UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) November 6, 2019
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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):
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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 ☐
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Item 2.02 | Results of Operations and Financial Condition. |
On November 6, 2019, Matrix Service Company (the “Company”) issued a press release announcing financial results for the first quarter ended September 30, 2019 and upcoming share repurchases of up to $20.0 million. 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: November 6, 2019 | By: | /s/ Kevin S. Cavanah | ||
Kevin S. Cavanah | ||||
Vice President and Chief Financial Officer | ||||
Exhibit 99
MATRIX SERVICE COMPANY REPORTS FIRST QUARTER 2020 RESULTS
Announces share repurchase of up to $20.0 million
TULSA, OK – November 6, 2019 – Matrix Service Company (Nasdaq: MTRX), a leading contractor to the energy and industrial markets across North America, today reported financial results for its first quarter of fiscal 2020.
Key highlights:
• | Revenue increased by 6.2% to $338.1 million compared to $318.5 million in the first quarter of the prior fiscal year |
• | Fully diluted earnings per share increased 175.0% to $0.22 in the first quarter compared to $0.08 in the first quarter of the prior fiscal year |
• | Backlog at $1.082 billion compared to $1.098 billion at June 30, 2019; book-to-bill of 1.0 for the quarter on $321.7 million of project awards, led by Storage Solutions and Oil Gas & Chemical |
• | Liquidity increased by 27.5% to $308.3 million at September 30, 2019 from $241.9 million at June 30, 2019, and by 138.5% from $129.3 million at September 30, 2018 |
• | Affirms guidance of $1.40 to $1.55 billion of revenue and earnings per fully diluted share of $1.10 to $1.40 |
“Our first quarter results were led by continued strong operating performance in our Storage Solutions and Industrial segments. These strong results were partially offset by a lower than anticipated margin on a project in the Oil Gas & Chemical segment and continued under-performance in the power delivery portion of our Electrical Infrastructure segment,” said John R. Hewitt, President and Chief Executive Officer.
“The diversity of our business coupled with our current backlog and project opportunity pipeline, supports the current fiscal year guidance and longer-term growth strategy. Looking forward, our healthy liquidity profile will allow us to both return value to shareholders through our planned share repurchase, which will occur throughout the remainder of the second quarter, as well as leverage our broad capabilities to grow the business.”
First Quarter Fiscal 2020 Results
Consolidated revenue was $338.1 million for the three months ended September 30, 2019, compared to $318.5 million in the same period in the prior year. On a segment basis, consolidated revenue increased in the Storage Solutions and Industrial segments by $37.3 million and $13.4 million, respectively. These increases were partially offset by decreases in consolidated revenue in the Oil Gas & Chemical and Electrical Infrastructure segments of $18.0 million and $13.2 million, respectively.
Consolidated gross profit increased to $32.5 million in the three months ended September 30, 2019 compared to $23.4 million in the same period in the prior year. The gross margin increased to 9.6% in the three months ended September 30, 2019 compared to 7.4% in the same period in the prior year. The fiscal 2020 gross margin was positively impacted by strong project execution in the Storage Solutions segment. The Oil Gas & Chemical segment performed well with the exception of under recovery of construction overhead costs caused by lower revenue and lower than expected margin on one project. The performance of the power delivery portion of the Electrical Infrastructure segment was impacted by a transmission and distribution project charge and low revenue volumes which led to under recovery of construction overhead costs.
Consolidated SG&A expenses were $23.7 million in the three months ended September 30, 2019 compared to $21.2 million in the same period in the prior year. This increase was primarily due to improved operating results, which led to higher incentive compensation expense, and investments in personnel to support the ongoing growth of our business.
Our effective tax rate for the three months ended September 30, 2019 was 30.6% compared to 16.4% for the same period a year ago. The effective tax rate in fiscal 2020 was negatively impacted by $0.3 million of excess tax expense related to the vesting of stock-based compensation. The effective tax rate for the three months ended September 30, 2018 was positively impacted by $0.3
1
million of excess tax benefits related to the vesting of stock-based compensation. We still expect our effective tax rate to be approximately 27.0% for the remainder of the fiscal year.
For the three months ended September 30, 2019 net income was $6.2 million, or $0.22 per fully diluted share, compared to $2.3 million or $0.08 per fully diluted share in the prior year.
Backlog
Backlog at September 30, 2019 was $1.082 billion compared to $1.098 billion at June 30, 2019. The quarterly book-to-bill ratio was 1.0 on project awards of $321.7 million.
Financial Position
At September 30, 2019 the Company had total liquidity of $308.3 million, which includes a cash balance of $139.9 million and availability under the credit facility. This represents an increase of $66.4 million since June 30, 2019. The Company's outstanding borrowings were $11.4 million at September 30, 2019.
The Company announces a share repurchase of up to $20.0 million to be executed through open market purchases of the Company's common shares during the remainder of the second quarter of fiscal 2020.
Outlook and Guidance
The outlook for our Storage Solutions and Oil Gas & Chemical segments remain positive. We expect Storage Solutions volumes to remain strong throughout the fiscal year. Increasing work on capital construction projects as well as increased maintenance and repair work should lead to increasing Oil Gas & Chemical revenue as we move through the rest of the fiscal year. Our Industrial segment, which has performed well over the last two years, will likely soften in the second half of the year due to weakness in pricing of certain commodities. However, our long-term outlook for this segment remains positive. Finally, in our Electrical Infrastructure segment, we continue to focus on operating improvements in the power delivery portion of the business.
Although uncertainty surrounding the current economic and political environment can impact the timing and volume of project awards and starts, we do not anticipate any significant impact on the current fiscal year. Therefore, the Company is maintaining fiscal 2020 guidance of revenue between $1.40 billion and $1.55 billion and earnings per fully diluted share of between $1.10 and $1.40.
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, November 7, 2019 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.
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About Matrix Service Company
Founded in 1984, Matrix Service Company (Nasdaq: MTRX) is parent to a family of companies that includes Matrix PDM Engineering, Matrix Service Inc., Matrix NAC, and Matrix Applied Technologies. Our companies design, build and maintain infrastructure critical to North America's energy and industrial markets. Matrix Service Company is headquartered in Tulsa, Oklahoma with 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.
With a culture driven by its core values of safety, integrity, stewardship, positive relationships, community involvement and delivering the best, Matrix has twice been named to Forbes Top 100 Most Trustworthy Companies in America and is consistently recognized as a Great Place to Work®.
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:
Kevin S. Cavanah
Vice President and CFO
T: 918-838-8822
Email:kcavanah@matrixservicecompany.com
Kellie Smythe
Senior Director, Investor Relations
T: 918-359-8267
Email: ksmythe@matrixservicecompany.com
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Matrix Service Company
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except per share data)
Three Months Ended | ||||||||
September 30, 2019 | September 30, 2018 | |||||||
Revenues | $ | 338,097 | $ | 318,511 | ||||
Cost of revenues | 305,632 | 295,090 | ||||||
Gross profit | 32,465 | 23,421 | ||||||
Selling, general and administrative expenses | 23,691 | 21,201 | ||||||
Operating income | 8,774 | 2,220 | ||||||
Other income (expense): | ||||||||
Interest expense | (389 | ) | (292 | ) | ||||
Interest income | 474 | 282 | ||||||
Other | 3 | 546 | ||||||
Income before income tax expense | 8,862 | 2,756 | ||||||
Provision for federal, state and foreign income taxes | 2,711 | 451 | ||||||
Net income | $ | 6,151 | $ | 2,305 | ||||
Basic earnings per common share | $ | 0.23 | $ | 0.09 | ||||
Diluted earnings per common share | $ | 0.22 | $ | 0.08 | ||||
Weighted average common shares outstanding: | ||||||||
Basic | 26,935 | 26,921 | ||||||
Diluted | 27,575 | 27,589 | ||||||
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Matrix Service Company
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands)
September 30, 2019 | June 30, 2019 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 139,889 | $ | 89,715 | |||
Accounts receivable, less allowances (September 30, 2019— $1,091 and June 30, 2019—$923) | 214,614 | 218,432 | |||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 65,996 | 96,083 | |||||
Inventories | 7,561 | 8,017 | |||||
Income taxes receivable | 1,337 | 29 | |||||
Other current assets | 9,969 | 5,034 | |||||
Total current assets | 439,366 | 417,310 | |||||
Property, plant and equipment at cost: | |||||||
Land and buildings | 41,057 | 41,179 | |||||
Construction equipment | 92,142 | 91,793 | |||||
Transportation equipment | 55,179 | 52,526 | |||||
Office equipment and software | 44,164 | 43,632 | |||||
Construction in progress | 7,563 | 7,619 | |||||
Total property, plant and equipment - at cost | 240,105 | 236,749 | |||||
Accumulated depreciation | (158,589 | ) | (157,414 | ) | |||
Property, plant and equipment - net | 81,516 | 79,335 | |||||
Operating lease right-of-use assets | 23,595 | — | |||||
Goodwill | 93,300 | 93,368 | |||||
Other intangible assets | 18,516 | 19,472 | |||||
Deferred income taxes | 2,719 | 2,683 | |||||
Other assets | 13,742 | 21,226 | |||||
Total assets | $ | 672,754 | $ | 633,394 | |||
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Matrix Service Company
Condensed Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
September 30, 2019 | June 30, 2019 | ||||||
Liabilities and stockholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 96,984 | $ | 114,647 | |||
Billings on uncompleted contracts in excess of costs and estimated earnings | 130,191 | 105,626 | |||||
Accrued wages and benefits | 34,214 | 38,357 | |||||
Accrued insurance | 9,539 | 9,021 | |||||
Operating lease liabilities | 8,660 | — | |||||
Income taxes payable | — | 2,517 | |||||
Other accrued expenses | 5,721 | 5,331 | |||||
Total current liabilities | 285,309 | 275,499 | |||||
Deferred income taxes | 2,346 | 298 | |||||
Operating lease liabilities | 15,998 | — | |||||
Borrowings under senior secured revolving credit facility | 11,366 | 5,347 | |||||
Other liabilities | 308 | 293 | |||||
Total liabilities | 315,327 | 281,437 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of September 30, 2019 and June 30, 2019; 27,131,446 and 26,807,203 shares outstanding as of September 30, 2019 and June 30, 2019 | 279 | 279 | |||||
Additional paid-in capital | 132,936 | 137,712 | |||||
Retained earnings | 245,627 | 239,476 | |||||
Accumulated other comprehensive loss | (8,145 | ) | (7,751 | ) | |||
370,697 | 369,716 | ||||||
Less: Treasury stock, at cost — 756,771 shares as of September 30, 2019, and 1,081,014 shares as of June 30, 2019 | (13,270 | ) | (17,759 | ) | |||
Total stockholders' equity | 357,427 | 351,957 | |||||
Total liabilities and stockholders’ equity | $ | 672,754 | $ | 633,394 | |||
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Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
Three Months Ended | ||||||||
September 30, 2019 | September 30, 2018 | |||||||
Gross revenues | ||||||||
Electrical Infrastructure | $ | 31,532 | $ | 44,701 | ||||
Oil Gas & Chemical | 57,786 | 75,562 | ||||||
Storage Solutions | 150,752 | 113,767 | ||||||
Industrial | 99,287 | 85,557 | ||||||
Total gross revenues | $ | 339,357 | $ | 319,587 | ||||
Less: Inter-segment revenues | ||||||||
Oil Gas & Chemical | $ | 256 | $ | 71 | ||||
Storage Solutions | 685 | 1,005 | ||||||
Industrial | 319 | — | ||||||
Total inter-segment revenues | $ | 1,260 | $ | 1,076 | ||||
Consolidated revenues | ||||||||
Electrical Infrastructure | $ | 31,532 | $ | 44,701 | ||||
Oil Gas & Chemical | 57,530 | 75,491 | ||||||
Storage Solutions | 150,067 | 112,762 | ||||||
Industrial | 98,968 | 85,557 | ||||||
Total consolidated revenues | $ | 338,097 | $ | 318,511 | ||||
Gross profit | ||||||||
Electrical Infrastructure | $ | 104 | $ | 3,383 | ||||
Oil Gas & Chemical | 3,635 | 5,625 | ||||||
Storage Solutions | 21,055 | 9,553 | ||||||
Industrial | 7,671 | 4,860 | ||||||
Total gross profit | $ | 32,465 | $ | 23,421 | ||||
Operating income (loss) | ||||||||
Electrical Infrastructure | $ | (1,844 | ) | $ | 657 | |||
Oil Gas & Chemical | (1,773 | ) | 514 | |||||
Storage Solutions | 9,452 | 285 | ||||||
Industrial | 2,939 | 764 | ||||||
Total operating income | $ | 8,774 | $ | 2,220 | ||||
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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, limited 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 agreements, we include only the amounts that we expect to recognize as revenue over the next 12 months. For arrangements in which we have received a limited notice to proceed, we include the entire scope of work in our backlog if we conclude that the likelihood of the full project proceeding is high. For all other arrangements, we calculate backlog as the estimated contract amount less revenues recognized as of the reporting date.
The following table provides a summary of changes in our backlog for the three months ended September 30, 2019:
Electrical Infrastructure | Oil Gas & Chemical | Storage Solutions | Industrial | Total | |||||||||||||||
(In thousands) | |||||||||||||||||||
Backlog as of June 30, 2019 | $ | 73,883 | $ | 134,563 | $ | 641,295 | $ | 248,608 | 1,098,349 | ||||||||||
Project awards | 30,312 | 91,160 | 143,467 | 56,749 | 321,688 | ||||||||||||||
Revenue recognized | (31,532 | ) | (57,530 | ) | (150,067 | ) | (98,968 | ) | (338,097 | ) | |||||||||
Backlog as of September 30, 2019 | $ | 72,663 | $ | 168,193 | $ | 634,695 | $ | 206,389 | $ | 1,081,940 | |||||||||
Book-to-bill ratio(1) | 1.0 | 1.6 | 1.0 | 0.6 | 1.0 | ||||||||||||||
(1) | Calculated by dividing project awards by revenue recognized during the period. |
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