EX-99 2 a123115exhibit99.htm EXHIBIT 99 Exhibit
Exhibit 99


MATRIX SERVICE COMPANY REPORTS SECOND QUARTER RESULTS; REVISES FISCAL 2016 GUIDANCE

TULSA, OK – February 3, 2016 – Matrix Service Company (Nasdaq: MTRX), a leading contractor to the energy, power and industrial markets across North America, today reported its financial results for its second quarter and six months ended December 31, 2015.

Key highlights:

•
Consolidated gross profit for the three and six months ended December 31, 2015 was $30.0 million and $64.6 million compared to $16.0 million and $44.3 million for the same periods in fiscal 2015, respectively
•
Consolidated revenue for the three and six months ended December 31, 2015 was $323.5 million and $642.9 million compared to $342.9 million and $664.6 million for the same periods in fiscal 2015, respectively 
•
Unexpected client bankruptcy results in $5.2 million bad debt charge, reducing second quarter earnings per share by $0.12 to $0.20
•
Company completes acquisition of internationally-based Baillie Tank Equipment
•
Total liquidity increased to $215.6 million at December 31, 2015, a fiscal 2016 increase of $40.8 million or 23.3%
•
Financial strength, strategic focus and market position creates opportunity for long-term expansion

"We had another solid operating quarter overall and results were in line with our expectations, excluding various close-out costs on the Garrison Energy Center project as well as a bad debt charge resulting from an unexpected client bankruptcy. This performance was achieved despite slower ramp ups on certain projects in the quarter and the continued weakening of our industrial segment end markets,” said John Hewitt, President and CEO. “As a result of slower project ramp ups, revenue and profit recognition gets shifted across future quarters without necessarily changing the ultimate outcome. This shift in timing, along with the weakening industrial segment and the bad debt charge, requires that we adjust our guidance.”

"As discussed in prior periods, bidding opportunities in our Electrical Infrastructure, Storage Solutions and Oil Gas & Chemical segments continue to be robust. The combination of today’s regulatory environment and current market conditions have some owners taking a more cautious approach to the timing of awards, especially on larger projects, but the projects themselves remain critical to our clients' infrastructure,” he said.

Despite the challenges, Hewitt also sees significant opportunity for growth. “Our position in the market, our conservative approach to managing our balance sheet and our deliberate, measured approach to diversification has and will continue to serve us well,” he said. “The company’s financial position is strong and, as such, allows us to continue with our strategic growth plans as evidenced by the recently announced acquisition of Baillie Tank Equipment. Additionally, it enables us to take advantage of larger acquisition opportunities."
Second Quarter Fiscal 2016 Results
Consolidated revenue was $323.5 million for the three months ended December 31, 2015, compared to consolidated revenue of $342.9 million in the same period in the prior fiscal year. On a segment basis, consolidated revenue increased in the Electrical Infrastructure segment by $32.9 million. This increase was offset by decreased revenue in the Industrial, Oil Gas & Chemical and Storage Solutions segments of $30.7 million, $14.0 million and $7.6 million, respectively.
Consolidated gross profit increased from $16.0 million in the three months ended December 31, 2014 to $30.0 million in the three months ended December 31, 2015. Gross margins were 9.3% in the three months ended December 31, 2015 compared to 4.7% for the three months ended December 31, 2014. Fiscal 2016 gross profit was negatively impacted by the $5.4 million Garrison Energy Center project charge discussed above. Our share of the project charge reduced second quarter of fiscal 2016 net income by $2.0 million and fully diluted earnings per share by $0.07 to $0.20. In the prior fiscal year, we recorded a charge on this project which reduced gross profit by $22.9 million, net income by $7.9 million and fully diluted earnings per share by $0.29 to $0.12.



A non-routine bad debt charge of $5.2 million from an unexpected client bankruptcy increased consolidated SG&A expenses to $25.1 million in the three months ended December 31, 2015 compared to $19.6 million in the same period a year earlier.
Six Month Fiscal 2016 Results
Consolidated revenue for the six months ended December 31, 2015 was $642.9 million compared to $664.6 million in the same period a year earlier, a decrease of $21.7 million, or 3.3%. On a segment basis, consolidated revenue increased in the Electrical Infrastructure, Storage Solutions and Oil Gas & Chemical segments by $42.8 million, $3.3 million and $1.1 million, respectively. These increases were offset by a reduction in the Industrial segment of $68.9 million.
Consolidated gross profit increased from $44.3 million in the six months ended December 31, 2014 to $64.6 million in the six months ended December 31, 2015. Gross margins were 10.0% in the six months ended December 31, 2015 compared to 6.7% for the six months ended December 31, 2014. Fiscal 2016 gross profit was reduced due to a $5.5 million project charge related to the Garrison Energy Center. Our share of the project charge reduced fiscal 2016 net income by $2.0 million and fully diluted earnings per share by $0.07 to $0.56. In the prior fiscal year, we recorded charges on this project which reduced gross profit by $26.2 million, net income by $9.0 million and fully diluted earnings per share by $0.33 to $0.34.
A non-routine bad debt charge of $5.2 million from an unexpected client bankruptcy increased consolidated SG&A expenses to $44.6 million compared to $39.5 million in the same period a year earlier.
Backlog
Backlog at December 31, 2015 was $1.12 billion, compared to $1.28 billion at September 30, 2015 and $1.42 billion at June 30, 2015. Project awards totaled $177.9 million and $372.9 million for the three and six months ended December 31, 2015.
Financial Position
Availability under the Company's credit facility of $133.2 million along with the Company's cash balance of $82.4 million provided liquidity of $215.6 million at December 31, 2015, an increase of $40.8 million, or 23.3%, in fiscal 2016.
Earnings Guidance
Primarily as a result of the unexpected bankruptcy discussed above and the timing of revenue ramp up, the Company is reducing fiscal 2016 revenue guidance from between $1.4 billion and $1.6 billion to between $1.3 billion and $1.4 billion and is reducing fiscal 2016 earnings guidance from between $1.45 and $1.75 per fully diluted share to between $1.30 and $1.50 per fully diluted share.




Conference Call Details
In conjunction with the earnings release, Matrix Service Company will host a conference call 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 4, 2016 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
Matrix Service Company provides engineering, fabrication, construction and repair and maintenance services to the Electrical Infrastructure, Oil Gas & Chemical, Storage Solutions and Industrial markets.
The Company is headquartered in Tulsa, Oklahoma, with regional operating facilities throughout the United States and Canada.
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
Consolidated Statements of Income
(unaudited)
(In thousands, except per share data) 
 
 
Three Months Ended
 
Six Months Ended
 
 
December 31,
2015
 
December 31,
2014
 
December 31,
2015
 
December 31,
2014
Revenues
 
$
323,529

 
$
342,880

 
$
642,860

 
$
664,563

Cost of revenues
 
293,524

 
326,925

 
578,271

 
620,229

Gross profit
 
30,005

 
15,955

 
64,589

 
44,334

Selling, general and administrative expenses
 
25,070

 
19,626

 
44,553

 
39,458

Operating income (loss)
 
4,935

 
(3,671
)
 
20,036

 
4,876

Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(252
)
 
(300
)
 
(515
)
 
(652
)
Interest income
 
60

 
308

 
91

 
350

Other
 
(148
)
 
(28
)
 
(202
)
 
29

Income (loss) before income tax expense
 
4,595

 
(3,691
)
 
19,410

 
4,603

Provision for federal, state and foreign income taxes
 
1,477

 
1,155

 
6,553

 
4,779

Net income (loss)
 
$
3,118

 
$
(4,846
)
 
12,857

 
(176
)
Less: Net loss attributable to noncontrolling interest
 
(2,313
)
 
(8,132
)
 
(2,515
)
 
(9,376
)
Net income attributable to Matrix Service Company
 
$
5,431

 
$
3,286

 
$
15,372

 
$
9,200

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.20

 
$
0.12

 
$
0.58

 
$
0.35

Diluted earnings per common share
 
$
0.20

 
$
0.12

 
$
0.56

 
$
0.34

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
26,721

 
26,600

 
26,598

 
26,535

Diluted
 
27,248

 
27,156

 
27,229

 
27,154




Matrix Service Company
Consolidated Balance Sheets
(unaudited)
(In thousands) 

 
December 31,
2015
 
June 30,
2015
Assets
 
 
 
Current assets:

 

Cash and cash equivalents
$
82,431

 
$
79,239

Accounts receivable, less allowances (December 31, 2015— $6,105 and June 30, 2015—$561)
207,425

 
199,149

Costs and estimated earnings in excess of billings on uncompleted contracts
81,743

 
86,071

Inventories
2,688

 
2,773

Income taxes receivable
5,123

 
579

Other current assets
7,236

 
5,660

Total current assets
386,646

 
373,471

Property, plant and equipment at cost:

 

Land and buildings
32,712

 
32,746

Construction equipment
89,027

 
87,561

Transportation equipment
46,991

 
47,468

Office equipment and software
28,292

 
28,874

Construction in progress
9,235

 
5,196

Total property, plant and equipment - at cost
206,257

 
201,845

Accumulated depreciation
(123,416
)
 
(116,782
)
Property, plant and equipment - net
82,841

 
85,063

Goodwill
70,605

 
71,518

Other intangible assets
21,986

 
23,961

Deferred income taxes
3,467

 
3,729

Other assets
6,603

 
3,947

Total assets
$
572,148

 
$
561,689

 
 
 
 




Matrix Service Company
Consolidated Balance Sheets (continued)
(unaudited)
(In thousands, except share data)
 
December 31,
2015
 
June 30,
2015
Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
109,336

 
$
125,792

Billings on uncompleted contracts in excess of costs and estimated earnings
114,140

 
96,704

Accrued wages and benefits
18,875

 
26,725

Accrued insurance
8,898

 
8,100

Income taxes payable
57

 
3,268

Other accrued expenses
6,710

 
6,498

Total current liabilities
258,016

 
267,087

Deferred income taxes
1,988

 
1,244

Borrowings under senior credit facility
7,226

 
8,804

Total liabilities
267,230

 
277,135

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 December 31, 2015, and June 30, 2015; 26,914,918 and 26,440,823 shares outstanding as of December 31, 2015 and June 30, 2015
279

 
279

Additional paid-in capital
124,168

 
123,038

Retained earnings
209,766

 
194,394

Accumulated other comprehensive loss
(9,741
)
 
(5,926
)
 
324,472

 
311,785

Less: Treasury stock, at cost— 973,299 shares as of December 31, 2015, and 1,447,394 shares as of June 30, 2015
(16,730
)
 
(18,489
)
Total Matrix Service Company stockholders’ equity
307,742

 
293,296

Noncontrolling interest
(2,824
)
 
(8,742
)
Total stockholders' equity
304,918

 
284,554

Total liabilities and stockholders’ equity
$
572,148

 
$
561,689

 
 
 
 





Matrix Service Company
Results of Operations
(unaudited)
(In thousands)
 

 
 
Three Months Ended
 
Six Months Ended
 
 
December 31,
2015
 
December 31,
2014
 
December 31,
2015
 
December 31,
2014
Gross revenues
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
91,398

 
$
58,533

 
$
157,023

 
$
114,206

Oil Gas & Chemical
 
63,472

 
76,419

 
132,431

 
130,618

Storage Solutions
 
122,647

 
129,987

 
267,217

 
263,337

Industrial
 
48,390

 
79,972

 
89,725

 
159,332

Total gross revenues
 
$
325,907

 
$
344,911

 
$
646,396

 
$
667,493

Less: Inter-segment revenues
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
—

 
$
—

 
$
—

 
$
—

Oil Gas & Chemical
 
1,932

 
962

 
2,580

 
1,802

Storage Solutions
 
478

 
182

 
812

 
241

Industrial
 
(32
)
 
887

 
144

 
887

Total inter-segment revenues
 
$
2,378

 
$
2,031

 
$
3,536

 
$
2,930

Consolidated revenues
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
91,398

 
$
58,533

 
$
157,023

 
$
114,206

Oil Gas & Chemical
 
61,540

 
75,457

 
129,851

 
128,816

Storage Solutions
 
122,169

 
129,805

 
266,405

 
263,096

Industrial
 
48,422

 
79,085

 
89,581

 
158,445

Total consolidated revenues
 
$
323,529

 
$
342,880

 
$
642,860

 
$
664,563

Gross profit (loss)
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
4,021

 
$
(16,058
)
 
$
8,729

 
$
(16,547
)
Oil Gas & Chemical
 
5,971

 
7,352

 
11,654

 
11,738

Storage Solutions
 
14,426

 
14,231

 
34,658

 
28,749

Industrial
 
5,587

 
10,430

 
9,548

 
20,394

Total gross profit
 
$
30,005

 
$
15,955

 
$
64,589

 
$
44,334

Operating income (loss)
 
 
 
 
 
 
 
 
Electrical Infrastructure
 
$
(723
)
 
$
(18,522
)
 
$
477

 
$
(22,178
)
Oil Gas & Chemical
 
(3,029
)
 
2,682

 
(1,613
)
 
3,260

Storage Solutions
 
6,374

 
6,627

 
17,923

 
13,730

Industrial
 
2,313

 
5,542

 
3,249

 
10,064

Total operating income
 
$
4,935

 
$
(3,671
)
 
$
20,036

 
$
4,876





Matrix Service Company
Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
 
Six Months Ended
 
December 31,
2015

December 31,
2014
Operating activities:
 
 
 
Net income (loss)
$
12,857

 
$
(176
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
10,720

 
11,540

Deferred income tax
1,390

 
1,011

Gain on sale of property, plant and equipment
(37
)
 
(120
)
Provision for uncollectible accounts
5,544

 
451

Stock-based compensation expense
3,509

 
3,168

Excess tax benefit of exercised stock options and vesting of deferred shares
(3,245
)
 
(1,731
)
Other
119

 
118

Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from acquisitions:
 
 
 
Accounts receivable
(13,820
)
 
(9,243
)
Costs and estimated earnings in excess of billings on uncompleted contracts
4,328

 
3,435

Inventories
85

 
32

Other assets and liabilities
(8,861
)
 
3,247

Accounts payable
(16,743
)
 
(19,429
)
Billings on uncompleted contracts in excess of costs and estimated earnings
17,436

 
19,174

Accrued expenses
(6,840
)
 
(6,099
)
Net cash provided by operating activities
6,442

 
5,378

Investing activities:
 
 
 
Acquisition of property, plant and equipment
(7,516
)
 
(7,711
)
Acquisition
—

 
(5,551
)
Proceeds from asset sales
145

 
290

Net cash used by investing activities
$
(7,371
)
 
$
(12,972
)




Matrix Service Company
Consolidated Statements of Cash Flows (continued)
(Unaudited)
(In thousands)

 
Six Months Ended
 
December 31,
2015
 
December 31,
2014
Financing activities:
 
 
 
Capital contributions from noncontrolling interest
$
8,433

 
$
—

Issuances of common stock
457

 
364

Excess tax benefit of exercised stock options and vesting of deferred shares
3,245

 
1,731

Advances under credit agreement
2,753

 
9,272

Repayments of advances under credit agreement
(4,331
)
 
(9,104
)
Proceeds from issuance of common stock under employee stock purchase plan
166

 
134

Repurchase of common stock for payment of statutory taxes due on equity-based compensation
(4,488
)
 
(2,439
)
Net cash provided (used) by financing activities
6,235

 
(42
)
Effect of exchange rate changes on cash and cash equivalents
(2,114
)
 
(911
)
Increase (decrease) in cash and cash equivalents
3,192

 
(8,547
)
Cash and cash equivalents, beginning of period
79,239

 
77,115

Cash and cash equivalents, end of period
$
82,431

 
$
68,568

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Income taxes
$
9,112

 
$
5,905

Interest
$
521

 
$
748

Non-cash investing and financing activities:
 
 
 
Purchases of property, plant and equipment on account
$
726

 
$
185






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.

Three Months Ended December 31, 2015

The following table provides a summary of changes in our backlog for the three months ended December 31, 2015:
 
Electrical
Infrastructure
 
Oil Gas &
Chemical
 
Storage
Solutions
 
Industrial
 
Total
 
(In thousands)
Backlog as of September 30, 2015
$
466,788

 
$
129,038

 
$
593,822

 
$
95,062

 
$
1,284,710

Project awards
51,392

 
48,813

 
56,419

 
21,242

 
177,866

Project delays and cancellations
—

 
—

 
(22,013
)
 
—

 
(22,013
)
Revenue recognized
(91,398
)
 
(61,540
)
 
(122,169
)
 
(48,422
)
 
(323,529
)
Backlog as of December 31, 2015
$
426,782

 
$
116,311

 
$
506,059

 
$
67,882

 
$
1,117,034


Six Months Ended December 31, 2015

The following table provides a summary of changes in our backlog for the six months ended December 31, 2015:
 
Electrical
Infrastructure
 
Oil Gas &
Chemical
 
Storage
Solutions
 
Industrial
 
Total
 
(In thousands)
Backlog as of June 30, 2015
$
493,973

 
$
132,985

 
$
670,493

 
$
123,147

 
1,420,598

Project awards
89,832

 
113,177

 
123,984

 
45,922

 
372,915

Project delays and cancellations
—

 
—

 
(22,013
)
 
(11,606
)
 
(33,619
)
Revenue recognized
(157,023
)
 
(129,851
)
 
(266,405
)
 
(89,581
)
 
(642,860
)
Backlog as of December 31, 2015
$
426,782

 
$
116,311

 
$
506,059

 
$
67,882

 
$
1,117,034