TULSA, Okla., Aug. 15 - Matrix Service Co. (Nasdaq: MTRX), a leading industrial services company, today reported results for the fourth quarter and fiscal year 2005, ended May 31, 2005.
Total revenues for the fourth quarter, ended May 31, 2005 were $129.2 million, compared with $133.1 million recorded in the same period a year earlier.
Net loss for the fourth quarter of fiscal 2005 was $3.8 million, or $0.22 per fully diluted share, versus a net income of $0.3 million, or $0.02 per fully diluted share, in the fourth quarter a year ago. These results include pre-tax charges and expenses of $5.1 million, or $0.21 per share, for impairment of a deferred tax assets related to net operating loss carryforwards, legal, Sarbanes-Oxley, fixed asset impairments, restructuring and refinancing activities.
On August 10th the Company amended its credit agreement to extend the maturity date of its senior revolving facilities to June 30, 2006. These facilities consist of a primary line of credit of $35.0 million and a secondary line of credit of $10.0 million. The amendment established certain covenants for maintenance of minimum levels of "augmented consolidated EBITDA" as defined in the agreement, minimum senior fixed charges and total debt service coverage ratios. Cash interest on the revolver will continue to be payable monthly at a rate of prime plus 1.0% until December 31, 2005. Additional interest on the revolver will accrue at a rate of 3.0% for the month of August 2005 and escalate by 0.5% each month until reaching 5.0% in December 2005. This additional accrued interest will be payable on the maturity date for the revolver. Beginning January 1, 2006, cash pay interest converts to prime plus 3.5% with additional accrued interest of 3.5% on each line of credit. The rate of cash and accrued interest will escalate in February and March 2006 and beginning April 1, 2006, cash pay interest will be payable at a rate of prime plus 8.25% with no additional interest accruing. The term loan, which matures in March 2008, has a similar interest rate structure. The Company also obtained a waiver on August 10, 2005 of certain covenants that existed prior to the effectiveness of this amendment.
President and Chief Executive Officer of Matrix Service, Michael J. Hall, said, "Our liquidity has improved significantly since the end of fiscal 2005. Our bank debt has been reduced by $13.3 million, to $29.4 million as of August 12, 2005, from $42.7 million at the end of May 31, 2005. Simultaneously, we have been able to reduce payables 24.9% from $38.1 million as of May 31, 2005 to $28.6 million as of August 12, 2005, which went a long way to improving vendor relationships. As of August 12, 2005, the availability under our revolving lines of credit was $18.3 million."
While the new credit agreement amendment coupled with the successful issuance of $30.0 million of convertible notes in April of this year has provided sufficient liquidity for the next fiscal year, Matrix continues to work towards providing a capital structure that will facilitate the long-term growth of the Company. To this end, we continue to evaluate a number of proposals, one of which we intend to execute in fiscal 2006, once we have additional clarity on the results of our restructuring efforts and on the disputed contracts that will be proceeding through the arbitration and litigation processes this fall.
In March 2005, the Company initiated a restructuring program to reduce its cost structure and improve its operating results. The Company focused on its core strengths and identified areas with the objective of eliminating unprofitable and marginal businesses. As a result of this effort, Matrix sold its transportation and rigging assets and has executed a letter of intent to sell the aluminum floating roof business. Matrix is also in the process of selling excess facilities or land in Tulsa, Oklahoma; Orange, California; and Holmes, Pennsylvania. These liquidity events, coupled with various tax refunds, are expected to yield approximately $12.0 million in cash, which will be used to improve liquidity. Matrix also ceased to work on a number of large routine maintenance contracts that were utilizing valuable resources while providing minimal returns. As these maintenance contracts were reduced, there was a significant reduction of overhead and administration costs. As a result of these efforts and other efforts to reduce costs, Matrix was able to reduce its annual administrative payroll and benefit costs by more than $5.0 million.
Hall added, "Despite the financial issues facing Matrix, our backlog increased by $65.3 million, to $215.5 million as of May 31, 2005, from $150.2 million on February 28, 2005. The increase was primarily the result of booking the $97.0 million LNG project, which is expected to be completed over a 35-month period. We expect to recognize approximately $49 million in LNG revenues by the end of fiscal 2006 and anticipate total fiscal year 2006 revenues of between $375 million to $425 million. We are not prepared to provide earnings guidance. However, we are confident that our restructuring efforts will succeed and anticipate fiscal 2006 will be profitable."
Construction Services revenues for fourth quarter 2005 were $51.0 million compared to $75.6 million in the same period a year earlier. The decrease was a result of significantly lower construction work in the Power Industry, where fourth quarter revenues fell 92.4% to $3.5 million from $45.7 million in the fourth quarter of fiscal 2004 as a result of the completion of two large power projects performed in our Eastern operations that year. These declines were partially offset by Downstream Petroleum Industry revenues, which climbed 60.6% to $42.4 million, from $26.4 million a year earlier, and by Other Industries' revenues, which rose 43.4% to $5.1 million from $3.5 million for the year-earlier period. Other Industries consist primarily of the wastewater, food and beverage, electronics and paper industries. Construction Services' gross margins were 4.4% versus 2.2% in the fourth quarter of 2004. Margins in this segment were depressed in the current quarter primarily due to three loss projects in the Western Business Unit. Last year's margins were also impacted by two low margin power projects completed at the end of fiscal 2004.
Revenues from Repair and Maintenance Services advanced by $20.9 million, or 36.3%, to $78.3 million in the fourth quarter of 2005, from $57.4 million in the same quarter of fiscal 2004. The increase was primarily a result of higher Downstream Petroleum Industry revenues where fourth quarter revenues rose 30.3% to $64.9 million, from $49.8 million a year earlier and due to higher Power Industry revenues, which climbed 180.1% to $13.1 million, from $4.7 million for the year-earlier period. These increases were primarily driven by the additional maintenance contracts Matrix entered into in January 2005. Gross margins were 6.7% in the quarter versus 11.7% in the fourth quarter a year ago, as a result of the inclusion of lower margin maintenance contracts primarily in the Eastern operations.
For the fiscal year ended May 31, 2005, Matrix reported consolidated revenues of $439.1 million versus $607.9 million recorded for fiscal year 2004.
Net loss for the fiscal year 2005 was $38.8 million, or $2.24 per fully diluted share, compared to net income of $9.5 million, or $0.54 per fully diluted share, for fiscal year 2004. These results include pre-tax charges and expenses of $25.0 million, or $1.44 per share, for goodwill impairment, $10.3 million, or $0.39 per share, for an additional reserve on the previously disclosed disputed contracts, $2.5 million, or $0.15 per share, for the impairment of a deferred tax asset related to net operating loss carryforwards and $8.2 million, or $0.32 per share, for legal, Sarbanes-Oxley, fixed asset impairments, restructuring and refinancing activities.
Revenues for the Construction Services segment were $204.0 million for the fiscal year ended, May 31, 2005, compared with $429.6 million for the same period in 2004. The decrease was primarily due to a $261.9 million decrease in revenues from the Power Industry, which resulted from the completion of two large power projects performed by our Eastern operations in fiscal 2004. Partially offsetting this decline was revenue from Other Industries, which increased $15.4 million, and Downstream Petroleum Industries, which increased $20.9 million. Gross margins in the Construction Services segment narrowed slightly to 6.0% from 6.4% a year earlier as a result of the sharp decline in revenues, which led to a smaller base for fixed cost absorption and primarily due to decreases resulting from three loss projects in the Western Business Unit. Last year's margins were also impacted by two low margin power projects completed at the end of fiscal 2004.
Revenues for Repair and Maintenance Services rose $56.9 million, or 31.9%, to $235.2 million for the fiscal year ending May 31, 2005 from $178.3 million for fiscal year 2004. This improvement resulted primarily from increased revenues from the Downstream Petroleum Industry, which increased $46.5 million as a result of strong turnaround activity combined with the addition of maintenance contracts entered into in the third quarter of fiscal 2005. In addition, revenues from the Power Industry increased $11.8 million while Other Industries declined $1.4 million. Gross margins were 8.0% versus 10.5% for the year ended May 31, 2004, primarily as a result of the lower margin maintenance contracts executed in the second half of the year.
In conjunction with the press release, Matrix Service will host a conference call with Mike Hall, president and CEO, and Les Austin, vice president and chief financial officer. The call will take place today at 11:00 a.m. (EDT)/10:00 a.m. (CDT) today and will be simultaneously broadcast live over the Internet at http://www.vcall.com. 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 online archive of the broadcast will be available within one hour of completion of the live call.
About Matrix Service Company
Matrix Service Company provides general industrial construction and repair and maintenance services principally to the petroleum, petrochemical, power, bulk storage terminal, pipeline and industrial gas industries.
The Company is headquartered in Tulsa, Oklahoma, with regional operating facilities located in Oklahoma, Texas, California, Michigan, Pennsylvania, Illinois, Washington and Delaware in the U.S. 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 identified 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.
For More Information: Investors:
Les Austin 918/359-8218
Vice President Finance and CFO ir@matrixservice.com
Matrix Service Company
918/838-8822
laustin@matrixservice.com
Matrix Service Company
Consolidated Statements of Operations
(In Thousands, except share and per share data)
Three Months Ended Twelve Months Ended
May 31, 2005 May 31, 2004 May 31, 2005 May 31, 2004
(unaudited) (unaudited)
Revenues $ 129,230 $ 133,054 $ 439,138 $ 607,904
Cost of
revenues 121,767 124,720 408,119 561,591
Gross profit 7,463 8,334 31,019 46,313
Selling,
general and
administrative
expenses 7,386 7,114 40,335 28,726
Impairment
and abandonment 1,168 -- 26,168 --
Restructuring 3,504 -- 3,654 68
Operating
income (loss) (4,595) 1,220 (39,138) 17,519
Other income
(expense):
Interest expense (2,088) (765) (5,722) (2,914)
Interest income 1 7 2 29
Other 302 90 400 579
Income (loss)
before income
tax expense (6,380) 552 (44,458) 15,213
Provision
(benefit)
for federal,
state and
foreign income
tax expense (2,618) 226 (5,628) 6,181
Net earnings
of joint venture -- -- -- 510
Net income
(loss) $ (3,762) $ 326 $ (38,830) $ 9,542
Earnings (loss) per share of common stock:
Basic $ (0.22) $ 0.02 $ (2.24) $ 0.57
Diluted $ (0.22) $ 0.02 $ (2.24) $ 0.54
Weighted average number of common shares:
Basic 17,381,939 17,163,113 17,327,484 16,718,737
Diluted
(includes
dilutive
effect of
stock
options) 17,381,939 17,752,266 17,327,484 17,615,497
Matrix Service Company
Consolidated Balance Sheets
May 31,
2005 2004
(In Thousands)
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,496 $ 752
Accounts receivable, less allowances
(2005 . $461; 2004 . $337) 70,088 56,974
Contract dispute receivables, net 20,975 31,456
Costs and estimated earnings
in excess of billings
on uncompleted contracts 22,733 18,854
Inventories 4,739 4,584
Income tax receivable 3,004 3,220
Deferred income taxes 4,820 1,493
Prepaid expenses 8,245 2,368
Assets held for sale 1,479 --
Total current assets 137,579 119,701
Property, plant and equipment, at cost:
Land and buildings 23,087 24,518
Construction equipment 29,711 31,294
Transportation equipment 10,862 12,445
Furniture and fixtures 8,889 8,743
Construction in progress 318 1,593
72,867 78,593
Accumulated depreciation 35,791 32,939
37,076 45,654
Goodwill 24,834 49,666
Other assets 2,891 1,253
Total assets $202,380 $216,274
Matrix Service Company
Consolidated Balance Sheets
May 31,
2005 2004
(In Thousands, Except
Share Amounts)
(unaudited)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 38,059 $ 27,528
Billings on uncompleted contracts
in excess
of costs & estimated earnings 12,311 8,115
Accrued insurance 5,038 2,152
Other accrued expenses 15,759 11,264
Current capital lease obligation 113 --
Current portion of long-term debt 42,765 4,893
Current portion of acquisition payable 1,808 1,835
Total current liabilities 115,853 55,787
Long-term debt -- 64,209
Convertible notes 30,000 --
Acquisition payable 4,169 5,614
Long-term capital lease obligation 231 --
Deferred income taxes 4,142 4,949
Stockholders' equity:
Common stock -- $.01 par value;
30,000,000 authorized; 19,285,276
shares issued as of May 31,
2005 and 2004 193 193
Additional paid-in capital 56,322 56,101
Retained earnings (3,307) 35,585
Accumulated other comprehensive loss (22) (395)
53,186 91,484
Less treasury stock, at cost --
1,873,750 and 2,084,950 shares as
of May 31, 2005 and 2004, respectively (5,201) (5,769)
Total stockholders' equity 47,985 85,715
Total liabilities and
stockholders' equity $ 202,380 $ 216,274
4th Quarter and Fiscal Year Results of Operations
(In Thousands)
(unaudited)
Construction Repair and
Services Maintenance Combined
Services Other Total
Three Months ended
May 31, 2005
Gross revenues $ 54,769 $ 78,603 $ -- $133,372
Less: Inter-segment
revenues (3,818) (324) -- (4,142)
Consolidated revenues 50,951 78,279 -- 129,230
Gross profit 2,219 5,244 -- 7,463
Operating income (loss) (3,622) (766) (207) (4,595)
Income (loss)
before income
tax expense (4,586) (1,587) (207) (6,380)
Net income (loss) (2,697) (933) (132) (3,762)
Segment assets 92,877 84,215 25,288 202,380
Capital expenditures 114 88 289 491
Depreciation and
amortization expense 795 760 -- 1,555
Three Months ended
May 31, 2004
Gross revenues $ 78,699 $ 57,446 $ -- $136,145
Less: Inter-segment
revenues (3,080) (11) -- (3,091)
Consolidated revenues 75,619 57,435 -- 133,054
Gross profit 1,634 6,700 -- 8,334
Operating income (loss) (2,228) 3,451 (3) 1,220
Income (loss) before
income tax expense (2,663) 3,218 (3) 552
Net income (loss) (1,583) 1,910 (1) 326
Segment assets 123,752 68,626 23,896 216,274
Capital expenditures 28 215 479 722
Depreciation and
amortization expense 812 805 -- 1,617
Twelve Months ended
May 31, 2005
Gross revenues $ 215,997 $ 236,059 $ -- $452,056
Less: Inter-segment
revenues (12,047) (871) -- (12,918)
Consolidated revenues 203,950 235,188 -- 439,138
Gross profit 12,178 18,841 -- 31,019
Operating income (loss) (40,786) 2,005 (357) (39,138)
Income (loss) before
income tax expense (44,052) (49) (357) (44,458)
Net income (loss) (38,590) (19) (221) (38,830)
Segment assets 92,877 84,215 25,288 202,380
Capital expenditures 432 365 1,017 1,814
Depreciation and
amortization expense 3,470 3,256 -- 6,726
Twelve Months ended
May 31, 2004
Gross revenues $ 440,299 $ 178,479 $ -- $618,778
Less: Inter-segment
revenues (10,707) (167) -- (10,874)
Consolidated revenues 429,592 178,312 -- 607,904
Gross profit 27,552 18,761 -- 46,313
Operating income (loss) 9,957 7,630 (68) 17,519
Income (loss) before
income tax expense 8,468 6,813 (68) 15,213
Net income (loss) 5,547 4,035 (40) 9,542
Segment assets 123,752 68,626 23,896 216,274
Capital expenditures 777 1,780 2,118 4,675
Depreciation and
amortization expense 3,396 3,012 -- 6,408
Segment revenue from
external customers by
industry type is as follows:
(In Thousands)
(unaudited)
Repair and
Construction Maintenance
Services Services Total
Three Months Ended
May 31, 2005
Power Industry $ 3,464 $ 13,145 $ 16,609
Downstream
Petroleum Industry 42,429 64,907 107,336
Other Industries 5,058 227 5,285
Total $ 50,951 $ 78,279 $ 129,230
Three Months Ended
May 31, 2004
Power Industry $ 45,665 $ 4,693 $ 50,358
Downstream Petroleum
Industry 26,427 49,805 76,232
Other Industries 3,527 2,937 6,464
Total $ 75,619 $ 57,435 $ 133,054
Twelve Months Ended
May 31, 2005
Power Industry $ 37,225 $ 26,229 $ 63,454
Downstream
Petroleum Industry 138,716 200,639 339,355
Other Industries 28,009 8,320 36,329
Total $ 203,950 $ 235,188 $ 439,138
Twelve Months Ended
May 31, 2004
Power Industry $ 299,138 $ 14,468 $ 313,606
Downstream Petroleum
Industry 117,805 154,167 271,972
Other Industries 12,649 9,677 22,326
Total $ 429,592 $ 178,312 $ 607,904
Non-GAAP Financial Measure
EBITDA is a supplemental, non-generally accepted accounting principle financial measure. EBITDA is defined as earnings before taxes, interest expense, depreciation and amortization. We have presented EBITDA because it is used by the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in similar businesses. We believe that the line item on our consolidated statements of operations entitled "net income (loss)" is the most directly comparable GAAP measure to EBITDA. Since EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance. EBITDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, this measure does not necessarily represent funds available for discretionary use, and is not necessarily a measure of our ability to fund our cash needs. As EBITDA excludes certain financial information compared with net income (loss), the most directly comparable GAAP financial measure, users of this financial information should consider the type of events and transactions, which are excluded. Our non- GAAP performance measure, EBITDA, has certain material limitations as follows:
-- It does not include interest expense. Because we have borrowed money
to finance our operations, interest expense is a necessary and ongoing
part of our costs and has assisted us in generating revenue.
Therefore, any measure that excludes interest expense has material
limitations.
-- It does not include taxes. Because the payment of taxes is a
necessary and ongoing part of our operations, any measure that
excludes taxes has material limitations.
-- It does not include depreciation and amortization expense. Because we
use capital assets, depreciation and amortization expense is a
necessary element of our costs and ability to generate revenue.
Therefore, any measure that excludes depreciation and amortization
expense has material limitations.
EBITDA for the three and twelve month periods ended May 31, 2005 was a negative $2.7 million and a negative $32.0 million, respectively, compared to a positive $2.9 million and a positive $25.4 million for the three and twelve month periods ended May 31, 2004. A reconciliation of EBITDA to Net Income (loss) follows:
Three Months Ended Twelve Months Ended
May 31, 2005 May 31, 2004 May 31, 2005 May 31, 2004
(In Thousands) (In Thousands)
Net Income
(loss) $ (3,762) $ 326 $(38,830) $ 9,542
Interest
Expense,
net 2,087 758 5,720 2,885
Provision
(benefit)
for income
taxes (2,618) 226 (5,628) 6,528(a)
Depreciation
and
amortization 1,555 1,617 6,726 6,408
EBITDA $ (2,738) $2,927 $(32,012) $25,363
(a) The provision for income taxes for the twelve months ended May 31,
2004 includes $347,000 of taxes related to net earnings of joint
venture.
The $5.6 million and $57.4 million decreases in EBITDA for the three and twelve months ended May 31, 2005, respectively, as compared to three and twelve month period for the prior year was primarily due to an impairment charge of $25.0 million and a contract dispute reserve of $10.3 million incurred during the third quarter of fiscal 2005. In addition, operating results, primarily in the construction services segment, were significantly weaker in fiscal 2005 as compared to fiscal 2004.
