×

Matrix Service Company Reports Third Quarter Results

TULSA, Okla., May 09, 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 third quarter ended March 31, 2017.

Key highlights:

  • Increased cost estimate on an Electrical Infrastructure project results in profit reduction on work to date; minimal go forward profit margin expected on this project
  • Under recovery of overhead due to continued low revenue volume also impacts earnings
  • Results in the quarter generate a loss of $0.52 per share on consolidated revenue of $251.2 million
  • Consolidated backlog is $790.4 million on improving bookings in the Oil Gas & Chemical segment compared to $814.0 million at December 31, 2016
  • Company expects full year earnings per share to be near breakeven

“As we announced in our Business Update in late April, our third quarter results were negatively impacted by the forecasted financial outcome of a major project in our Electrical Infrastructure segment. The deterioration is a result of various factors that are impacting schedule progress, labor productivity, and turnover of key systems to the client. Despite these factors, we are very confident in our project team’s ability to complete the project safely and to the high quality standards to which we hold ourselves,” said John R. Hewitt, President and Chief Executive Officer of Matrix Service Company. “Given our strong relationship and historical experience with this customer, we believe we can reach an equitable outcome for both parties."

Hewitt added, "More impactful to annual results has been the ongoing delays in new project awards and starts as well as depressed maintenance spending. These impacts to revenue, alone, resulted in a small loss for the third quarter, and from an operating perspective we anticipate only modest improvement in the fourth quarter. While we are extremely disappointed with these overall results, we remain optimistic about the long-term performance of our business and our strategic vision. We are actively managing our cost structure to meet our current and future customer commitments as markets improve. Continued strong bidding activity and other key indicators all point to improving capital project and maintenance spending in fiscal 2018.”

Third Quarter Fiscal 2017 Results

Consolidated revenue was $251.2 million for the three months ended March 31, 2017, compared to $309.4 million in the same period in the prior fiscal year. The decrease was caused by the quarterly impact of the project discussed above as well as lower volume in the Storage Solutions segment, which was nominally offset by higher volume in the Oil Gas & Chemical segment. The Company lost $13.8 million, or $0.52 per fully diluted share in the third quarter of fiscal 2017 compared to earnings of $4.4 million, or $0.16 per fully diluted share in the prior year.

Consolidated gross profit (loss) was $(2.6) million in the three months ended March 31, 2017 compared to $27.3 million in the three months ended March 31, 2016. The gross margin was (1.0)% in the three months ended March 31, 2017 compared to 8.8% in the same period in the prior fiscal year. Very strong project execution throughout the business was offset by the Electrical Infrastructure project discussed above, as well as lower volumes, which led to significantly increased under recovery of construction overhead costs.

Consolidated SG&A expenses were $18.6 million in the three months ended March 31, 2017 compared to $21.0 million in the same period a year earlier. The decrease in SG&A expense in fiscal 2017 was primarily attributable to a reversal of incentive compensation expense.

Nine Month Fiscal 2017 Results

Consolidated revenue was $905.7 million for the nine months ended March 31, 2017, compared to $952.3 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 were partially offset by higher volumes in the Electrical Infrastructure segment. The Company earned $0.8 million, or $0.03 per fully diluted share during the nine months ended March 31, 2017 compared to $19.7 million, or $0.73 per fully diluted share in the prior year.

Consolidated gross profit decreased from $91.9 million in the nine months ended March 31, 2016 to $57.9 million in the nine months ended March 31, 2017. The gross margin decreased to 6.4% in the nine months ended March 31, 2017 compared to 9.6% in the same period in the prior fiscal year. Very strong project execution throughout the business was offset by the Electrical Infrastructure project discussed above, as well as lower volumes, which led to significantly increased under recovery of construction overhead costs.

Consolidated SG&A expenses were $56.5 million in the nine months ended March 31, 2017 compared to $65.5 million in the same period a year earlier. The decrease in SG&A expense in fiscal 2017 was partially due to a reduction of fiscal 2017 incentive compensation expense. In addition, fiscal 2016 SG&A was impacted by a non-routine bad debt charge of $5.2 million from a client bankruptcy.

Backlog

Backlog at March 31, 2017 was $790.4 million compared to $814.0 million at December 31, 2016 on project awards of $227.7 million.

Financial Position

Availability under the Company's credit facility of $106.8 million along with the Company's cash balance of $39.7 million provided liquidity of $146.5 million at March 31, 2017, a decrease of $81.9 million since December 31, 2016. This reduction is primarily attributable to a capacity constraint triggered by the Company's financial performance in the quarter. During the quarter, the Company paid down debt in the amount of $28.3 million. The Company's liquidity continues to support its long-term strategic growth plans.

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 Wednesday, May 10, 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

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
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31,
2017
March 31,
2016
March 31,
2017
March 31,
2016
Revenues $251,237 $309,422 $905,673 $952,282
Cost of revenues 253,851 282,119 847,797 860,390
Gross profit (loss) (2,614) 27,303 57,876 91,892
Selling, general and administrative expenses 18,596 20,956 56,548 65,509
Operating income (loss) (21,210) 6,347 1,328 26,383
Other income (expense):
Interest expense (833) (241) (1,573) (756)
Interest income 73 56 111 147
Other (51) (109) 3 (311)
Income (loss) before income tax expense (22,021) 6,053 (131) 25,463
Provision (benefit) for federal, state and foreign income taxes (8,521) 2,507 (1,223) 9,060
Net income (loss) (13,500) 3,546 1,092 16,403
Less: Net income (loss) attributable to noncontrolling interest 321 (811) 321 (3,326)
Net income (loss) attributable to Matrix Service Company $(13,821) $4,357 $771 $19,729
Basic earnings (loss) per common share $(0.52) $0.16 $0.03 $0.74
Diluted earnings (loss) per common share $(0.52) $0.16 $0.03 $0.73
Weighted average common shares outstanding:
Basic 26,594 26,758 26,511 26,651
Diluted 26,594 27,054 26,838 27,191


Matrix Service Company
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands)
March 31,
2017
June 30,
2016
Assets
Current assets:
Cash and cash equivalents$39,697 $71,656
Accounts receivable, less allowances (March 31, 2017— $9,247 and June 30, 2016—$8,403)223,338 190,434
Costs and estimated earnings in excess of billings on uncompleted contracts69,986 104,001
Inventories3,926 3,935
Income taxes receivable5,314 9
Other current assets7,373 5,411
Total current assets349,634 375,446
Property, plant and equipment at cost:
Land and buildings39,826 39,224
Construction equipment93,178 90,386
Transportation equipment48,156 49,046
Office equipment and software36,284 29,577
Construction in progress5,827 7,475
Total property, plant and equipment - at cost223,271 215,708
Accumulated depreciation(141,308) (130,977)
Property, plant and equipment - net81,963 84,731
Goodwill113,182 78,293
Other intangible assets27,781 20,999
Deferred income taxes5,663 3,719
Other assets2,045 1,779
Total assets$580,268 $564,967


Matrix Service Company
Condensed Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
March 31,
2017
June 30,
2016
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$97,271 $141,445
Billings on uncompleted contracts in excess of costs and estimated earnings75,424 58,327
Accrued wages and benefits25,102 27,716
Accrued insurance8,804 9,246
Income taxes payable148 2,675
Other accrued expenses8,314 6,621
Total current liabilities215,063 246,030
Deferred income taxes377 3,198
Borrowings under senior revolving credit facility44,139
Other liabilities472 173
Total liabilities260,051 249,401
Commitments and contingencies
Stockholders’ equity:
Matrix Service Company stockholders' equity:
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of March 31, 2017, and June 30, 2016; 26,594,319 and 26,297,145 shares outstanding as of March 31, 2017 and June 30, 2016279 279
Additional paid-in capital126,513 127,058
Retained earnings223,928 223,157
Accumulated other comprehensive loss(7,807) (6,845)
342,913 343,649
Less: Treasury stock, at cost — 1,293,898 shares as of March 31, 2017, and 1,591,072 shares as of June 30, 2016(22,696) (26,907)
Total Matrix Service Company stockholders’ equity320,217 316,742
Noncontrolling interest (1,176)
Total stockholders' equity320,217 315,566
Total liabilities and stockholders’ equity$580,268 $564,967


Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
Three Months Ended Nine Months Ended
March 31,
2017
March 31,
2016
March 31,
2017
March 31,
2016
Gross revenues
Electrical Infrastructure $82,032 $94,414 $273,215 $251,437
Oil Gas & Chemical 69,295 56,251 164,036 188,682
Storage Solutions 74,431 132,857 403,008 400,074
Industrial 26,501 26,650 74,254 116,375
Total gross revenues $252,259 $310,172 $914,513 $956,568
Less: Inter-segment revenues
Oil Gas & Chemical $407 $522 $6,892 $3,102
Storage Solutions 379 228 677 1,040
Industrial 236 1,271 144
Total inter-segment revenues $1,022 $750 $8,840 $4,286
Consolidated revenues
Electrical Infrastructure $82,032 $94,414 $273,215 $251,437
Oil Gas & Chemical 68,888 55,729 157,144 185,580
Storage Solutions 74,052 132,629 402,331 399,034
Industrial 26,265 26,650 72,983 116,231
Total consolidated revenues $251,237 $309,422 $905,673 $952,282
Gross profit (loss)
Electrical Infrastructure $(13,371) $10,407 $(896) $19,136
Oil Gas & Chemical 4,333 2,616 6,765 14,270
Storage Solutions 5,456 15,108 48,980 49,766
Industrial 968 (828) 3,027 8,720
Total gross profit (loss) $(2,614) $27,303 $57,876 $91,892
Operating income (loss)
Electrical Infrastructure $(16,306) $4,948 $(13,085) $5,425
Oil Gas & Chemical (2,199) (1,964) (7,054) (3,577)
Storage Solutions (1,552) 6,382 23,463 24,305
Industrial (1,153) (3,019) (1,996) 230
Total operating income (loss) $(21,210) $6,347 $1,328 $26,383

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 March 31, 2017:

Electrical
Infrastructure
Oil Gas &
Chemical
Storage
Solutions
Industrial Total
(In thousands)
Backlog as of December 31, 2016$338,413 $209,505 $185,491 $80,581 $813,990
Project awards57,630 100,459 52,981 16,592 227,662
Revenue recognized(82,032) (68,888) (74,052) (26,265) (251,237)
Backlog as of March 31, 2017$314,011 $241,076 $164,420 $70,908 $790,415

The following table provides a summary of changes in our backlog for the nine months ended March 31, 2017:

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 awards217,435 280,240 207,738 92,306 797,719
Acquired backlog from Houston Interests (Note 2) 26,502 3,195 29,697
Revenue recognized(273,215) (157,144) (402,331) (72,983) (905,673)
Backlog as of March 31, 2017$314,011 $241,076 $164,420 $70,908 $790,415

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