treasury stock, at cost — 1,076,541 shares as of December 31, 2017, and 1,287,655 shares as of June 30, 2017 | (18,470 | ) | (22,539 | ) | |||
Total stockholders' equity | 335,586 | 321,809 | |||||
Total liabilities and stockholders’ equity | $ | 557,866 | $ | 586,030 | |||
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Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | |||||||||||||
Gross revenues | ||||||||||||||||
Electrical Infrastructure | $ | 64,852 | $ | 103,158 | $ | 144,823 | $ | 191,183 | ||||||||
Oil Gas & Chemical | 88,396 | 56,913 | 174,257 | 94,741 | ||||||||||||
Storage Solutions | 71,233 | 128,927 | 142,805 | 328,577 | ||||||||||||
Industrial | 59,260 | 25,026 | 92,531 | 47,753 | ||||||||||||
Total gross revenues | $ | 283,741 | $ | 314,024 | $ | 554,416 | $ | 662,254 | ||||||||
Less: Inter-segment revenues | ||||||||||||||||
Oil Gas & Chemical | $ | 37 | $ | 1,199 | $ | 245 | $ | 6,485 | ||||||||
Storage Solutions | 792 | 170 | 1,349 | 298 | ||||||||||||
Industrial | 1 | — | 1 | 1,035 | ||||||||||||
Total inter-segment revenues | $ | 830 | $ | 1,369 | $ | 1,595 | $ | 7,818 | ||||||||
Consolidated revenues | ||||||||||||||||
Electrical Infrastructure | $ | 64,852 | $ | 103,158 | $ | 144,823 | $ | 191,183 | ||||||||
Oil Gas & Chemical | 88,359 | 55,714 | 174,012 | 88,256 | ||||||||||||
Storage Solutions | 70,441 | 128,757 | 141,456 | 328,279 | ||||||||||||
Industrial | 59,259 | 25,026 | 92,530 | 46,718 | ||||||||||||
Total consolidated revenues | $ | 282,911 | $ | 312,655 | $ | 552,821 | $ | 654,436 | ||||||||
Gross profit | ||||||||||||||||
Electrical Infrastructure | $ | 5,541 | $ | 7,225 | $ | 13,808 | $ | 12,475 | ||||||||
Oil Gas & Chemical | 11,768 | 2,431 | 22,806 | 2,432 | ||||||||||||
Storage Solutions | 5,298 | 17,071 | 12,838 | 43,524 | ||||||||||||
Industrial | 4,096 | 1,485 | 6,142 | 2,059 | ||||||||||||
Total gross profit | $ | 26,703 | $ | 28,212 | $ | 55,594 | $ | 60,490 | ||||||||
Operating income (loss) | ||||||||||||||||
Electrical Infrastructure | $ | 1,079 | $ | 2,164 | $ | 4,656 | $ | 3,221 | ||||||||
Oil Gas & Chemical | 5,198 | (1,950 | ) | 9,332 | (4,855 | ) | ||||||||||
Storage Solutions | (2,609 | ) | 8,242 | (2,684 | ) | 25,015 | ||||||||||
Industrial | 1,506 | (219 | ) | 1,191 | (843 | ) | ||||||||||
Total operating income | $ | 5,174 | $ | 8,237 | $ | 12,495 | $ | 22,538 | ||||||||
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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 with no minimum commitments and other established customer 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 December 31, 2017:
Electrical Infrastructure | Oil Gas & Chemical | Storage Solutions | Industrial | Total | |||||||||||||||
(In thousands) | |||||||||||||||||||
Backlog as of September 30, 2017 | $ | 119,642 | $ | 235,549 | $ | 133,138 | $ | 240,468 | $ | 728,797 | |||||||||
Project awards | 40,083 | 91,491 | 123,568 | 24,006 | 279,148 | ||||||||||||||
Revenue recognized | (64,852 | ) | (88,359 | ) | (70,441 | ) | (59,259 | ) | (282,911 | ) | |||||||||
Backlog as of December 31, 2017 | $ | 94,873 | $ | 238,681 | $ | 186,265 | $ | 205,215 | $ | 725,034 | |||||||||
Book-to-bill ratio(1) | 0.6 | 1.0 | 1.8 | 0.4 | 1.0 | ||||||||||||||
(1) | Calculated by dividing project awards by revenue recognized during the period. |
The following table provides a summary of changes in our backlog for the six months ended December 31, 2017:
Electrical Infrastructure | Oil Gas & Chemical | Storage Solutions | Industrial | Total | |||||||||||||||
(In thousands) | |||||||||||||||||||
Backlog as of June 30, 2017 | $ | 162,637 | $ | 287,007 | $ | 141,551 | $ | 91,078 | $ | 682,273 | |||||||||
Project awards | 77,059 | 125,686 | 186,170 | 206,667 | 595,582 | ||||||||||||||
Revenue recognized | (144,823 | ) | (174,012 | ) | (141,456 | ) | (92,530 | ) | (552,821 | ) | |||||||||
Backlog as of December 31, 2017 | $ | 94,873 | $ | 238,681 | $ | 186,265 | $ | 205,215 | $ | 725,034 | |||||||||
Book-to-bill ratio(1) | 0.5 | 0.7 | 1.3 | 2.2 | 1.1 | ||||||||||||||
(1) | Calculated by dividing project awards by revenue recognized during the period. |
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