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 CompanyCondensed
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 CompanyCondensed
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
contracts |
69,986 |
|
|
104,001 |
|
Inventories |
3,926 |
|
|
3,935 |
|
Income
taxes receivable |
5,314 |
|
|
9 |
|
Other
current assets |
7,373 |
|
|
5,411 |
|
Total current
assets |
349,634 |
|
|
375,446 |
|
Property, plant and
equipment at cost: |
|
|
|
Land and
buildings |
39,826 |
|
|
39,224 |
|
Construction equipment |
93,178 |
|
|
90,386 |
|
Transportation equipment |
48,156 |
|
|
49,046 |
|
Office
equipment and software |
36,284 |
|
|
29,577 |
|
Construction in progress |
5,827 |
|
|
7,475 |
|
Total
property, plant and equipment - at cost |
223,271 |
|
|
215,708 |
|
Accumulated depreciation |
(141,308 |
) |
|
(130,977 |
) |
Property,
plant and equipment - net |
81,963 |
|
|
84,731 |
|
Goodwill |
113,182 |
|
|
78,293 |
|
Other intangible
assets |
27,781 |
|
|
20,999 |
|
Deferred income
taxes |
5,663 |
|
|
3,719 |
|
Other assets |
2,045 |
|
|
1,779 |
|
Total assets |
$ |
580,268 |
|
|
$ |
564,967 |
|
|
|
|
|
Matrix Service CompanyCondensed
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
earnings |
75,424 |
|
|
58,327 |
|
Accrued
wages and benefits |
25,102 |
|
|
27,716 |
|
Accrued
insurance |
8,804 |
|
|
9,246 |
|
Income
taxes payable |
148 |
|
|
2,675 |
|
Other
accrued expenses |
8,314 |
|
|
6,621 |
|
Total current
liabilities |
215,063 |
|
|
246,030 |
|
Deferred
income taxes |
377 |
|
|
3,198 |
|
Borrowings under senior revolving credit facility |
44,139 |
|
|
— |
|
Other
liabilities |
472 |
|
|
173 |
|
Total liabilities |
260,051 |
|
|
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,
2016 |
279 |
|
|
279 |
|
Additional paid-in capital |
126,513 |
|
|
127,058 |
|
Retained
earnings |
223,928 |
|
|
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’ equity |
320,217 |
|
|
316,742 |
|
Noncontrolling
interest |
— |
|
|
(1,176 |
) |
Total stockholders'
equity |
320,217 |
|
|
315,566 |
|
Total liabilities and
stockholders’ equity |
$ |
580,268 |
|
|
$ |
564,967 |
|
|
|
|
|
Matrix Service CompanyResults 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:
|
ElectricalInfrastructure |
|
Oil Gas
&Chemical |
|
StorageSolutions |
|
Industrial |
|
Total |
|
(In thousands) |
Backlog as of December
31, 2016 |
$ |
338,413 |
|
|
$ |
209,505 |
|
|
$ |
185,491 |
|
|
$ |
80,581 |
|
|
$ |
813,990 |
|
Project awards |
57,630 |
|
|
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:
|
ElectricalInfrastructure |
|
Oil Gas
&Chemical |
|
StorageSolutions |
|
Industrial |
|
Total |
|
(In thousands) |
Backlog as of June 30,
2016 |
$ |
369,791 |
|
|
$ |
91,478 |
|
|
$ |
359,013 |
|
|
$ |
48,390 |
|
|
$ |
868,672 |
|
Project awards |
217,435 |
|
|
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
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