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Matrix Service Company Reports Second Quarter Results; Maintains Full Year EPS Guidance

/EIN News/ -- TULSA, Okla., Feb. 07, 2018 (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, 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.

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.

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

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  
                         


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  
       


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  
       


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  
                                 

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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