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Matrix Service Company Reports Second Quarter Results; Revises Fiscal 2017 Guidance

TULSA, Okla., Feb. 08, 2017 (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 second quarter ended December 31, 2016.

/EIN News/ -- Key highlights:

  • Revenue was $312.7 million and fully diluted earnings per share were $0.20 for the quarter
  • Backlog increased to $814.0 million on project awards in the quarter of $310.3 million
  • Acquisition of Houston Interests elevates engineering expertise across multiple operating segments and immediately expands project opportunities
  • Increased credit facility to $300.0 million to fund strategic growth objectives

“As reflected in our second quarter results, we are experiencing delays in the timing of awards, as well as ongoing conservative spending patterns by our customers caused by persistently challenging and uncertain market conditions. We expect these conditions to negatively impact our third quarter and, to a lesser degree, full year results," said Matrix Service Company President and Chief Executive Officer, John R. Hewitt.  "As a result, the Company is revising its fiscal 2017 guidance for revenue to between $1.20 billion and $1.30 billion and fully diluted earnings per share to between $0.75 and $1.05."

Hewitt added, "At the same time, we are seeing indicators that these uncertain market conditions are beginning to clear, with customer confidence improving. The opportunity pipeline is getting stronger as indicated by project awards of $310 million in the quarter - a book-to-bill of nearly one-to-one. Additionally, our diversified platform and financial strength, together with the engineering expertise and capacity we gained through Houston Interests, has opened up even more opportunities across our operating segments. We expect capital projects and maintenance spending to improve in fiscal 2018 and remain optimistic about the long term performance of the business.”

Second Quarter Fiscal 2017 Results

Consolidated revenue was $312.7 million for the three months ended December 31, 2016, compared to $323.5 million in the same period in the prior fiscal year.  The decrease resulted from lower volumes in the Industrial and Oil Gas & Chemical segments, which was partially offset by higher volumes in the Electrical Infrastructure and Storage Solutions segments.  The Company earned $5.3 million, or $0.20 per fully diluted share in the second quarter of fiscal 2017 compared to $5.4 million, or $0.20 per fully diluted share in the prior year.

Consolidated gross profit was $28.2 million in the three months ended December 31, 2016 compared to $30.0 million in the three months ended December 31, 2015.  The gross margin was 9.0% in the three months ended December 31, 2016 compared to 9.3% in the same period in the prior fiscal year.  The reduction in gross margin in fiscal 2017 is primarily attributable to lower direct margins and increased under recovery of construction overhead costs in the Oil Gas & Chemical and Industrial segments, which were partially offset by higher direct margins in the Storage Solutions and Electrical Infrastructure segments.

Consolidated SG&A expenses were $20.0 million in the three months ended December 31, 2016 compared to $25.1 million in the same period a year earlier.  The decrease in SG&A expense in fiscal 2017 was primarily attributable to a non-routine bad debt charge of $5.2 million from a client bankruptcy in fiscal 2016.  Fiscal 2017 SG&A expense included $0.7 million of acquisition and integration costs from the Houston Interests acquisition mentioned above.

Six Month Fiscal 2017 Results

Consolidated revenue was $654.4 million for the six months ended December 31, 2016, compared to $642.9 million in the same period in the prior fiscal year.  The increase resulted from higher volumes in the Storage Solutions and Electrical Infrastructure segments, which were partially offset by lower volumes in the Industrial and Oil Gas & Chemical segments.  The Company earned $14.6 million, or $0.54 per fully diluted share during the six months ended December 31, 2016 compared to $15.4 million, or $0.56 per fully diluted share in the prior year.

Consolidated gross profit decreased from $64.6 million in the six months ended December 31, 2015 to $60.5 million in the six months ended December 31, 2016.  Gross margin decreased to 9.2% in the six months ended December 31, 2016 compared to 10.0% in the same period in the prior fiscal year.  The reduction in gross margin in fiscal 2017 is primarily attributable to lower direct margins and increased under recovery of construction overhead costs in the Oil Gas & Chemical and Industrial segments, which were partially offset by higher direct margins in the Storage Solutions segment.

Consolidated SG&A expenses were $38.0 million in the six months ended December 31, 2016 compared to $44.6 million in the same period a year earlier.  The decrease in SG&A expense in fiscal 2017 was primarily attributable to a non-routine bad debt charge of $5.2 million from a client bankruptcy in fiscal 2016.  Fiscal 2017 SG&A expense included $0.7 million of acquisition and integration costs from the Houston Interests acquisition.

Backlog

Backlog at December 31, 2016 was $814.0 million compared to $786.6 million at September 30, 2016 on project awards of $310.3 million, an increase of $27.4 million over the previous quarter.

Financial Position

Availability under the Company's credit facility of $162.2 million along with the Company's cash balance of $66.2 million provided liquidity of $228.4 million at December 31, 2016, an increase of $55.2 million, or 31.9%, since September 30, 2016.  Subsequent to December 31, 2016, the Company executed a new five year credit agreement increasing its credit facility to $300.0 million to fund strategic growth objectives.

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 9, 2017 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   Six Months Ended
    December 31,
 2016
  December 31,
 2015
  December 31,
 2016
  December 31,
 2015
Revenues   $ 312,655     $ 323,529     $ 654,436     $ 642,860  
Cost of revenues   284,443     293,524     593,946     578,271  
Gross profit   28,212     30,005     60,490     64,589  
Selling, general and administrative expenses   19,975     25,070     37,952     44,553  
Operating income   8,237     4,935     22,538     20,036  
Other income (expense):                
Interest expense   (497 )   (252 )   (740 )   (515 )
Interest income   26     60     38     91  
Other   47     (148 )   54     (202 )
Income before income tax expense   7,813     4,595     21,890     19,410  
Provision for federal, state and foreign income taxes   2,563     1,477     7,298     6,553  
Net income   $ 5,250     $ 3,118     14,592     12,857  
Less: Net loss attributable to noncontrolling interest       (2,313 )       (2,515 )
Net income attributable to Matrix Service Company   $ 5,250     $ 5,431     $ 14,592     $ 15,372  
                 
Basic earnings per common share   $ 0.20     $ 0.20     $ 0.55     $ 0.58  
Diluted earnings per common share   $ 0.20     $ 0.20     $ 0.54     $ 0.56  
Weighted average common shares outstanding:                
Basic   26,553     26,721     26,470     26,598  
Diluted   26,832     27,248     26,842     27,229  



Matrix Service Company
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands)
 
  December 31,
 2016
  June 30,
 2016
Assets      
Current assets:      
Cash and cash equivalents $ 66,230     $ 71,656  
Accounts receivable, less allowances (December 31, 2016— $8,313 and June 30, 2016—$8,403) 248,712     190,434  
Costs and estimated earnings in excess of billings on uncompleted contracts 80,296     104,001  
Inventories 4,194     3,935  
Income taxes receivable 486     9  
Other current assets 8,318     5,411  
Total current assets 408,236     375,446  
Property, plant and equipment at cost:      
Land and buildings 39,348     39,224  
Construction equipment 91,587     90,386  
Transportation equipment 48,254     49,046  
Office equipment and software 34,946     29,577  
Construction in progress 4,563     7,475  
Total property, plant and equipment - at cost 218,698     215,708  
Accumulated depreciation (137,414 )   (130,977 )
Property, plant and equipment - net 81,284     84,731  
Goodwill 113,019     78,293  
Other intangible assets 29,351     20,999  
Deferred income taxes 2,512     3,719  
Other assets 1,388     1,779  
Total assets $ 635,790     $ 564,967  
       



Matrix Service Company
Condensed Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
 
  December 31,
 2016
  June 30,
 2016
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable $ 108,260     $ 141,445  
Billings on uncompleted contracts in excess of costs and estimated earnings 74,858     58,327  
Accrued wages and benefits 21,162     27,716  
Accrued insurance 9,171     9,246  
Income taxes payable 1,293     2,675  
Other accrued expenses 15,539     6,621  
Total current liabilities 230,283     246,030  
Deferred income taxes 2,855     3,198  
Borrowings under senior revolving credit facility 72,412      
Other liabilities 411     173  
Total liabilities 305,961     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 December 31, 2016, and June 30, 2016; 26,588,643 and 26,297,145 shares outstanding
as of December 31, 2016 and June 30, 2016
279     279  
Additional paid-in capital 124,659     127,058  
Retained earnings 237,749     223,157  
Accumulated other comprehensive loss (8,842 )   (6,845 )
  353,845     343,649  
Less: Treasury stock, at cost — 1,299,574 shares as of December 31, 2016, and 1,591,072
shares as of June 30, 2016
(22,840 )   (26,907 )
Total Matrix Service Company stockholders’ equity 331,005     316,742  
Noncontrolling interest (1,176 )   (1,176 )
Total stockholders' equity 329,829     315,566  
Total liabilities and stockholders’ equity $ 635,790     $ 564,967  
       



Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
 
    Three Months Ended   Six Months Ended
    December 31,
 2016
  December 31,
 2015
  December 31,
 2016
  December 31,
 2015
Gross revenues                
Electrical Infrastructure   $ 103,158     $ 91,398     $ 191,183     $ 157,023  
Oil Gas & Chemical   56,913     63,472     94,741     132,431  
Storage Solutions   128,927     122,647     328,577     267,217  
Industrial   25,026     48,390     47,753     89,725  
Total gross revenues   $ 314,024     $ 325,907     $ 662,254     $ 646,396  
Less: Inter-segment revenues                
Oil Gas & Chemical   1,199     1,932     $ 6,485     $ 2,580  
Storage Solutions   170     478     298     812  
Industrial       (32 )   1,035     144  
Total inter-segment revenues   $ 1,369     $ 2,378     $ 7,818     $ 3,536  
Consolidated revenues                
Electrical Infrastructure   $ 103,158     $ 91,398     $ 191,183     $ 157,023  
Oil Gas & Chemical   55,714     61,540     88,256     129,851  
Storage Solutions   128,757     122,169     328,279     266,405  
Industrial   25,026     48,422     46,718     89,581  
Total consolidated revenues   $ 312,655     $ 323,529     $ 654,436     $ 642,860  
Gross profit                
Electrical Infrastructure   $ 7,225     $ 4,021     $ 12,475     $ 8,729  
Oil Gas & Chemical   2,431     5,971     2,432     11,654  
Storage Solutions   17,071     14,426     43,524     34,658  
Industrial   1,485     5,587     2,059     9,548  
Total gross profit   $ 28,212     $ 30,005     $ 60,490     $ 64,589  
Operating income (loss)                
Electrical Infrastructure   $ 2,164     $ (723 )   $ 3,221     $ 477  
Oil Gas & Chemical   (1,950 )   (3,029 )   (4,855 )   (1,613 )
Storage Solutions   8,242     6,374     25,015     17,923  
Industrial   (219 )   2,313     (843 )   3,249  
Total operating income   $ 8,237     $ 4,935     $ 22,538     $ 20,036  

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 December 31, 2016:

  Electrical
Infrastructure
  Oil Gas &
Chemical
  Storage
Solutions
  Industrial   Total
  (In thousands)
Backlog as of September 30, 2016 $ 354,286     $ 179,274     $ 198,141     $ 54,911     $ 786,612  
Project awards 87,285     59,443     116,107     47,501     310,336  
Acquired backlog from Houston Interests     26,502         3,195     29,697  
Revenue recognized (103,158 )   (55,714 )   (128,757 )   (25,026 )   (312,655 )
Backlog as of December 31, 2016 $ 338,413     $ 209,505     $ 185,491     $ 80,581     $ 813,990  

The following table provides a summary of changes in our backlog for the six months ended December 31, 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 159,805     179,781     154,757     75,714     570,057  
Acquired backlog from Houston Interests     26,502         3,195     29,697  
Revenue recognized (191,183 )   (88,256 )   (328,279 )   (46,718 )   (654,436 )
Backlog as of December 31, 2016 $ 338,413     $ 209,505     $ 185,491     $ 80,581     $ 813,990  


 

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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