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Matrix Service Company Reports Third Quarter Results and Revises Guidance

  • Additional project charge on acquired EPC joint venture project and other project delays reduce quarterly earnings to a loss of $0.11 per share
  • Record backlog of $1.24 billion
  • Project awards of $714.4 million in the quarter increase year-to-date bookings to $1.3 billion
  • Company's cash position improves to $103.2 million

TULSA, Okla., May 7, 2015 (GLOBE NEWSWIRE) -- Matrix Service Company (Nasdaq:MTRX) today reported its financial results for the third quarter and nine months ended March 31, 2015.

"Our third quarter results were impacted by an additional charge related to the acquired EPC joint venture project in the Electrical Infrastructure segment," said John Hewitt, President and CEO of Matrix Service Company. "This charge is a result of labor compression and productivity losses, as well as technical issues that have created continued rework, installation and commissioning complexity, all of which has pushed the completion date beyond the previous forecast but still within fiscal 2015. In addition, the underlying results in the quarter and the balance of the fiscal year have been impacted by permitting delays, refinery strikes, high refinery utilization, weather disruption and slow project ramp ups."

In spite of these issues, the Company expressed confidence in its long-term strategy and with record backlog and a very robust proposal environment, expects continued growth in fiscal 2016.

"We have built a diversified foundation which, combined with the business environment and our strong financial position, ensures our long-term success. We will continue to invest in targeted acquisitions as well as our people, processes and systems to facilitate continuous improvement and sustainable success," said Hewitt.

The following financial results include the acquired EPC joint venture project. The Company has a 65 percent controlling interest in the joint venture and consolidates the joint venture operating results into the Company's financial statements and reports the minority interest holder's 35 percent share of joint venture activity as a non-controlling interest. The information below represents the consolidated results of the Company and, unless noted otherwise, includes 100 percent of the joint venture activity.

Third Quarter Fiscal 2015 Results

Revenue for the third quarter ended March 31, 2015 was $314.2 million compared to $381.5 million in the same period a year earlier, a decrease of $67.3 million, or 17.6%. In fiscal 2015, the Company recognized a net loss of $3.0 million or $0.11 per fully diluted share. In the same period a year earlier, the Company earned $11.4 million, or $0.42 per fully diluted share. The acquired EPC joint venture recorded a charge of $28.5 million in the third quarter. The Company's portion of this charge totaled $18.5 million which was partially offset by reductions in incentive compensation and reduced quarterly earnings by $0.36 per fully diluted share.

On a segment basis, revenue decreased in the Storage Solutions, Electrical Infrastructure and Industrial segments by $74.6 million, $13.9 million and $11.6 million respectively, partially offset by an increase in the Oil Gas & Chemical segment of $32.8 million.

Consolidated gross profit was $2.6 million in the three months ended March 31, 2015 compared to $39.9 million in the three months ended March 31, 2014. Fiscal 2015 gross margins were reduced by 8.9% to 0.8% related to a charge of $28.5 million on an acquired EPC joint venture power generation project. Fiscal 2014 gross margins were 10.5%.

Selling, general and administrative costs were $17.1 million, in the third quarter of fiscal 2015 compared to $21.1 million in the same period a year earlier. The reduction in SG&A expense is primarily attributable to lower incentive compensation expense in fiscal 2015. SG&A expense as a percentage of revenue decreased to 5.4% in the three months ended March 31, 2015 as compared to 5.5% for the three months ended March 31, 2014.

Nine Month Fiscal 2015 Results

Revenue for the nine months ended March 31, 2015 was $978.7 million compared to $918.7 million in the same period a year earlier, an increase of $60.0 million, or 6.5%. In fiscal 2015, the Company earned net income of $6.2 million or $0.23 per fully diluted share. In the same period a year earlier, the Company earned $28.3 million, or $1.05 per fully diluted share. The acquired EPC joint venture recorded charges totaling $54.7 million for the nine months. The Company's portion of these charges totaled $35.6 million which was partially offset by reductions in incentive compensation and reduced earnings for the period by $0.69 per fully diluted share.

On a segment basis, consolidated revenue increased in the Industrial, Oil Gas & Chemical and Electrical Infrastructure segments by $93.0 million, $37.0 million and $30.2 million respectively, partially offset by a decrease in the Storage Solutions segment of $100.2 million.

Consolidated gross profit was $47.0 million in the nine months ended March 31, 2015 compared to $99.6 million in the nine months ended March 31, 2014. Fiscal 2015 gross margins were reduced by 5.8% to 4.8% related to a charge of $54.7 million on an acquired EPC joint venture power generation project. Fiscal 2014 gross margins were 10.8%.

Consolidated SG&A expenses were $56.5 million in the nine months ended March 31, 2015 compared to $55.2 million in the same period a year earlier. SG&A expense as a percentage of revenue was 5.8% in the nine months ended March 31, 2015 compared to 6.0% in the same period a year earlier.

Backlog

Backlog at March 31, 2015 totaled $1.24 billion, an increase of $323.4 million, or 35.3%, compared to the backlog at June 30, 2014 of $915.8 million. Backlog increased $400.0 million, or 47.7%, compared to December 31, 2014 backlog of $839.0 million. Project awards totaled $714.4 million and $1.30 billion in the three and nine months ended March 31, 2015, respectively.

Financial Position

Availability under the Company's credit facility of $89.9 million along with the Company's cash balance of $103.2 million provided liquidity of $193.1 million at March 31, 2015.

Earnings Guidance

The Company expects revenue in the fourth quarter to be between $360.0 million and $400.0 million and earnings per fully diluted share to be between $0.25 and $0.30 and fiscal 2015 revenue to be between $1.34 billion and $1.38 billion and earnings per fully diluted share to be between $0.48 and $0.53.

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 10:00 a.m. (Eastern) / 9:00 a.m. (Central) on Friday, May 8, 2015 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 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 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
Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
2015 2014 2015 2014
Revenues $ 314,155 $ 381,516 $ 978,718 $ 918,731
Cost of revenues 311,523 341,572 931,752 819,161
Gross profit 2,632 39,944 46,966 99,570
Selling, general and administrative expenses 17,080 21,125 56,538 55,172
Operating income (loss) (14,448) 18,819 (9,572) 44,398
Other income (expense):
Interest expense (294) (324) (946) (898)
Interest income 40 44 390 57
Other 252 9 281 (147)
Income (loss) before income tax expense (14,450) 18,548 (9,847) 43,410
Provision for federal, state and foreign income taxes (1,508) 6,756 3,271 14,755
Net income (loss) $ (12,942) $ 11,792 $ (13,118) $ 28,655
Less: Net income (loss) attributable to noncontrolling interest (9,983) 396 (19,359) 401
Net income (loss) attributable to Matrix Service Company $ (2,959) $ 11,396 $ 6,241 $ 28,254
Basic earnings (loss) per common share $ (0.11) $ 0.43 $ 0.23 $ 1.08
Diluted earnings (loss) per common share $ (0.11) $ 0.42 $ 0.23 $ 1.05
Weighted average common shares outstanding:
Basic 26,711 26,374 26,593 26,244
Diluted 26,711 27,040 27,175 26,898
Matrix Service Company
Consolidated Balance Sheets
(In thousands)
March 31, June 30,
2015 2014
Assets
Current assets:
Cash and cash equivalents $ 103,183 $ 77,115
Accounts receivable, less allowances (March 31, 2015— $492 and June 30, 2014—$204) 188,579 204,692
Costs and estimated earnings in excess of billings on uncompleted contracts 77,340 73,008
Deferred income taxes 6,705 5,994
Inventories 2,875 3,045
Income taxes receivable 7,326 2,797
Other current assets 6,831 8,897
Total current assets 392,839 375,548
Property, plant and equipment at cost:
Land and buildings 31,935 31,737
Construction equipment 86,304 82,745
Transportation equipment 46,524 42,087
Office equipment and software 26,968 26,026
Construction in progress 6,266 9,892
197,997 192,487
Accumulated depreciation (112,234) (103,315)
85,763 89,172
Goodwill 71,377 69,837
Other intangible assets 25,156 28,676
Other assets 3,871 5,699
Total assets $ 579,006 $ 568,932
Matrix Service Company
Consolidated Balance Sheets (continued)
(In thousands, except share data)
March 31, June 30,
2015 2014
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 90,478 $ 111,863
Billings on uncompleted contracts in excess of costs and estimated earnings 139,446 108,440
Accrued wages and benefits 32,067 36,226
Accrued insurance 8,946 8,605
Income taxes payable 1,955
Other accrued expenses 14,995 4,727
Total current liabilities 287,887 269,861
Deferred income taxes 5,484 5,167
Borrowings under senior credit facility 9,934 11,621
Total liabilities 303,305 286,649
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 March 31, 2015, and June 30, 2014 279 279
Additional paid-in capital 121,462 119,777
Retained earnings 183,478 177,237
Accumulated other comprehensive loss (6,178) (182)
299,041 297,111
Less: Treasury stock, at cost— 1,173,656 shares as of March 31, 2015, and 1,453,770 shares as of June 30, 2014 (13,550) (16,595)
Total Matrix Service Company stockholders' equity 285,491 280,516
Noncontrolling interest (9,790) 1,767
Total stockholders' equity 275,701 282,283
Total liabilities and stockholders' equity $ 579,006 $ 568,932
Matrix Service Company
Results of Operations
(In thousands)
Three Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
2015 2014 2015 2014
Gross revenues
Electrical Infrastructure $ 48,228 $ 62,144 $ 162,434 $ 132,201
Oil Gas & Chemical 97,612 63,112 228,230 188,025
Storage Solutions 107,640 182,129 370,977 471,330
Industrial 64,841 74,577 224,173 128,398
Total gross revenues $ 318,321 $ 381,962 $ 985,814 $ 919,954
Less: Inter-segment revenues
Electrical Infrastructure $ — $ — $ — $ —
Oil Gas & Chemical 1,854 118 3,656 425
Storage Solutions 477 328 718 798
Industrial 1,835 2,722
Total inter-segment revenues $ 4,166 $ 446 $ 7,096 $ 1,223
Consolidated revenues
Electrical Infrastructure $ 48,228 $ 62,144 $ 162,434 $ 132,201
Oil Gas & Chemical 95,758 62,994 224,574 187,600
Storage Solutions 107,163 181,801 370,259 470,532
Industrial 63,006 74,577 221,451 128,398
Total consolidated revenues $ 314,155 $ 381,516 $ 978,718 $ 918,731
Gross profit (loss)
Electrical Infrastructure $ (22,429) $ 5,971 $ (38,976) $ 13,155
Oil Gas & Chemical 7,261 7,397 18,999 21,614
Storage Solutions 11,247 19,269 39,996 51,894
Industrial 6,553 7,307 26,947 12,907
Total gross profit $ 2,632 $ 39,944 $ 46,966 $ 99,570
Operating income (loss)
Electrical Infrastructure $ (24,306) $ 2,498 $ (46,484) $ 4,658
Oil Gas & Chemical 2,563 3,252 5,823 8,922
Storage Solutions 5,055 10,084 18,785 26,676
Industrial 2,240 2,985 12,304 4,142
Total operating income $ (14,448) $ 18,819 $ (9,572) $ 44,398
Matrix Service Company
Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended
March 31, March 31,
2015 2014
Operating activities:
Net income (loss) $ (13,118) $ 28,655
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization 17,332 12,945
Deferred income tax (1,026) (4,501)
Gain on sale of property, plant and equipment (305) (39)
Provision for uncollectible accounts 419 (81)
Stock-based compensation expense 4,730 3,905
Excess tax benefit of exercised stock options and vesting of deferred shares (1,764) (1,597)
Other 178 150
Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from acquisitions:
Accounts receivable 17,353 (58,955)
Costs and estimated earnings in excess of billings on uncompleted contracts (4,332) (10,901)
Inventories 170 (109)
Other assets and liabilities 2,425 7,335
Accounts payable (23,025) 38,734
Billings on uncompleted contracts in excess of costs and estimated earnings 31,006 (4,684)
Accrued expenses 6,932 9,298
Net cash provided by operating activities 36,975 20,155
Investing activities:
Acquisition of property, plant and equipment (11,075) (17,834)
Acquisition (5,551) (51,398)
Proceeds from asset sales 653 327
Net cash used by investing activities $ (15,973) $ (68,905)
Matrix Service Company
Consolidated Statements of Cash Flows (continued)
(In thousands)
Nine Months Ended
March 31, March 31,
2015 2014
Financing activities:
Proceeds from noncontrolling interest $ 7,802 $ —
Issuances of common stock 493 1,076
Excess tax benefit of exercised stock options and vesting of deferred shares 1,764 1,597
Payment of debt amendment fees (507)
Advances under credit agreement 8,289 68,970
Repayments of advances under credit agreement (9,976) (23,867)
Proceeds from issuance of common stock under employee stock purchase plan 215 76
Repurchase of common stock for payment of statutory taxes due on equity-based compensation (2,472) (1,678)
Net cash provided (used) by financing activities 6,115 45,667
Effect of exchange rate changes on cash (1,049) (909)
Net increase (decrease) in cash and cash equivalents 26,068 (3,992)
Cash and cash equivalents, beginning of period 77,115 63,750
Cash and cash equivalents, end of period $ 103,183 $ 59,758
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 6,700 $ 11,445
Interest $ 1,019 $ 579
Non-cash investing and financing activities:
Purchases of property, plant and equipment on account $ 1,104 $ 965

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.

Three Months Ended March 31, 2015

The following table provides a summary of changes in our backlog for the three months ended March 31, 2015:

Electrical Oil Gas & Storage
Infrastructure Chemical Solutions Industrial Total
(In thousands)
Backlog as of December 31, 2014 $ 124,158 $ 147,707 $ 446,877 $ 120,229 $ 838,971
Project awards 477,138 81,665 68,588 87,028 714,419
Revenue recognized (48,228) (95,758) (107,163) (63,006) (314,155)
Backlog as of March 31, 2015 $ 553,068 $ 133,614 $ 408,302 $ 144,251 $ 1,239,235

Nine Months Ended March 31, 2015

The following table provides a summary of changes in our backlog for the nine months ended March 31, 2015:

Electrical Oil Gas & Storage
Infrastructure Chemical Solutions Industrial Total
(In thousands)
Backlog as of June 30, 2014 $ 162,136 $ 110,217 $ 482,631 $ 160,842 $ 915,826
Project awards 553,366 247,971 295,930 204,860 1,302,127
Revenue recognized (162,434) (224,574) (370,259) (221,451) (978,718)
Backlog as of March 31, 2015 $ 553,068 $ 133,614 $ 408,302 $ 144,251 $ 1,239,235

CONTACT: For more information, please contact: Matrix Service Company Kevin S. Cavanah Vice President and CFO T: 918-838-8822 Email:kcavanah@matrixservicecompany.com

Source:Matrix Service Company