EX-99 2 a123118exhibit99.htm EXHIBIT 99 Exhibit
Exhibit 99


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MATRIX SERVICE COMPANY REPORTS SECOND QUARTER RESULTS; INCREASES FISCAL 2019 REVENUE GUIDANCE, MAINTAINS EARNINGS GUIDANCE
TULSA, OK – February 6, 2019 – 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.


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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.

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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.

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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

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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


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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

 
 
 
 


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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

 
 
 
 



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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



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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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