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Matrix Service Company Reports First Quarter Results; Affirms Fiscal 2017 Guidance

/EIN News/ -- TULSA, Okla., Nov. 07, 2016 (GLOBE NEWSWIRE) -- Matrix Service Company (Nasdaq:MTRX), a leading contractor to the energy, power and industrial markets across North America, today reported financial results for its first quarter ended September 30, 2016.

Key highlights:

  • Revenue increases to $341.8 million compared to $319.3 million in the first quarter of the prior fiscal year
  • Company achieves strong fully diluted earnings per share of $0.35
  • Backlog remains solid at $786.6 million with first quarter project awards of $259.7 million
  • Company affirms fiscal 2017 guidance

“We are pleased with our first quarter results which reflect strong revenue and earnings per share, led by very strong operational performance in our Storage Solutions segment,” said Matrix Service Company President and Chief Executive Officer John R. Hewitt.  "Additionally, project awards of almost $260 million support our fiscal 2017 revenue guidance."

Related to the Company's pipeline of project opportunities, Hewitt indicated that as the commodity markets begin to show signs of recovery, customers in the Company's Storage and Oil Gas & Chemical segments are showing cautious optimism as demonstrated by their proposal activity, FEED work and planning requirements.  The Electrical Infrastructure segment continues to have a strong contracting environment in both delivery and generation.

"Based on our long-term macro view of our business markets and the bidding environment we currently see, we expect capital projects and maintenance spending to increase over the next several quarters and into our fiscal 2018. Based on our strategic position in the marketplace and our strong client relationships, we remain confident in our ability to win projects that support our growth objectives and strategic vision," he said.

First Quarter Fiscal 2017 Results

Consolidated revenue was $341.8 million for the three months ended September 30, 2016, compared to $319.3 million in the same period in the prior fiscal year.  The 7.0% increase resulted from the strength of the Storage Solutions and Electrical Infrastructure segments.  The Company earned $9.3 million, or $0.35 per fully diluted share in the first quarter of fiscal 2017 compared to $9.9 million, or $0.37 per fully diluted share in the prior year.

Consolidated gross profit was $32.3 million in the three months ended September 30, 2016 compared to $34.6 million in the three months ended September 30, 2015.  The gross margin was 9.4% in the three months ended September 30, 2016 compared to 10.8% in the same period in the prior fiscal year. The difference in gross margin in fiscal 2017 was primarily caused by increased under recovery of construction overhead costs in certain segments due to lower business volume. It was also impacted by unsettled change orders, which have been recognized at zero margin, on a major electrical infrastructure project.

On a segment basis, Storage Solutions revenue increased 38.3% to $199.5 million in the three months ended September 30, 2016 as compared to $144.2 million in the same quarter last year.  The growth resulted from continued progress on the six terminal project in North Dakota.  Segment gross profit increased by $6.2 million due to higher revenue. The fiscal  2017 gross margin was 13.3% compared to 14.0% in the same period a year earlier as both periods benefited from effective project execution.

Electrical Infrastructure revenue increased to $88.0 million in the quarter as compared to $65.6 million in the same quarter last year.  The 34.1% increase resulted from continued work on the gas fired power generating facility being constructed in Canada.  Gross profit increased by $0.5 million in this segment as the impact of higher revenue was largely offset by a lower gross margin which decreased to 6.0% compared to 7.2% in the same period last year.  The current year margin was impacted by a combination of lower margin work in our high voltage distribution business and, while improved, the under recovery of overhead costs. In addition, margins were effected by unsettled change orders as noted above.

Oil Gas & Chemical segment revenue was $32.5 million in the three months ended September 30, 2016 as refiners continue to limit spending as the result of continued volatility in commodity prices.  In the first quarter of last year revenue was $68.3 million.  Gross profit and margin were break-even for the three months ended September 30, 2016 compared to $5.7 million and 8.3%, respectively, in the same period last year.  Current year gross profit and margin were affected by significantly lower volume which led to the under recovery of overhead costs. 

Revenue in the Industrial segment decreased to $21.8 million in the three months ended September 30, 2016 as compared to $41.2 million in the prior year as a result of continued customer spending limitations in the metals industries.  Gross profit decreased by $3.4 million to $0.6 million due to lower revenue and gross margin. The current year gross margin of 2.6% was negatively affected by lower volumes which led to under recovery of construction overhead costs. The fiscal 2016 first quarter gross margin of 9.6% was positively impacted by a stronger spending environment and solid project execution.

Consolidated SG&A expenses were $18.0 million in the three months ended September 30, 2016 compared to $19.5 million in the same period a year earlier.  Lower SG&A expenses in the current quarter are primarily due to a reduction in the IT costs charged to the administrative portion of the business. In addition to this reduction, the Company contained SG&A spending, with no significant variances in the three months ended September 30, 2016 compared to the prior fiscal year.

Backlog

Backlog at September 30, 2016 was $786.6 million compared to $868.7 million at June 30, 2016 on project awards of $259.7 million.

Financial Position

Availability under the Company's credit facility of $137.6 million along with the Company's cash balance of $35.6 million provided liquidity of $173.2 million at September 30, 2016, a decrease of $57.6 million, or 25.0%, since June 30, 2016.  The variance in liquidity is primarily attributable to the investment of working capital on projects in process.

Earnings Guidance

The Company is reaffirming fiscal 2017 revenue guidance of between $1.30 billion and $1.45 billion and earnings guidance of between $1.10 and $1.40 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 Monday, November 7, 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, Canada and other international locations.

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
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except per share data)
 
    Three Months Ended
    September 30,
 2016
  September 30,
 2015
Revenues   $ 341,781     $ 319,331  
Cost of revenues   309,503     284,747  
Gross profit   32,278     34,584  
Selling, general and administrative expenses   17,977     19,483  
Operating income   14,301     15,101  
Other income (expense):        
Interest expense   (243 )   (263 )
Interest income   12     31  
Other   7     (54 )
Income before income tax expense   14,077     14,815  
Provision for federal, state and foreign income taxes   4,735     5,076  
Net income   9,342     9,739  
Less: Net loss attributable to noncontrolling interest       (202 )
Net income attributable to Matrix Service Company   $ 9,342     $ 9,941  
         
Basic earnings per common share   $ 0.35     $ 0.38  
Diluted earnings per common share   $ 0.35     $ 0.37  
Weighted average common shares outstanding:        
Basic   26,387     26,476  
Diluted   26,796     27,050  
             



Matrix Service Company
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands)
 
  September 30,
 2016
  June 30,
 2016
Assets      
Current assets:      
Cash and cash equivalents $ 35,579     $ 71,656  
Accounts receivable, less allowances (September 30, 2016— $8,457 and June 30, 2016—$8,403) 230,975     190,434  
Costs and estimated earnings in excess of billings on uncompleted contracts 105,094     104,001  
Inventories 3,767     3,935  
Income taxes receivable 5     9  
Other current assets 8,855     5,411  
Total current assets 384,275     375,446  
Property, plant and equipment at cost:      
Land and buildings 39,545     39,224  
Construction equipment 90,957     90,386  
Transportation equipment 48,466     49,046  
Office equipment and software 33,194     29,577  
Construction in progress 4,285     7,475  
Total property, plant and equipment - at cost 216,447     215,708  
Accumulated depreciation (134,031 )   (130,977 )
Property, plant and equipment - net 82,416     84,731  
Goodwill 78,274     78,293  
Other intangible assets 20,151     20,999  
Deferred income taxes 2,712     3,719  
Other assets 1,395     1,779  
Total assets $ 569,223     $ 564,967  
       

 

Matrix Service Company
Condensed Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
 
  September 30,
 2016
  June 30,
 2016
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable $ 127,734     $ 141,445  
Billings on uncompleted contracts in excess of costs and estimated earnings 52,382     58,327  
Accrued wages and benefits 23,212     27,716  
Accrued insurance 9,649     9,246  
Income taxes payable 3,676     2,675  
Other accrued expenses 7,439     6,621  
Total current liabilities 224,092     246,030  
Deferred income taxes 3,198     3,198  
Borrowings under senior revolving credit facility 17,186      
Other liabilities 215     173  
Total liabilities 244,691     249,401  
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 September 30, 2016, and June 30, 2016; 26,528,060 and 26,297,145 shares outstanding as of September 30, 2016 and June 30, 2016 279     279  
Additional paid-in capital 124,464     127,058  
Retained earnings 232,499     223,157  
Accumulated other comprehensive loss (7,124 )   (6,845 )
  350,118     343,649  
Less: Treasury stock, at cost — 1,360,157 shares as of September 30, 2016, and 1,591,072 shares as of June 30, 2016 (24,410 )   (26,907 )
Total Matrix Service Company stockholders’ equity 325,708     316,742  
Noncontrolling interest (1,176 )   (1,176 )
Total stockholders' equity 324,532     315,566  
Total liabilities and stockholders’ equity $ 569,223     $ 564,967  
       

 

Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
 
    Three Months Ended
    September 30,
 2016
  September 30,
 2015
Gross revenues        
Electrical Infrastructure   $ 88,025     $ 65,625  
Oil Gas & Chemical   37,828     68,959  
Storage Solutions   199,650     144,570  
Industrial   22,727     41,335  
Total gross revenues   $ 348,230     $ 320,489  
Less: Inter-segment revenues        
Oil Gas & Chemical   $ 5,286     $ 648  
Storage Solutions   128     334  
Industrial   1,035     176  
Total inter-segment revenues   $ 6,449     $ 1,158  
Consolidated revenues        
Electrical Infrastructure   $ 88,025     $ 65,625  
Oil Gas & Chemical   32,542     68,311  
Storage Solutions   199,522     144,236  
Industrial   21,692     41,159  
Total consolidated revenues   $ 341,781     $ 319,331  
Gross profit        
Electrical Infrastructure   $ 5,250     $ 4,708  
Oil Gas & Chemical   1     5,683  
Storage Solutions   26,453     20,232  
Industrial   574     3,961  
Total gross profit   $ 32,278     $ 34,584  
Operating income (loss)        
Electrical Infrastructure   $ 1,057     $ 1,200  
Oil Gas & Chemical   (2,905 )   1,416  
Storage Solutions   16,773     11,549  
Industrial   (624 )   936  
Total operating income   $ 14,301     $ 15,101  
                 

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.

The following table provides a summary of changes in our backlog for the three months ended September 30, 2016:

    Electrical
Infrastructure
  Oil Gas &
Chemical
  Storage
Solutions
  Industrial   Total
                                         
    (In thousands)
Backlog as of June 30, 2016   $ 369,791     $ 91,478     $ 359,013     $ 48,390     $ 868,672  
Project awards   72,520     120,338     38,650     28,213     259,721  
Revenue recognized   (88,025 )   (32,542 )   (199,522 )   (21,692 )   (341,781 )
Backlog as of September 30, 2016   $ 354,286     $ 179,274     $ 198,141     $ 54,911     $ 786,612  
                                         
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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