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CST: 18/10/2019 18:29:57   

Matrix Service Company Reports Second Quarter Results; Increases Fiscal 2019 Revenue Guidance, Maintains Earnings Guidance

254 Days ago

TULSA, Okla., Feb. 06, 2019 (GLOBE NEWSWIRE) -- 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. Cavanah
Vice President and CFO
T: 918-838-8822
Email: kcavanah@matrixservicecompany.com

Kellie Smythe
Senior Director, Investor Relations
T: 918-359-8267
Email: ksmythe@matrixservicecompany.com

         
Matrix Service Company
Condensed 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 Company
Condensed 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 Company
Condensed 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 Company
Results 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:

  Electrical
Infrastructure
  Oil Gas &
Chemical
  Storage
Solutions
  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:

  Electrical
Infrastructure
  Oil Gas &
Chemical
  Storage
Solutions
  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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