Matrix Service Company (Nasdaq: MTRX), a leading
contractor to the energy and industrial markets across North
America, today reported financial results for its second quarter
ended December 31, 2018.
Key highlights:
- Revenue increased 20.4% to
$340.6 million compared to $282.9 million in the second quarter of
the prior fiscal year, driven by increases of 78.5% and 18.8%,
respectively, in the Storage Solutions and Industrial
segments
- Fully diluted earnings per
share were $0.14 in the second quarter and $0.23
year-to-date
- Backlog at $1.046 billion,
up 44.3% compared to $725.0 million for the same period a year
ago
- Company increases revenue
guidance from $1.250 to $1.350 billion to $1.350 to $1.425 billion;
maintains earnings guidance of $0.85 to $1.15 per fully diluted
share
“We are pleased with our continued improvement
in revenue. Consistent with past commentary, our gross margins in
the quarter were lower than our long-term targets. However,
quarter-over-quarter results are trending in the right direction.
With an improving quality of backlog and new projects, we expect to
see revenue, gross margins, and earnings per share increase as we
move through the second half of the year," said John R. Hewitt,
President and Chief Executive Officer. "However, the impact of
higher revenue volumes and continuing margin improvement in the
second half of the year is offset by the lower margin performance
in the first half. As a result, while we are increasing our revenue
guidance, earnings per share guidance remains unchanged.
"Looking forward, based on the strength of our
backlog, end markets, and project opportunity pipeline across all
of our operating segments, we expect to end Fiscal 2019 in a strong
backlog position. Our confidence in the Company and our end markets
is reinforced by the fact that we bought back over $5 million in
stock late in this second quarter."
Second Quarter Fiscal 2019 Results
Consolidated revenue was $340.6 million for the
three months ended December 31, 2018, compared to $282.9
million in the same period of the prior fiscal year. Storage
Solutions segment revenue increased $55.3 million primarily as a
result of increased tank and terminal construction work.
Industrial segment revenue increased $11.2 million due to a higher
volume of thermal vacuum chamber work. Electrical
Infrastructure segment revenue decreased $6.7 million due to the
expected reduction in power generation EPC work, partially offset
by an increase in power delivery work. Oil Gas & Chemical
segment revenue decreased $2.1 million due to lower levels of
capital and engineering work partially offset by higher volumes of
turnaround and maintenance work.
Consolidated gross profit was $27.9 million in
the three months ended December 31, 2018 compared to $26.7
million in the three months ended December 31, 2017. The
gross margin was 8.2% in the three months ended December 31,
2018 compared to 9.4% in the same period in the prior fiscal
year. Fiscal 2019 gross margin was negatively impacted by the
wind down of the lower margin work bid in a highly competitive
environment in prior periods. Gross margins in fiscal 2018
benefited from strong project execution on a capital project in the
Oil Gas & Chemical segment.
Consolidated SG&A expenses were $22.4
million in the three months ended December 31, 2018 compared
to $21.5 million in the same period a year earlier.
Our effective tax rate for the three months
ended December 31, 2018 was 27.4% compared to (5.8%) in the same
period last year. The effective tax rate in fiscal 2019 was in line
with our expected tax rate of 27.0%. The effective tax rate in
fiscal 2018 was positively impacted by a one-time $1.2 million
adjustment in connection with accounting for the Tax Cut and Jobs
Act.
The Company earned net income of $3.9 million,
or $0.14 per fully diluted share, in the second quarter of fiscal
2019 compared to net income of $4.5 million, or $0.17 per fully
diluted share, in the second quarter of fiscal 2018.
Six Month Fiscal 2019 Results
Consolidated revenue was $659.1 million for the
six months ended December 31, 2018, compared to $552.8 million
in the same period of the prior fiscal year. Storage
Solutions revenue increased $97.0 million primarily as a result of
increased tank and terminal construction work. Industrial
segment revenue increased $63.4 million due to higher volumes of
iron and steel and thermal vacuum chamber work. Electrical
Infrastructure segment revenue decreased $41.9 million primarily
due to an expected reduction in the volume of power generation EPC
work, partially offset by an increase in power delivery work.
Oil Gas & Chemical segment revenue decreased $12.3 million due
to lower levels of capital and engineering work, partially offset
by higher volumes of turnaround and maintenance work.
Consolidated gross profit was $51.3 million in
the six months ended December 31, 2018 compared to $55.6
million in the six months ended December 31, 2017. The gross
margin was 7.8% in the six months ended December 31, 2018 compared
to 10.1% in the same period in the prior fiscal year. The
gross margin in fiscal 2019 was impacted by the wind down of lower
margin work bid in a highly competitive environment in prior
periods and lower than previously forecasted margins on a limited
number of those projects. Gross margins in fiscal 2018 benefited
from strong project execution on a capital project in the Oil Gas
& Chemical segment.
Consolidated SG&A expenses were $43.6
million in the six months ended December 31, 2018 compared to $43.1
million in the same period a year earlier.
The Company earned net income of $6.2 million,
or $0.23 per fully diluted share, during the six months ended
December 31, 2018 compared to net income of $8.4 million, or $0.31
per fully diluted share in the prior year.
Backlog
Backlog at December 31, 2018 was $1.046
billion compared to $1.109 billion at September 30, 2018. The
quarterly book-to-bill ratio was 0.8 on project awards of $277.5
million. The year-to-date book-to-bill ratio was 0.7 on
project awards of $486.9 million.
Share Repurchase
In December 2018, the Company repurchased
310,532 shares of its common stock for $5.2 million at an average
price of $16.71 per share under its previously approved plan.
Financial Position
The Company had zero debt and a cash balance of
$71.5 million at December 31, 2018. The cash balance combined with
availability under the credit facility provides the Company with
liquidity of $137.3 million at December 31, 2018, an increase of
$8.0 million since September 30, 2018. The Company expects
liquidity improvement as we work through the third and fourth
quarters of fiscal 2019.
Earnings Guidance
The Company is increasing fiscal 2019 revenue
guidance from between $1.250 billion and $1.350 billion to between
$1.350 billion and $1.425 billion. The impact of increased revenue
volumes and margin improvement in the second half of the year is
offset by the lower margin performance in the first half of the
year. As a result, the earnings per share guidance remains
unchanged at $0.85 to $1.15 per fully diluted share.
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 7, 2019 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 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:
Kevin S. CavanahVice President and CFOT: 918-838-8822Email:
kcavanah@matrixservicecompany.com
Kellie SmytheSenior Director, Investor RelationsT:
918-359-8267Email: ksmythe@matrixservicecompany.com
|
|
|
|
|
Matrix Service
CompanyCondensed Consolidated Statements of
Income(unaudited)(In thousands,
except per share data) |
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
December 31, 2018 |
|
December 31, 2017 |
|
December 31, 2018 |
|
December 31, 2017 |
Revenues |
|
$ |
340,568 |
|
|
$ |
282,911 |
|
|
$ |
659,079 |
|
|
$ |
552,821 |
|
Cost of revenues |
|
312,682 |
|
|
256,208 |
|
|
607,772 |
|
|
497,227 |
|
Gross profit |
|
27,886 |
|
|
26,703 |
|
|
51,307 |
|
|
55,594 |
|
Selling, general and
administrative expenses |
|
22,359 |
|
|
21,529 |
|
|
43,560 |
|
|
43,099 |
|
Operating income |
|
5,527 |
|
|
5,174 |
|
|
7,747 |
|
|
12,495 |
|
Other income
(expense): |
|
|
|
|
|
|
|
|
Interest
expense |
|
(361 |
) |
|
(819 |
) |
|
(653 |
) |
|
(1,437 |
) |
Interest
income |
|
274 |
|
|
65 |
|
|
556 |
|
|
104 |
|
Other |
|
(22 |
) |
|
(135 |
) |
|
524 |
|
|
14 |
|
Income before income
tax expense |
|
5,418 |
|
|
4,285 |
|
|
8,174 |
|
|
11,176 |
|
Provision (benefit) for
federal, state and foreign income taxes |
|
1,486 |
|
|
(247 |
) |
|
1,937 |
|
|
2,820 |
|
Net income |
|
$ |
3,932 |
|
|
$ |
4,532 |
|
|
$ |
6,237 |
|
|
$ |
8,356 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per
common share |
|
$ |
0.15 |
|
|
$ |
0.17 |
|
|
$ |
0.23 |
|
|
$ |
0.31 |
|
Diluted earnings per
common share |
|
$ |
0.14 |
|
|
$ |
0.17 |
|
|
$ |
0.23 |
|
|
$ |
0.31 |
|
Weighted average common
shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
27,043 |
|
|
26,771 |
|
|
26,982 |
|
|
26,713 |
|
Diluted |
|
27,582 |
|
|
27,078 |
|
|
27,628 |
|
|
26,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matrix Service
CompanyCondensed Consolidated Balance
Sheets(unaudited)(In
thousands) |
|
|
|
December 31, 2018 |
|
June 30, 2018 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash
equivalents |
$ |
71,489 |
|
|
$ |
64,057 |
|
Accounts
receivable, less allowances (December 31, 2018— $6,249 and
June 30, 2018—$6,327) |
203,574 |
|
|
203,388 |
|
Costs and
estimated earnings in excess of billings on uncompleted
contracts |
72,694 |
|
|
76,632 |
|
Inventories |
7,961 |
|
|
5,152 |
|
Income
taxes receivable |
1,543 |
|
|
3,359 |
|
Other
current assets |
7,578 |
|
|
4,458 |
|
Total current
assets |
364,839 |
|
|
357,046 |
|
Property, plant and
equipment at cost: |
|
|
|
Land and
buildings |
40,517 |
|
|
40,424 |
|
Construction equipment |
89,321 |
|
|
89,036 |
|
Transportation equipment |
48,805 |
|
|
48,339 |
|
Office
equipment and software |
42,297 |
|
|
41,236 |
|
Construction in progress |
3,040 |
|
|
1,353 |
|
Total
property, plant and equipment - at cost |
223,980 |
|
|
220,388 |
|
Accumulated depreciation |
(152,387 |
) |
|
(147,743 |
) |
Property,
plant and equipment - net |
71,593 |
|
|
72,645 |
|
Goodwill |
93,263 |
|
|
96,162 |
|
Other intangible
assets |
21,096 |
|
|
22,814 |
|
Deferred income
taxes |
5,598 |
|
|
4,848 |
|
Other assets |
13,163 |
|
|
4,518 |
|
Total assets |
$ |
569,552 |
|
|
$ |
558,033 |
|
|
|
|
|
|
|
|
|
Matrix Service
CompanyCondensed Consolidated Balance Sheets
(continued)(unaudited)(In
thousands, except share data) |
|
|
|
|
|
December 31, 2018 |
|
June 30, 2018 |
Liabilities and
stockholders’ equity |
|
|
|
Current
liabilities: |
|
|
|
Accounts payable |
$ |
90,712 |
|
|
$ |
79,439 |
|
Billings
on uncompleted contracts in excess of costs and estimated
earnings |
115,366 |
|
|
120,740 |
|
Accrued
wages and benefits |
24,735 |
|
|
24,375 |
|
Accrued
insurance |
8,921 |
|
|
9,080 |
|
Income
taxes payable |
— |
|
|
7 |
|
Other
accrued expenses |
4,698 |
|
|
4,824 |
|
Total current
liabilities |
244,432 |
|
|
238,465 |
|
Deferred
income taxes |
1,272 |
|
|
429 |
|
Other
liabilities |
258 |
|
|
296 |
|
Total liabilities |
245,962 |
|
|
239,190 |
|
Commitments and
contingencies |
|
|
|
Stockholders’
equity: |
|
|
|
Common
stock—$.01 par value; 60,000,000 shares authorized; 27,888,217
shares issued as of December 31, 2018 and June 30, 2018; 26,778,398
and 26,853,823 shares outstanding as of December 31, 2018 and June
30, 2018 |
279 |
|
|
279 |
|
Additional paid-in capital |
131,889 |
|
|
132,198 |
|
Retained
earnings |
217,731 |
|
|
211,494 |
|
Accumulated other comprehensive loss |
(8,079 |
) |
|
(7,411 |
) |
|
341,820 |
|
|
336,560 |
|
Less:
Treasury stock, at cost — 1,109,819 shares as of December 31, 2018,
and 1,034,394 shares as of June 30, 2018 |
(18,230 |
) |
|
(17,717 |
) |
Total stockholders'
equity |
323,590 |
|
|
318,843 |
|
Total liabilities and
stockholders’ equity |
$ |
569,552 |
|
|
$ |
558,033 |
|
|
|
|
|
|
Matrix Service CompanyResults of
Operations(unaudited)(In
thousands) |
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
December 31, 2018 |
|
December 31, 2017 |
|
December 31, 2018 |
|
December 31, 2017 |
Gross
revenues |
|
|
|
|
|
|
|
|
Electrical
Infrastructure |
|
$ |
58,173 |
|
|
$ |
64,852 |
|
|
$ |
102,874 |
|
|
$ |
144,823 |
|
Oil Gas &
Chemical |
|
87,521 |
|
|
88,396 |
|
|
163,083 |
|
|
174,257 |
|
Storage Solutions |
|
126,198 |
|
|
71,233 |
|
|
239,965 |
|
|
142,805 |
|
Industrial |
|
70,385 |
|
|
59,260 |
|
|
155,942 |
|
|
92,531 |
|
Total
gross revenues |
|
$ |
342,277 |
|
|
$ |
283,741 |
|
|
$ |
661,864 |
|
|
$ |
554,416 |
|
Less:
Inter-segment revenues |
|
|
|
|
|
|
|
|
Oil Gas &
Chemical |
|
$ |
1,234 |
|
|
$ |
37 |
|
|
$ |
1,305 |
|
|
$ |
245 |
|
Storage Solutions |
|
475 |
|
|
792 |
|
|
1,480 |
|
|
1,349 |
|
Industrial |
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
Total
inter-segment revenues |
|
$ |
1,709 |
|
|
$ |
830 |
|
|
$ |
2,785 |
|
|
$ |
1,595 |
|
Consolidated
revenues |
|
|
|
|
|
|
|
|
Electrical
Infrastructure |
|
$ |
58,173 |
|
|
$ |
64,852 |
|
|
$ |
102,874 |
|
|
$ |
144,823 |
|
Oil Gas &
Chemical |
|
86,287 |
|
|
88,359 |
|
|
161,778 |
|
|
174,012 |
|
Storage Solutions |
|
125,723 |
|
|
70,441 |
|
|
238,485 |
|
|
141,456 |
|
Industrial |
|
70,385 |
|
|
59,259 |
|
|
155,942 |
|
|
92,530 |
|
Total
consolidated revenues |
|
$ |
340,568 |
|
|
$ |
282,911 |
|
|
$ |
659,079 |
|
|
$ |
552,821 |
|
Gross
profit |
|
|
|
|
|
|
|
|
Electrical
Infrastructure |
|
$ |
3,562 |
|
|
$ |
5,541 |
|
|
$ |
6,945 |
|
|
$ |
13,808 |
|
Oil Gas &
Chemical |
|
9,157 |
|
|
11,768 |
|
|
14,782 |
|
|
22,806 |
|
Storage Solutions |
|
11,147 |
|
|
5,298 |
|
|
20,700 |
|
|
12,838 |
|
Industrial |
|
4,020 |
|
|
4,096 |
|
|
8,880 |
|
|
6,142 |
|
Total
gross profit |
|
$ |
27,886 |
|
|
$ |
26,703 |
|
|
$ |
51,307 |
|
|
$ |
55,594 |
|
Operating
income (loss) |
|
|
|
|
|
|
|
|
Electrical
Infrastructure |
|
$ |
438 |
|
|
$ |
1,079 |
|
|
$ |
1,095 |
|
|
$ |
4,656 |
|
Oil Gas &
Chemical |
|
3,585 |
|
|
5,198 |
|
|
4,099 |
|
|
9,332 |
|
Storage Solutions |
|
1,356 |
|
|
(2,609 |
) |
|
1,641 |
|
|
(2,684 |
) |
Industrial |
|
148 |
|
|
1,506 |
|
|
912 |
|
|
1,191 |
|
Total
operating income |
|
$ |
5,527 |
|
|
$ |
5,174 |
|
|
$ |
7,747 |
|
|
$ |
12,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 with no
minimum commitments and other established customer agreements, we
include only the amounts that we expect to recognize as revenue
over the next 12 months. For arrangements in which we have
received a limited notice to proceed, we include the entire scope
of work in our backlog if the notice is significant relative to the
overall project and if we conclude that the likelihood of the full
project proceeding as high. For all other arrangements, we
calculate backlog as the estimated contract amount less revenues
recognized as of the reporting date.
The following table provides a summary of changes in our backlog
for the three months ended December 31, 2018:
|
ElectricalInfrastructure |
|
Oil Gas
&Chemical |
|
StorageSolutions |
|
Industrial |
|
Total |
|
|
|
(In thousands) |
Backlog as of September
30, 2018 |
$ |
108,845 |
|
|
$ |
189,492 |
|
|
$ |
585,737 |
|
|
$ |
225,398 |
|
|
$ |
1,109,472 |
|
Project awards |
52,066 |
|
|
74,656 |
|
|
85,190 |
|
|
65,580 |
|
|
277,492 |
|
Revenue recognized |
(58,173 |
) |
|
(86,287 |
) |
|
(125,723 |
) |
|
(70,385 |
) |
|
(340,568 |
) |
Backlog as of December
31, 2018 |
$ |
102,738 |
|
|
$ |
177,861 |
|
|
$ |
545,204 |
|
|
$ |
220,593 |
|
|
$ |
1,046,396 |
|
Book-to-bill
ratio(1) |
0.9 |
|
|
0.9 |
|
|
0.7 |
|
|
0.9 |
|
|
0.8 |
|
____________ (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 six months ended December 31, 2018:
|
ElectricalInfrastructure |
|
Oil Gas
&Chemical |
|
StorageSolutions |
|
Industrial |
|
Total |
|
|
|
(In thousands) |
Backlog as of June 30,
2018 |
$ |
113,957 |
|
|
$ |
227,452 |
|
|
$ |
613,360 |
|
|
$ |
263,827 |
|
|
1,218,596 |
|
Project awards |
91,655 |
|
|
112,187 |
|
|
170,329 |
|
|
112,708 |
|
|
486,879 |
|
Revenue recognized |
(102,874 |
) |
|
(161,778 |
) |
|
(238,485 |
) |
|
(155,942 |
) |
|
(659,079 |
) |
Backlog as of December
31, 2018 |
$ |
102,738 |
|
|
$ |
177,861 |
|
|
$ |
545,204 |
|
|
$ |
220,593 |
|
|
$ |
1,046,396 |
|
Book-to-bill
ratio(1) |
0.9 |
|
|
0.7 |
|
|
0.7 |
|
|
0.7 |
|
|
0.7 |
|
____________(1) Calculated by dividing project awards by
revenue recognized during the period.
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