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) October 7, 2004
Matrix Service Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
| 001-15461 | 73-1352174 | |
| (Commission File Number) | (IRS Employer Identification No.) | |
| 10701 E. Ute Street Tulsa, Oklahoma | 74116 | |
| (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))
| Item 2.02 | Results of Operations and Financial Condition. |
On October 7, 2004, Matrix Service Company (the “Registrant”) issued a press release announcing its fiscal 2005 first quarter results. The full text of the press release issued in connection with the announcement is attached as Exhibit 99.1 to this Current Report on Form 8-K. The information in this Current Report on Form 8-K, and the Exhibit 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. |
| Exhibit No. |
Description | |
| 99.1 | Press Release, dated October 7, 2004, announcing fiscal 2005 first quarter results | |
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: October 7, 2004 |
By: |
/s/ George L. Austin | ||||||
| George L. Austin Chief Financial Officer and Principal Accounting Officer | ||||||||
EXHIBIT INDEX
| Exhibit No. |
Description | |
| 99.1 | Press Release, dated October 7, 2004, announcing fiscal 2005 first quarter results | |
Exhibit 99.1
[MATRIX LOGO]
FOR IMMEDIATE RELEASE
MATRIX SERVICE REPORTS FINANCIAL RESULTS FOR FIRST QUARTER 2005;
MAINTENANCE AND REPAIR REVENUES GROW
TULSA, OK – October 7, 2004 – Matrix Service Co. (Nasdaq: MTRX), a leading industrial services company, today reported its financial results for the first quarter, ended August 31, 2005. Total revenues for the quarter were $84.9 million vs. $158.8 million recorded in the first quarter a year ago.
Net loss for the first quarter of fiscal 2005 was $0.9 million, or $0.05 per fully diluted share, vs. net income of $3.9 million, or $0.22 per fully diluted share, in the first quarter a year ago. EBITDA (1) for the first quarter of fiscal 2005 was $1.1 million, compared to $8.7 million for the same period last year. Gross margins on a consolidated basis for the current quarter were 7.9% vs. 8.8% reported in the same quarter a year ago. The narrowing of the gross margin resulted from the lower revenue base available for fixed cost absorption.
Revenues from the Repair and Maintenance segment climbed 14.9% to $40.6 million from $35.4 million in the first quarter of fiscal 2004 resulting from continued strong turnaround activity, which increased 63.2% in fiscal 2005 vs. last year. Gross margins in the Repair and Maintenance segment widened to 9.7% from 9.1% in the same period last year, as the result of a higher volume of refinery turnarounds. These improvements were tempered by softness in our Eastern operations’ maintenance and repair revenues.
Matrix experienced softness in the Construction Services segment, as the two large power projects executed last fiscal year were not replaced dollar-for-dollar in the first quarter of fiscal 2005. Revenues for the Construction Services segment fell 64.1% to $44.3 million from $123.4 million in the first quarter of fiscal 2004. Construction Services’ gross margins narrowed to 6.3% from 8.7% in the first quarter last year, primarily as a result of the lower revenue base available for fixed cost absorption. Matrix also incurred interest and legal expenses of $1.1 million, or $0.04 per fully diluted share, related to collection issues previously disclosed as well as $0.2 million for incremental outside costs related to compliance with Section 404 of the Sarbanes Oxley Act of 2002.
Brad Vetal, president and CEO of Matrix Service, said, “The softness experienced in the first quarter was more severe than anticipated, as our client base remained reluctant to take equipment out of service due to continued strong demand for product and storage capacity. The cost reduction strategies initiated at the end of fiscal 2004, which have reduced the fixed cost structure over $3.0 million annually, resulted in a one-time charge to first quarter earnings of $0.5 million, or $0.02 per fully diluted share, consisting mostly of severance costs. We were pleased with the strengthening of our Repair and Maintenance segment at the end of the first quarter and see a trend of increasing revenues in the upcoming quarters. Our backlog continues to increase and stood at $142.9 million, as of August 31, 2005 compared to $106.1 million at May 31, 2004.”
Matrix Service has retained a financial advisor to assist in refinancing the $20 million term loan that matures on August 31, 2005. The company anticipates having replacement financing in place by November 30, 2004.
| (1) | The Company uses EBITDA (earnings before net interest, income taxes, depreciation and amortization) as part of its overall assessment of financial performance by comparing EBITDA between accounting periods. Matrix believes that EBITDA is used by the financial community as a method of measuring the Company’s performance and of evaluating the market value of companies considered to be in similar businesses. EBITDA should not be considered as an alternative to net income (loss) or cash provided by operating activities, as defined by accounting principles generally accepted in the United States (“GAAP”). A reconciliation of EBITDA to net income (loss) is included at the end of this release. |
Vetal added, “Although we are only one quarter into the new fiscal year, a number of factors are making our ability to provide yearly guidance very difficult. While we expect continued growth in repair and maintenance as well as improved construction services’ margins in our existing backlog, we remain uncertain about the timing of the large capital construction projects we are following. Delays in the start of these projects would result in a shortfall of construction service revenue in this fiscal year prolonging the current underabsorbtion of fixed costs. In addition, the more conservative approach we have taken to negotiating terms and conditions implemented in light of our prior year challenges is beginning to cost us some opportunities. We believe the strategy is sound though the short-term impact will make attaining our previous earnings guidance less likely. As a result, we believe a reduction of our guidance to $0.45 to $0.55 per fully diluted share on revenue of $425 to $475 million from our prior guidance of $0.60 to $0.70 per fully diluted share is appropriate.”
In conjunction with the press release, Matrix Service will host a conference call with Brad Vetal, president and CEO, and Les Austin, vice president and chief financial officer. The call will take place today at 11:00 am (EST)/10:00 am (CST) today and will be simultaneously broadcast live over the Internet at www.vcall.com. 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 online archive of the broadcast will be available within one hour of the live call.
About Matrix Service Company
Matrix Service Company provides general industrial construction and repair and maintenance services principally to the petroleum, petrochemical, power, bulk storage terminal, pipeline and industrial gas industries.
The Company is headquartered in Tulsa, Oklahoma, with regional operating facilities located in Oklahoma, Texas, California, Michigan, Pennsylvania, Illinois, Washington and Delaware in the U.S. 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 identified 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.
| For More Information: | Investors: | |
| Les Austin |
Trúc N. Nguyen | |
| Vice President Finance and CFO |
VP, Investor Relations | |
| Matrix Service Company |
Stern & Co. | |
| 918/838-8822 |
212/888-0044 | |
| laustin@matrixservice.com |
tnguyen@sternco.com |
Matrix Service Company
1st Quarter Results of Operations
($ Amounts in thousands)
| Construction Services |
Repair & Maintenance Services |
Other |
Combined Total |
|||||||||||||
| Three Months Ended August 31, 2004 |
||||||||||||||||
| Gross revenues |
$ | 46,779 | $ | 40,757 | $ | — | $ | 87,536 | ||||||||
| Less: Inter-segment revenues |
(2,453 | ) | (144 | ) | — | (2,597 | ) | |||||||||
| Consolidated revenues |
44,326 | 40,613 | — | 84,939 | ||||||||||||
| Gross profit |
2,792 | 3,922 | — | 6,714 | ||||||||||||
| Operating income (loss) |
(968 | ) | 549 | (175 | ) | (594 | ) | |||||||||
| Income (loss) before income tax expense |
(1,535 | ) | 207 | (175 | ) | (1,503 | ) | |||||||||
| Net income (loss) |
(917 | ) | 129 | (104 | ) | (892 | ) | |||||||||
| Segment assets |
121,767 | 57,660 | 28,263 | 207,690 | ||||||||||||
| Capital expenditures |
88 | 88 | 216 | 392 | ||||||||||||
| Depreciation and amortization expense |
881 | 851 | — | 1,732 | ||||||||||||
| Three Months Ended August 31, 2003 |
||||||||||||||||
| Gross revenues |
$ | 126,395 | $ | 35,408 | $ | — | $ | 161,803 | ||||||||
| Less: Inter-segment revenues |
(2,988 | ) | (53 | ) | — | (3,041 | ) | |||||||||
| Consolidated revenues |
123,407 | 35,355 | — | 158,762 | ||||||||||||
| Gross profit |
10,714 | 3,224 | — | 13,938 | ||||||||||||
| Operating income |
6,098 | 1,001 | — | 7,099 | ||||||||||||
| Income before income tax expense |
5,713 | 791 | — | 6,504 | ||||||||||||
| Net income |
3,398 | 467 | — | 3,865 | ||||||||||||
| Segment assets |
83,704 | 36,007 | 82,250 | 201,961 | ||||||||||||
| Capital expenditures |
288 | 652 | 319 | 1,259 | ||||||||||||
| Depreciation and amortization expense |
910 | 653 | — | 1,563 | ||||||||||||
Matrix Service Company
Consolidated Statements of Operations
(in thousands, except share and per share data)
| Three Months Ended |
||||||||
| August 31, 2004 |
August 31, 2003 |
|||||||
| (unaudited) | ||||||||
| Revenues |
$ | 84,939 | $ | 158,762 | ||||
| Cost of revenues |
78,225 | 145,681 | ||||||
| Net earnings of joint venture |
— | 857 | ||||||
| Gross profit |
6,714 | 13,938 | ||||||
| Selling, general and administrative costs |
7,133 | 6,841 | ||||||
| Restructuring, impairment and abandonment |
175 | (2 | ) | |||||
| Operating income (loss) |
(594 | ) | 7,099 | |||||
| Other income (expense): |
||||||||
| Interest expense |
(901 | ) | (672 | ) | ||||
| Interest income |
— | 11 | ||||||
| Other |
(8 | ) | 66 | |||||
| Income (loss) before income tax expense |
(1,503 | ) | 6,504 | |||||
| Provision for federal, state and foreign income tax expense |
(611 | ) | 2,639 | |||||
| Net income (loss) |
$ | (892 | ) | $ | $$3,865 | |||
| Earnings per share of common stock: |
||||||||
| Basic |
$ | (0.05 | ) | $ | 0.24 | |||
| Diluted |
$ | (0.05 | ) | $ | 0.22 | |||
| Weighted average number of common shares: |
||||||||
| Basic |
17,269,958 | 16,183,598 | ||||||
| Diluted (includes dilutive effect of stock options) |
17,269,958 | 17,329,840 | ||||||
Matrix Service Company
Consolidated Balance Sheets
(in thousands)
| August 31, 2004 |
May 31, 2004 | |||||
| ASSETS: |
(unaudited) | |||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 1,146 | $ | 752 | ||
| Accounts receivable, less allowances (August 31 - $1,034, May 31 - $1,037) |
75,940 | 88,336 | ||||
| Costs and estimated earnings in excess of billings on uncompleted contracts |
22,534 | 24,221 | ||||
| Inventories |
5,500 | 4,584 | ||||
| Income tax receivable |
2,234 | 3,220 | ||||
| Deferred income taxes |
1,487 | 1,493 | ||||
| Prepaid expenses |
3,532 | 2,368 | ||||
| Total current assets |
112,373 | 124,974 | ||||
| Property, plant and equipment at cost: |
||||||
| Land and buildings |
25,169 | 24,518 | ||||
| Construction equipment |
31,498 | 31,294 | ||||
| Transportation equipment |
12,636 | 12,445 | ||||
| Furniture, fixtures and office equipment |
8,798 | 8,743 | ||||
| Construction in progress |
536 | 1,593 | ||||
| 78,637 | 78,593 | |||||
| Less accumulated depreciation |
34,309 | 32,939 | ||||
| Net property, plant and equipment |
44,328 | 45,654 | ||||
| Goodwill |
49,741 | 49,666 | ||||
| Other assets |
1,248 | 1,253 | ||||
| Total assets |
$ | 207,690 | $ | 221,547 | ||
Matrix Service Company
Consolidated Balance Sheets
(in thousands, except share data)
| August 31, 2004 |
May 31, 2004 |
|||||||
| (unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 35,389 | $ | 27,528 | ||||
| Billings on uncompleted contracts in |
12,812 | 13,388 | ||||||
| Accrued insurance |
2,187 | 2,152 | ||||||
| Other accrued expenses |
6,901 | 11,264 | ||||||
| Current portion of long-term debt |
24,802 | 4,893 | ||||||
| Current portion of acquisition payable |
1,858 | 1,835 | ||||||
| Total current liabilities |
83,949 | 61,060 | ||||||
| Long-term debt |
27,781 | 64,209 | ||||||
| Acquisition payable |
5,686 | 5,614 | ||||||
| Deferred income taxes |
4,838 | 4,949 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock—$.01 par value; 30,000,000 shares |
193 | 193 | ||||||
| Additional paid-in capital |
56,262 | 56,101 | ||||||
| Retained earnings |
34,674 | 35,585 | ||||||
| Accumulated other comprehensive loss |
(229 | ) | (395 | ) | ||||
| 90,900 | 91,484 | |||||||
| Less: Treasury stock, at cost – 1,968,950 and |
(5,464 | ) | (5,769 | ) | ||||
| Total stockholders’ equity |
85,436 | 85,715 | ||||||
| Total liabilities and stockholders’ equity |
$ | 207,690 | $ | 221,547 | ||||
6
Non-GAAP Financial Measure
A reconciliation of EBITDA to GAAP financial information follows:
| Three Months Ended August 31 | |||||||
| 2004 |
2003 | ||||||
| (unaudited) (in thousands) | |||||||
| Net Income (Loss) |
$ | (892 | ) | $ | 3,865 | ||
| Interest Expense, net Provision (benefit) for income taxes |
|
901 (611 |
) |
|
661 2,639 | ||
| Depreciation and amortization |
1,732 | 1,563 | |||||
| EBITDA |
$ | 1,130 | $ | 8,728 | |||
The $7.6 million (87.1%) decrease in EBITDA was primarily the result of lower earnings in the three months ended August 31, 2004 as compared to the three months ended August 31, 2003.
7