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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.

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 contracts80,296 104,001
Inventories4,194 3,935
Income taxes receivable486 9
Other current assets8,318 5,411
Total current assets408,236 375,446
Property, plant and equipment at cost:
Land and buildings39,348 39,224
Construction equipment91,587 90,386
Transportation equipment48,254 49,046
Office equipment and software34,946 29,577
Construction in progress4,563 7,475
Total property, plant and equipment - at cost218,698 215,708
Accumulated depreciation(137,414) (130,977)
Property, plant and equipment - net81,284 84,731
Goodwill113,019 78,293
Other intangible assets29,351 20,999
Deferred income taxes2,512 3,719
Other assets1,388 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 $141,445
Billings on uncompleted contracts in excess of costs and estimated earnings74,858 58,327
Accrued wages and benefits21,162 27,716
Accrued insurance9,171 9,246
Income taxes payable1,293 2,675
Other accrued expenses15,539 6,621
Total current liabilities230,283 246,030
Deferred income taxes2,855 3,198
Borrowings under senior revolving credit facility72,412
Other liabilities411 173
Total liabilities305,961 249,401
Commitments and contingencies
Stockholders’ equity:
Matrix Service Company stockholders' equity:
Common stock—$.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 capital124,659 127,058
Retained earnings237,749 223,157
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’ equity331,005 316,742
Noncontrolling interest(1,176) (1,176)
Total stockholders' equity329,829 315,566
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 awards87,285 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 awards159,805 179,781 154,757 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

Source:Matrix Service Company