MATRIX SERVICE COMPANY REPORTS THIRD QUARTER RESULTS
TULSA, OK – May 9, 2018 – 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, 2018.
Key highlights:
| |
| • | Reported a net loss of $0.19 per fully diluted share in the third quarter; earned $0.12 year-to-date |
| |
| • | Book-to-bill was 1.8 on awards of $434.8 million in the quarter and 1.3 year-to-date on awards of $1.030 billion, with significant project awards in the Storage Solutions and Industrial segments |
| |
| • | Backlog of $914.2 million is the highest since March 31, 2016 and 26.1% higher than December 31, 2017 |
| |
| • | Strength in project awards continues post-quarter |
| |
| • | Liquidity increased to $133.7 million, up 34.2% from December 31, 2017 |
“As expected, our third quarter results were the lowest of the year, but the actual results, which were primarily impacted by lower revenue volumes, proved more disappointing relative to our earlier forecast,” said Matrix Service Company President and CEO John R. Hewitt. “Results were also impacted by non-routine tax adjustments and lower margin work bid in a highly competitive environment that allowed us to maintain market position and critical resources.”
Hewitt added, “The strong project awards in the quarter and year-to-date has pushed our backlog to its highest point since March 2016. This momentum has continued since the end of the third quarter and we expect a similar award performance in the fourth quarter. The improving size and quality of our backlog and the strength of our opportunity pipeline will begin to marginally improve revenue volume and earnings in the fourth quarter and point to a much stronger fiscal 2019. Therefore, we expect the fourth quarter to return to profitability, with full year earnings per share between $0.15 and $0.20 on revenue of $1.075 to $1.1 billion.”
Third Quarter Fiscal 2018 Results
Consolidated revenue was $245.6 million for the three months ended March 31, 2018, compared to $251.2 million in the same period in the prior fiscal year. Electrical Infrastructure segment revenue declined due to a reduction in revenue associated with the construction of a large power generating facility compared to the prior year and a reduction in high voltage revenue. Oil Gas & Chemical and Storage Solutions revenue was essentially flat. In Oil Gas & Chemical, lower volumes of capital work was offset with higher volumes of turnaround and maintenance work. In Storage Solutions, a higher volume of tank construction work was largely offset by lower volumes of terminal and balance of plant work. Revenue was higher in the Industrial segment due to increased volumes of work in the iron and steel industry.
Consolidated gross profit was $14.9 million in the three months ended March 31, 2018 compared to a loss of $2.6 million in the three months ended March 31, 2017. The gross margin was 6.1% in the three months ended March 31, 2018 compared to (1.0)% in the same period in the prior fiscal year. The fiscal 2018 gross margin was negatively impacted by revenue associated with low margin work bid in a highly competitive environment, increased levels of lower margin maintenance work, and lower than expected capital project volumes, which led to under recovery of construction overhead costs. The fiscal 2017 gross margin was negatively affected by the financial impact of a large power generating facility charge in the Electrical Infrastructure segment, which decreased gross profit by $18.9 million, and lower than anticipated volumes, which led to under recovery of construction overhead costs.
Consolidated SG&A expenses were $20.8 million in the three months ended March 31, 2018 compared to $18.6 million in the same period a year earlier. The increase in fiscal 2018 is primarily attributable to higher current year project pursuit costs.
Fiscal 2018 income tax expense included charges totaling $1.1 million, or $0.04 per fully diluted share, primarily relating to a valuation allowance placed on a deferred tax asset.
As a result of the factors discussed above, the Company reported a net loss of $5.2 million, or $0.19 per fully diluted share in the third quarter of fiscal 2018 compared to a net loss of $13.8 million, or $0.52 in the prior year.
Nine Month Fiscal 2018 Results
Consolidated revenue was $798.5 million for the nine months ended March 31, 2018, compared to $905.7 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 prevented the Company from replacing higher revenue generated in the prior fiscal year in connection with work on the construction of a significant crude gathering terminals project. Electrical Infrastructure segment revenue declined due to a reduction in revenue associated with the construction of a large power generating facility compared to the prior year and a reduction in high voltage revenue. These decreases were partially offset by increases in revenue for the Oil Gas & Chemical segment attributable to higher maintenance, turnaround and construction volumes, and the Industrial segment on higher volumes of work in the iron and steel industry.
Consolidated gross profit was $70.5 million in the nine months ended March 31, 2018 compared to $57.9 million in the nine months ended March 31, 2017. The gross margin was 8.8% in the nine months ended March 31, 2018 compared to 6.4% in the same period in the prior fiscal year. The fiscal 2017 gross margin was impacted by an Electrical Infrastructure project which decreased gross profit by $13.7 million and under-recovery of overhead costs.
Consolidated SG&A expenses were $63.9 million in the nine months ended March 31, 2018 compared to $56.5 million in the same period a year earlier. The increase in fiscal 2018 is primarily attributable to the acquired overhead and amortization on intangible assets associated with a December 2016 acquisition that expanded the Company's engineering business as well as higher project pursuit costs across the business.
As a result of the factors discussed above, the Company earned net income of $3.2 million, or $0.12 per fully diluted share during the nine months ended March 31, 2018 compared to $0.8 million, or $0.03 in the prior year.
Backlog
Backlog at March 31, 2018 was $914.2 million compared to $725.0 million at December 31, 2017. The quarterly book-to-bill ratio was 1.8 on project awards of $434.8 million. In the quarter, the Company received project awards of $229.1 million in the Storage Solutions segment, resulting in a book-to-bill ratio of 3.0 and received project awards of $117.8 million in the Industrial segment, resulting in a book-to-bill ratio of 2.8. The nine month ended March 31, 2018 book-to-bill ratio was 1.3 on project awards of $1.030 billion. Backlog at the end of the quarter was at its highest level since March 31, 2016.
Financial Position
The cash balance combined with availability under the credit facility provides the Company with liquidity of $133.7 million at March 31, 2018, an increase of $34.1 million since December 31, 2017. This increase in liquidity is primarily attributable to a reduction in the credit facility capacity constraint combined with positive cash flow from operations. During the quarter, the Company made net repayments on the credit facility of $41.3 million. At March 31, 2018, borrowings under the credit facility were $9.3 million. The Company's liquidity continues to support its long-term strategic growth plans.
Earnings Guidance
The Company is revising fiscal 2018 earnings and revenue guidance. We now expect full year earnings to be between $0.15 and $0.20 per fully diluted share and full year revenue to be $1.075 to $1.1 billion. The Company had previously projected earnings to be between $0.55 and $0.75 per fully diluted share and revenue to be between $1.150 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, May 10, 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 | | Nine Months Ended |
| | | March 31,
2018 | | March 31,
2017 | | March 31,
2018 | | March 31,
2017 |
| Revenues | | $ | 245,645 |
| | $ | 251,237 |
| | $ | 798,466 |
| | $ | 905,673 |
|
| Cost of revenues | | 230,754 |
| | 253,851 |
| | 727,981 |
| | 847,797 |
|
| Gross profit (loss) | | 14,891 |
| | (2,614 | ) | | 70,485 |
| | 57,876 |
|
| Selling, general and administrative expenses | | 20,753 |
| | 18,596 |
| | 63,852 |
| | 56,548 |
|
| Operating income (loss) | | (5,862 | ) | | (21,210 | ) | | 6,633 |
| | 1,328 |
|
| Other income (expense): | | | | | | | | |
| Interest expense | | (643 | ) | | (833 | ) | | (2,080 | ) | | (1,573 | ) |
| Interest income | | 130 |
| | 73 |
| | 234 |
| | 111 |
|
| Other | | 370 |
| | (51 | ) | | 384 |
| | 3 |
|
| Income (loss) before income tax expense | | (6,005 | ) | | (22,021 | ) | | 5,171 |
| | (131 | ) |
| Provision (benefit) for federal, state and foreign income taxes | | (852 | ) | | (8,521 | ) | | 1,968 |
| | (1,223 | ) |
| Net income (loss) | | $ | (5,153 | ) | | $ | (13,500 | ) | | $ | 3,203 |
| | $ | 1,092 |
|
| Less: Net income attributable to noncontrolling interest | | — |
| | 321 |
| | — |
| | 321 |
|
| Net income (loss) attributable to Matrix Service Company | | $ | (5,153 | ) | | $ | (13,821 | ) | | $ | 3,203 |
| | $ | 771 |
|
| | | | | | | | | |
| Basic earnings (loss) per common share | | $ | (0.19 | ) | | $ | (0.52 | ) | | $ | 0.12 |
| | $ | 0.03 |
|
| Diluted earnings (loss) per common share | | $ | (0.19 | ) | | $ | (0.52 | ) | | $ | 0.12 |
| | $ | 0.03 |
|
| Weighted average common shares outstanding: | | | | | | | | |
| Basic | | 26,817 |
| | 26,594 |
| | 26,747 |
| | 26,511 |
|
| Diluted | | 26,817 |
| | 26,594 |
| | 27,054 |
| | 26,838 |
|
Matrix Service Company
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands)
|
| | | | | | | |
| | March 31,
2018 | | June 30,
2017 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 46,885 |
| | $ | 43,805 |
|
| Accounts receivable, less allowances (March 31, 2018— $6,294 and June 30, 2017—$9,887) | 189,156 |
| | 210,953 |
|
| Costs and estimated earnings in excess of billings on uncompleted contracts | 66,985 |
| | 91,180 |
|
| Inventories | 5,339 |
| | 3,737 |
|
| Income taxes receivable | 5,627 |
| | 4,042 |
|
| Other current assets | 6,812 |
| | 4,913 |
|
| Total current assets | 320,804 |
| | 358,630 |
|
| Property, plant and equipment at cost: | | | |
| Land and buildings | 40,641 |
| | 38,916 |
|
| Construction equipment | 90,453 |
| | 94,298 |
|
| Transportation equipment | 48,442 |
| | 48,574 |
|
| Office equipment and software | 38,618 |
| | 36,556 |
|
| Construction in progress | 2,514 |
| | 5,952 |
|
| Total property, plant and equipment - at cost | 220,668 |
| | 224,296 |
|
| Accumulated depreciation | (146,290 | ) | | (144,022 | ) |
| Property, plant and equipment - net | 74,378 |
| | 80,274 |
|
| Goodwill | 113,615 |
| | 113,501 |
|
| Other intangible assets | 24,438 |
| | 26,296 |
|
| Deferred income taxes | 3,927 |
| | 3,385 |
|
| Other assets | 2,077 |
| | 3,944 |
|
| Total assets | $ | 539,239 |
| | $ | 586,030 |
|
| | | | |
Matrix Service Company
Condensed Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
|
| | | | | | | |
| | March 31,
2018 | | June 30,
2017 |
| Liabilities and stockholders’ equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 67,605 |
| | $ | 105,649 |
|
| Billings on uncompleted contracts in excess of costs and estimated earnings | 88,626 |
| | 75,127 |
|
| Accrued wages and benefits | 25,040 |
| | 20,992 |
|
| Accrued insurance | 8,863 |
| | 9,340 |
|
| Income taxes payable | — |
| | 169 |
|
| Other accrued expenses | 4,281 |
| | 7,699 |
|
| Total current liabilities | 194,415 |
| | 218,976 |
|
| Deferred income taxes | 3,288 |
| | 128 |
|
| Borrowings under senior secured revolving credit facility | 9,304 |
| | 44,682 |
|
| Other liabilities | 309 |
| | 435 |
|
| Total liabilities | 207,316 |
| | 264,221 |
|
| Commitments and contingencies |
|
| |
|
|
| Stockholders’ equity: | | | |
| Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of March 31, 2018, and June 30, 2017; 26,817,618 and 26,600,562 shares outstanding as of March 31, 2018 and June 30, 2017 | 279 |
| | 279 |
|
| Additional paid-in capital | 130,330 |
| | 128,419 |
|
| Retained earnings | 226,177 |
| | 222,974 |
|
| Accumulated other comprehensive loss | (6,498 | ) | | (7,324 | ) |
| | 350,288 |
| | 344,348 |
|
| Less: Treasury stock, at cost — 1,070,599 shares as of March 31, 2018, and 1,287,655 shares as of June 30, 2017 | (18,365 | ) | | (22,539 | ) |
| Total stockholders' equity | 331,923 |
| | 321,809 |
|
| Total liabilities and stockholders’ equity | $ | 539,239 |
| | $ | 586,030 |
|
| | | | |
Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | March 31,
2018 | | March 31,
2017 | | March 31,
2018 | | March 31,
2017 |
| Gross revenues | | | | | | | | |
| Electrical Infrastructure | | $ | 58,378 |
| | $ | 82,032 |
| | $ | 203,201 |
| | $ | 273,215 |
|
| Oil Gas & Chemical | | 68,689 |
| | 69,295 |
| | 242,946 |
| | 164,036 |
|
| Storage Solutions | | 78,859 |
| | 74,431 |
| | 221,664 |
| | 403,008 |
|
| Industrial | | 41,976 |
| | 26,501 |
| | 134,507 |
| | 74,254 |
|
| Total gross revenues | | $ | 247,902 |
| | $ | 252,259 |
| | $ | 802,318 |
| | $ | 914,513 |
|
| Less: Inter-segment revenues | | | | | | | | |
| Oil Gas & Chemical | | $ | 299 |
| | $ | 407 |
| | $ | 544 |
| | $ | 6,892 |
|
| Storage Solutions | | 1,958 |
| | 379 |
| | 3,307 |
| | 677 |
|
| Industrial | | — |
| | 236 |
| | 1 |
| | 1,271 |
|
| Total inter-segment revenues | | $ | 2,257 |
| | $ | 1,022 |
| | $ | 3,852 |
| | $ | 8,840 |
|
| Consolidated revenues | | | | | | | | |
| Electrical Infrastructure | | $ | 58,378 |
| | $ | 82,032 |
| | $ | 203,201 |
| | $ | 273,215 |
|
| Oil Gas & Chemical | | 68,390 |
| | 68,888 |
| | 242,402 |
| | 157,144 |
|
| Storage Solutions | | 76,901 |
| | 74,052 |
| | 218,357 |
| | 402,331 |
|
| Industrial | | 41,976 |
| | 26,265 |
| | 134,506 |
| | 72,983 |
|
| Total consolidated revenues | | $ | 245,645 |
| | $ | 251,237 |
| | $ | 798,466 |
| | $ | 905,673 |
|
| Gross profit (loss) | | | | | | | | |
| Electrical Infrastructure | | $ | 1,759 |
| | $ | (13,371 | ) | | $ | 15,567 |
| | $ | (896 | ) |
| Oil Gas & Chemical | | 4,744 |
| | 4,333 |
| | 27,550 |
| | 6,765 |
|
| Storage Solutions | | 4,166 |
| | 5,456 |
| | 17,004 |
| | 48,980 |
|
| Industrial | | 4,222 |
| | 968 |
| | 10,364 |
| | 3,027 |
|
| Total gross profit (loss) | | $ | 14,891 |
| | $ | (2,614 | ) | | $ | 70,485 |
| | $ | 57,876 |
|
| Operating income (loss) | | | | | | | | |
| Electrical Infrastructure | | $ | (2,422 | ) | | $ | (16,306 | ) | | $ | 2,234 |
| | $ | (13,085 | ) |
| Oil Gas & Chemical | | (648 | ) | | (2,199 | ) | | 8,684 |
| | (7,054 | ) |
| Storage Solutions | | (4,025 | ) | | (1,552 | ) | | (6,709 | ) | | 23,463 |
|
| Industrial | | 1,233 |
| | (1,153 | ) | | 2,424 |
| | (1,996 | ) |
| Total operating income (loss) | | $ | (5,862 | ) | | $ | (21,210 | ) | | $ | 6,633 |
| | $ | 1,328 |
|
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:
| |
| • | 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 March 31, 2018:
|
| | | | | | | | | | | | | | | | | | | |
| | Electrical Infrastructure | | Oil Gas & Chemical | | Storage Solutions | | Industrial | | Total |
| | (In thousands) |
| Backlog as of December 31, 2017 | $ | 94,873 |
| | $ | 238,681 |
| | $ | 186,265 |
| | $ | 205,215 |
| | $ | 725,034 |
|
| Project awards | 44,652 |
| | 43,347 |
| | 229,060 |
| | 117,761 |
| | 434,820 |
|
| Revenue recognized | (58,378 | ) | | (68,390 | ) | | (76,901 | ) | | (41,976 | ) | | (245,645 | ) |
| Backlog as of March 31, 2018 | $ | 81,147 |
| | $ | 213,638 |
| | $ | 338,424 |
| | $ | 281,000 |
| | $ | 914,209 |
|
Book-to-bill ratio(1) | 0.8 |
| | 0.6 |
| | 3.0 |
| | 2.8 |
| | 1.8 |
|
| |
| (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 nine months ended March 31, 2018:
|
| | | | | | | | | | | | | | | | | | | |
| | 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 | 121,711 |
| | 169,033 |
| | 415,230 |
| | 324,428 |
| | 1,030,402 |
|
| Revenue recognized | (203,201 | ) | | (242,402 | ) | | (218,357 | ) | | (134,506 | ) | | (798,466 | ) |
| Backlog as of March 31, 2018 | $ | 81,147 |
| | $ | 213,638 |
| | $ | 338,424 |
| | $ | 281,000 |
| | $ | 914,209 |
|
Book-to-bill ratio(1) | 0.6 |
| | 0.7 |
| | 1.9 |
| | 2.4 |
| | 1.3 |
|
| |
| (1) | Calculated by dividing project awards by revenue recognized during the period. |
