×

Matrix Service Company Reports Second Quarter Results; Revises Fiscal 2016 Guidance

TULSA, Okla., Feb. 03, 2016 (GLOBE NEWSWIRE) -- Matrix Service Company (Nasdaq:MTRX), a leading contractor to the energy, power and industrial markets across North America, today reported its financial results for its second quarter and six months ended December 31, 2015.

Key highlights:

  • Consolidated gross profit for the three and six months ended December 31, 2015 was $30.0 million and $64.6 million compared to $16.0 million and $44.3 million for the same periods in fiscal 2015, respectively
  • Consolidated revenue for the three and six months ended December 31, 2015 was $323.5 million and $642.9 million compared to $342.9 million and $664.6 million for the same periods in fiscal 2015, respectively
  • Unexpected client bankruptcy results in $5.2 million bad debt charge, reducing second quarter earnings per share by $0.12 to $0.20
  • Company completes acquisition of internationally-based Baillie Tank Equipment
  • Total liquidity increased to $215.6 million at December 31, 2015, a fiscal 2016 increase of $40.8 million or 23.3%
  • Financial strength, strategic focus and market position creates opportunity for long-term expansion


"We had another solid operating quarter overall and results were in line with our expectations, excluding various close-out costs on the Garrison Energy Center project as well as a bad debt charge resulting from an unexpected client bankruptcy. This performance was achieved despite slower ramp ups on certain projects in the quarter and the continued weakening of our industrial segment end markets,” said John Hewitt, President and CEO. “As a result of slower project ramp ups, revenue and profit recognition gets shifted across future quarters without necessarily changing the ultimate outcome. This shift in timing, along with the weakening industrial segment and the bad debt charge, requires that we adjust our guidance.”

"As discussed in prior periods, bidding opportunities in our Electrical Infrastructure, Storage Solutions and Oil Gas & Chemical segments continue to be robust. The combination of today’s regulatory environment and current market conditions have some owners taking a more cautious approach to the timing of awards, especially on larger projects, but the projects themselves remain critical to our clients' infrastructure,” he said.

Despite the challenges, Hewitt also sees significant opportunity for growth. “Our position in the market, our conservative approach to managing our balance sheet and our deliberate, measured approach to diversification has and will continue to serve us well,” he said. “The company’s financial position is strong and, as such, allows us to continue with our strategic growth plans as evidenced by the recently announced acquisition of Baillie Tank Equipment. Additionally, it enables us to take advantage of larger acquisition opportunities."

Second Quarter Fiscal 2016 Results

Consolidated revenue was $323.5 million for the three months ended December 31, 2015, compared to consolidated revenue of $342.9 million in the same period in the prior fiscal year. On a segment basis, consolidated revenue increased in the Electrical Infrastructure segment by $32.9 million. This increase was offset by decreased revenue in the Industrial, Oil Gas & Chemical and Storage Solutions segments of $30.7 million, $14.0 million and $7.6 million, respectively.

Consolidated gross profit increased from $16.0 million in the three months ended December 31, 2014 to $30.0 million in the three months ended December 31, 2015. Gross margins were 9.3% in the three months ended December 31, 2015 compared to 4.7% for the three months ended December 31, 2014. Fiscal 2016 gross profit was negatively impacted by the $5.4 million Garrison Energy Center project charge discussed above. Our share of the project charge reduced second quarter of fiscal 2016 net income by $2.0 million and fully diluted earnings per share by $0.07 to $0.20. In the prior fiscal year, we recorded a charge on this project which reduced gross profit by $22.9 million, net income by $7.9 million and fully diluted earnings per share by $0.29 to $0.12.

A non-routine bad debt charge of $5.2 million from an unexpected client bankruptcy increased consolidated SG&A expenses to $25.1 million in the three months ended December 31, 2015 compared to $19.6 million in the same period a year earlier.

Six Month Fiscal 2016 Results

Consolidated revenue for the six months ended December 31, 2015 was $642.9 million compared to $664.6 million in the same period a year earlier, a decrease of $21.7 million, or 3.3%. On a segment basis, consolidated revenue increased in the Electrical Infrastructure, Storage Solutions and Oil Gas & Chemical segments by $42.8 million, $3.3 million and $1.1 million, respectively. These increases were offset by a reduction in the Industrial segment of $68.9 million.

Consolidated gross profit increased from $44.3 million in the six months ended December 31, 2014 to $64.6 million in the six months ended December 31, 2015. Gross margins were 10.0% in the six months ended December 31, 2015 compared to 6.7% for the six months ended December 31, 2014. Fiscal 2016 gross profit was reduced due to a $5.5 million project charge related to the Garrison Energy Center. Our share of the project charge reduced fiscal 2016 net income by $2.0 million and fully diluted earnings per share by $0.07 to $0.56. In the prior fiscal year, we recorded charges on this project which reduced gross profit by $26.2 million, net income by $9.0 million and fully diluted earnings per share by $0.33 to $0.34.

A non-routine bad debt charge of $5.2 million from an unexpected client bankruptcy increased consolidated SG&A expenses to $44.6 million compared to $39.5 million in the same period a year earlier.

Backlog

Backlog at December 31, 2015 was $1.12 billion, compared to $1.28 billion at September 30, 2015 and $1.42 billion at June 30, 2015. Project awards totaled $177.9 million and $372.9 million for the three and six months ended December 31, 2015.

Financial Position

Availability under the Company's credit facility of $133.2 million along with the Company's cash balance of $82.4 million provided liquidity of $215.6 million at December 31, 2015, an increase of $40.8 million, or 23.3%, in fiscal 2016.

Earnings Guidance

Primarily as a result of the unexpected bankruptcy discussed above and the timing of revenue ramp up, the Company is reducing fiscal 2016 revenue guidance from between $1.4 billion and $1.6 billion to between $1.3 billion and $1.4 billion and is reducing fiscal 2016 earnings guidance from between $1.45 and $1.75 per fully diluted share to between $1.30 and $1.50 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 Thursday, February 4, 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

Founded in 1984, Matrix Service Company is parent to a family of companies that include Matrix Service, 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.



Matrix Service Company
Consolidated Statements of Income
(unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
December 31,
2015
December 31,
2014
December 31,
2015
December 31,
2014
Revenues $323,529 $342,880 $642,860 $664,563
Cost of revenues 293,524 326,925 578,271 620,229
Gross profit 30,005 15,955 64,589 44,334
Selling, general and administrative expenses 25,070 19,626 44,553 39,458
Operating income (loss) 4,935 (3,671) 20,036 4,876
Other income (expense):
Interest expense (252) (300) (515) (652)
Interest income 60 308 91 350
Other (148) (28) (202) 29
Income (loss) before income tax expense 4,595 (3,691) 19,410 4,603
Provision for federal, state and foreign income taxes 1,477 1,155 6,553 4,779
Net income (loss) $3,118 $(4,846) 12,857 (176)
Less: Net loss attributable to noncontrolling interest (2,313) (8,132) (2,515) (9,376)
Net income attributable to Matrix Service Company $5,431 $3,286 $15,372 $9,200
Basic earnings per common share $0.20 $0.12 $0.58 $0.35
Diluted earnings per common share $0.20 $0.12 $0.56 $0.34
Weighted average common shares outstanding:
Basic 26,721 26,600 26,598 26,535
Diluted 27,248 27,156 27,229 27,154






Matrix Service Company
Consolidated Balance Sheets
(unaudited)
(In thousands)
December 31,
2015
June 30,
2015
Assets
Current assets:
Cash and cash equivalents$82,431 $79,239
Accounts receivable, less allowances (December 31, 2015— $6,105 and June 30, 2015—$561)207,425 199,149
Costs and estimated earnings in excess of billings on uncompleted contracts81,743 86,071
Inventories2,688 2,773
Income taxes receivable5,123 579
Other current assets7,236 5,660
Total current assets386,646 373,471
Property, plant and equipment at cost:
Land and buildings32,712 32,746
Construction equipment89,027 87,561
Transportation equipment46,991 47,468
Office equipment and software28,292 28,874
Construction in progress9,235 5,196
Total property, plant and equipment - at cost206,257 201,845
Accumulated depreciation(123,416) (116,782)
Property, plant and equipment - net82,841 85,063
Goodwill70,605 71,518
Other intangible assets21,986 23,961
Deferred income taxes3,467 3,729
Other assets6,603 3,947
Total assets$572,148 $561,689






Matrix Service Company
Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
December 31,
2015
June 30,
2015
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$109,336 $125,792
Billings on uncompleted contracts in excess of costs and estimated earnings114,140 96,704
Accrued wages and benefits18,875 26,725
Accrued insurance8,898 8,100
Income taxes payable57 3,268
Other accrued expenses6,710 6,498
Total current liabilities258,016 267,087
Deferred income taxes1,988 1,244
Borrowings under senior credit facility7,226 8,804
Total liabilities267,230 277,135
Commitments and contingencies
Stockholders’ equity:
Matrix Service Company stockholders' equity:
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of December 31, 2015, and June 30, 2015; 26,914,918 and 26,440,823 shares outstanding as of December 31, 2015 and June 30, 2015279 279
Additional paid-in capital124,168 123,038
Retained earnings209,766 194,394
Accumulated other comprehensive loss(9,741) (5,926)
324,472 311,785
Less: Treasury stock, at cost— 973,299 shares as of December 31, 2015, and 1,447,394 shares as of June 30, 2015(16,730) (18,489)
Total Matrix Service Company stockholders’ equity307,742 293,296
Noncontrolling interest(2,824) (8,742)
Total stockholders' equity304,918 284,554
Total liabilities and stockholders’ equity$572,148 $561,689






Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
Three Months Ended Six Months Ended
December 31,
2015
December 31,
2014
December 31,
2015
December 31,
2014
Gross revenues
Electrical Infrastructure $91,398 $58,533 $157,023 $114,206
Oil Gas & Chemical 63,472 76,419 132,431 130,618
Storage Solutions 122,647 129,987 267,217 263,337
Industrial 48,390 79,972 89,725 159,332
Total gross revenues $325,907 $344,911 $646,396 $667,493
Less: Inter-segment revenues
Electrical Infrastructure $ $ $ $
Oil Gas & Chemical 1,932 962 2,580 1,802
Storage Solutions 478 182 812 241
Industrial (32) 887 144 887
Total inter-segment revenues $2,378 $2,031 $3,536 $2,930
Consolidated revenues
Electrical Infrastructure $91,398 $58,533 $157,023 $114,206
Oil Gas & Chemical 61,540 75,457 129,851 128,816
Storage Solutions 122,169 129,805 266,405 263,096
Industrial 48,422 79,085 89,581 158,445
Total consolidated revenues $323,529 $342,880 $642,860 $664,563
Gross profit (loss)
Electrical Infrastructure $4,021 $(16,058) $8,729 $(16,547)
Oil Gas & Chemical 5,971 7,352 11,654 11,738
Storage Solutions 14,426 14,231 34,658 28,749
Industrial 5,587 10,430 9,548 20,394
Total gross profit $30,005 $15,955 $64,589 $44,334
Operating income (loss)
Electrical Infrastructure $(723) $(18,522) $477 $(22,178)
Oil Gas & Chemical (3,029) 2,682 (1,613) 3,260
Storage Solutions 6,374 6,627 17,923 13,730
Industrial 2,313 5,542 3,249 10,064
Total operating income $4,935 $(3,671) $20,036 $4,876






Matrix Service Company
Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
Six Months Ended
December 31,
2015
December 31,
2014
Operating activities:
Net income (loss)$12,857 $(176)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization10,720 11,540
Deferred income tax1,390 1,011
Gain on sale of property, plant and equipment(37) (120)
Provision for uncollectible accounts5,544 451
Stock-based compensation expense3,509 3,168
Excess tax benefit of exercised stock options and vesting of deferred shares(3,245) (1,731)
Other119 118
Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from acquisitions:
Accounts receivable(13,820) (9,243)
Costs and estimated earnings in excess of billings on uncompleted contracts4,328 3,435
Inventories85 32
Other assets and liabilities(8,861) 3,247
Accounts payable(16,743) (19,429)
Billings on uncompleted contracts in excess of costs and estimated earnings17,436 19,174
Accrued expenses(6,840) (6,099)
Net cash provided by operating activities6,442 5,378
Investing activities:
Acquisition of property, plant and equipment(7,516) (7,711)
Acquisition (5,551)
Proceeds from asset sales145 290
Net cash used by investing activities$(7,371) $(12,972)






Matrix Service Company
Consolidated Statements of Cash Flows (continued)
(Unaudited)
(In thousands)
Six Months Ended
December 31,
2015
December 31,
2014
Financing activities:
Capital contributions from noncontrolling interest$8,433 $
Issuances of common stock457 364
Excess tax benefit of exercised stock options and vesting of deferred shares3,245 1,731
Advances under credit agreement2,753 9,272
Repayments of advances under credit agreement(4,331) (9,104)
Proceeds from issuance of common stock under employee stock purchase plan166 134
Repurchase of common stock for payment of statutory taxes due on equity-based compensation(4,488) (2,439)
Net cash provided (used) by financing activities6,235 (42)
Effect of exchange rate changes on cash and cash equivalents(2,114) (911)
Increase (decrease) in cash and cash equivalents3,192 (8,547)
Cash and cash equivalents, beginning of period79,239 77,115
Cash and cash equivalents, end of period$82,431 $68,568
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes$9,112 $5,905
Interest$521 $748
Non-cash investing and financing activities:
Purchases of property, plant and equipment on account$726 $185


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 December 31, 2015

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

Electrical
Infrastructure
Oil Gas &
Chemical
Storage
Solutions
Industrial Total
(In thousands)
Backlog as of September 30, 2015 $466,788 $129,038 $593,822 $95,062 $1,284,710
Project awards 51,392 48,813 56,419 21,242 177,866
Project delays and cancellations (22,013) (22,013)
Revenue recognized (91,398) (61,540) (122,169) (48,422) (323,529)
Backlog as of December 31, 2015 $426,782 $116,311 $506,059 $67,882 $1,117,034


Six Months Ended December 31, 2015

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

Electrical
Infrastructure
Oil Gas &
Chemical
Storage
Solutions
Industrial Total
(In thousands)
Backlog as of June 30, 2015 $493,973 $132,985 $670,493 $123,147 1,420,598
Project awards 89,832 113,177 123,984 45,922 372,915
Project delays and cancellations (22,013) (11,606) (33,619)
Revenue recognized (157,023) (129,851) (266,405) (89,581) (642,860)
Backlog as of December 31, 2015 $426,782 $116,311 $506,059 $67,882 $1,117,034


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