Second Quarter 2006 Highlights:
- Revenues were $126.8 million versus $113.5 million a year earlier;
- Net income was $2.2 million compared with $1.3 million in the second
quarter a year ago;
- Gross margins increased to 10.2% from 9.7% for the second quarter a
year earlier; and
- Fully diluted EPS was $0.10 versus $0.07 in the same quarter a year ago.
Six Month 2006 Highlights:
- Revenues were $235.8 million versus $198.5 million for the same period
in fiscal 2005; and
- Fully diluted EPS was $0.13 versus $0.02 a year earlier.
TULSA, Okla., Jan. 5 - Matrix Service Co. (Nasdaq: MTRX), a leading industrial services company, today reported its financial results for the second quarter of fiscal 2006, ended November 30, 2005. Total revenues for the quarter were $126.8 million compared to $113.5 million recorded in the second quarter of fiscal 2005.
Net income for the second quarter of fiscal 2006 was $2.2 million, or $0.10 per fully diluted share, versus $1.3 million, or $0.07 per fully diluted share, in the second quarter a year ago. These second quarter 2006 results include pre-tax charges and expenses of $0.8 million, or $0.02 per fully diluted share, for legal fees related to three major contract disputes. These results also include pre-tax charges of $1.1 million, or $0.03 per fully diluted share, for the accelerated amortization of certain previously paid bank fees in anticipation of the Company refinancing its senior facility which occurred on December 20, 2005. These charges were partially offset by $0.8 million, or $0.02 per fully diluted share, for pre-tax gains associated with the disposal of certain excess and non-core assets. EBITDA(1) for the second quarter of fiscal 2006 was $7.6 million, compared to $5.0 million for the same period last year. Gross margins on a consolidated basis for the current quarter were 10.2% compared to 9.7% reported in the same quarter a year ago. The gross margins were driven entirely by the improvement in the Repair & Maintenance Services segment.
Michael J. Hall, president and chief executive office of Matrix Service Company, said, "The restructuring and turnaround measures have been essentially completed with the refinancing of the $55 million senior credit facility announced on December 21, 2005 and the resolutions reached on our two largest disputed contracts for more than $20 million announced on December 28, 2005. During the past six months, total debt has been reduced by 38.1% from $72.7 million at May 31, 2005 to $45.0 million at November 30, 2005. With these latest dispute resolutions, we continue to believe Matrix Service will be essentially free of all bank debt by May 31, 2006, leaving us with only $25 million of long-term indebtedness related to our convertible notes."
Construction Services revenues for second quarter 2006 were $48.4 million compared to $59.9 million in the same period a year earlier. The decrease was a result of significantly lower construction work in the Power Industry, where second quarter revenues decreased 83.7% to $3.1 million, from $19.3 million in the second quarter of fiscal 2005, and by Other Industries' revenues, which declined 11.3% to $9.7 million, from $10.9 million for the year-earlier period. These decreases were partially offset by Downstream Petroleum Industry revenues, which increased 19.7% to $35.6 million, from $29.7 million a year earlier. Construction Services' gross margins were 8.5% versus 9.1% in the second quarter of fiscal 2005. The second quarter margin decline was primarily attributable to Power Industry margins from prior year jobs completed in the Eastern division and from the absence of higher margin nuclear work that had previously been sold as part of the restructuring.
Repair & Maintenance Services revenues advanced by $24.8 million, or 46.3%, in the second quarter of 2006 to $78.4 million, from $53.6 million in the same quarter in 2005. The increase was primarily a result of higher Downstream Petroleum Industry revenues, where second quarter revenues rose 58.1% to $74.1 million, from $46.9 million a year earlier, primarily as a result of higher turnaround work in the Eastern division. Gross margins were 11.3% in the quarter versus 10.3% in the second quarter a year ago. The Company benefited from the higher revenue volumes relative to its overall fixed cost structure.
Mr. Hall added, "While we are still not in a position to provide earnings guidance, we believe the strength demonstrated in our Construction Services segment, particularly in the Downstream Petroleum Industry, should continue. Repair & Maintenance revenues is expected to continue its strong performance through the balance of the year, particularly in the fourth fiscal quarter when some additional revenue will be realized from the repair work associated with the damage sustained in the Gulf Coast region from the recent hurricanes. Based upon these factors, we are raising our revenue guidance for fiscal 2006 to be between $450 million to $475 million compared to our previous guidance of between $400 million to $450 million."
Six Months Results
For the six months ended November 30, 2005, Matrix Service reported consolidated revenues of $235.8 million versus $198.5 million recorded in the year-earlier period.
Net income for the six month period was $2.5 million, or $0.13 per fully diluted share, versus $0.4 million, or $0.02 per fully diluted share for the same six month period a year earlier. These 2006 results include pre-tax charges and expenses of $1.3 million, or $0.03 per fully diluted share, for legal fees related to three major contract disputes. These results also include pre-tax charges of $2.2 million, or $0.05 per fully diluted share, for the accelerated amortization of certain previously paid bank fees in anticipation of the Company refinancing its senior facility which occurred on December 20, 2005. These charges were partially offset by $1.5 million, or $0.04 per fully diluted share, for pre-tax gains associated with disposed excess facilities and equipment. EBITDA(1) for the six months ended November 30, 2005 was $12.4 million, compared with $6.2 million for the year-earlier period. Consolidated gross margins increased to 9.8% from 8.9% a year earlier.
Revenues for the Construction Services segment were $110.6 million, compared with $104.3 million for the six months ending November 30, 2004. The increase was due to significantly higher construction work in the Downstream Petroleum Industry, where revenues for the six-month period increased 48.9% to $86.0 million versus $57.8 million for the same six-month period last year, and to higher Other Industries' revenues, which increased 12.5% to $17.9 million in the recent six-month period, versus $16.0 million a year earlier. Revenues declined in the Power Industry to $6.7 million, versus $30.6 million a year earlier. Gross margins in the Construction Services segment increased to 9.5% from 7.9% a year earlier, as the lower margin Power Industry work completed in fiscal 2005 was partially replaced with higher margin Downstream Petroleum Industry work.
Revenues for Repair & Maintenance Services rose $31.0 million, or 32.9%, to $125.2 million, for the six-month period ending November 30, 2005, from $94.2 million for the first six months of fiscal 2005. The increase was primarily due to significantly higher Downstream Petroleum Industry work, where revenues rose 40.2% to $117.1 million, versus $83.5 million for the same six-month period last year. Revenues also increased from the Power Industry to $5.9 million versus $4.9 million for the same six-month period last year. These increases were partially offset by lower Other Industries' revenues, which fell 61.3% to $2.2 million in the six-month period from $5.8 million in the same six-month period last year. Gross margins were 10.1% versus 10.0% a year earlier.
Change in Independent Auditor
At a meeting held on January 3, 2006, the Audit Committee of the Board of Directors of Matrix Service Company (the "Company"), approved the engagement of Deloitte & Touche LLP as its independent registered public accounting firm for the fiscal year ending May 31, 2006 to replace the firm of Ernst & Young LLP, which was dismissed as independent registered public accounting firm of the Company, each effective January 6, 2006.
Conference Call
In conjunction with the press release, Matrix Service will host a conference call with Michael J. Hall, president and CEO, and Les Austin, vice president and chief financial officer. The call will take place at 11:00 a.m. (EST)/10:00 a.m. (CST) 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.
(1) The Company uses EBITDA (earnings before net interest, income taxes,
depreciation and amortization) as part of its overall assessment of
financial performance by comparing EBITDA between accounting periods.
Matrix believes that EBITDA is used by the financial community as a
method of measuring the Company's performance and of evaluating the
market value of companies considered to be in similar businesses.
EBITDA should not be considered as an alternative to net income or
cash provided by operating activities, as defined by accounting
principles generally accepted in the United States ("GAAP"). A
reconciliation of EBITDA to net income is included at the end of this
release.
For more information, please contact:
Matrix Service Company
Les Austin
Vice President Finance and CFO
T: 918-838-8822
E: laustin@matrixservice.com
Investors and Financial Media:
Truc Nguyen
The Global Consulting Group
T: 646-284-9418
E: tnguyen@hfgcg.com
Matrix Service Company
Consolidated Statements of Operations
(In thousands, except share and per share data)
Three Months Ended Six Months Ended
November 30, November 30, November 30, November 30,
2005 2004 2005 2004
(unaudited) (unaudited)
Revenues $126,778 $113,522 $235,774 $198,461
Cost of revenues 113,819 102,554 212,632 180,779
Gross profit 12,959 10,968 23,142 17,682
Selling, general and
administrative
expenses 7,487 7,740 14,694 14,873
Impairment and
abandonment costs 70 - 70 -
Restructuring 45 (27) 367 148
Operating income 5,357 3,255 8,011 2,661
Other income (expense):
Interest expense (2,638) (1,096) (5,415) (1,997)
Interest income 2 1 9 1
Other 838 22 1,568 14
Income before
income taxes 3,559 2,182 4,173 679
Income tax provision 1,391 889 1,630 278
Net income $2,168 $1,293 $2,543 $401
Basic earnings per
common share $0.11 $0.07 $0.14 $0.02
Diluted earnings
per common share $0.10 $0.07 $0.13 $0.02
Weighted average
common shares
outstanding:
Basic 19,537,664 17,319,133 18,477,718 17,294,411
Diluted 25,693,625 17,605,025 24,881,711 17,673,718
Matrix Service Company
Consolidated Balance Sheets
(In thousands)
November 30, May 31,
2005 2005
Assets (unaudited)
Current assets:
Cash and cash equivalents $2,496 $1,496
Accounts receivable, less allowances
(November 30, 2005 -$632, May 31, 2005 - $461) 61,317 70,088
Contract dispute receivables, net 22,179 20,975
Costs and estimated earnings in excess
of billings on uncompleted contracts 28,106 22,733
Inventories 3,741 4,739
Income tax receivable 670 3,004
Deferred income taxes 4,739 4,820
Prepaid expenses 5,717 8,245
Assets held for sale 1,488 1,479
Total current assets 130,453 137,579
Property, plant and equipment at cost:
Land and buildings 22,754 23,087
Construction equipment 28,908 29,711
Transportation equipment 10,544 10,862
Furniture and fixtures 9,057 8,889
Construction in progress 945 318
72,208 72,867
Accumulated depreciation (37,163) (35,791)
35,045 37,076
Goodwill 23,510 24,834
Other assets 1,425 2,891
Total assets $190,433 $202,380
Matrix Service Company
Consolidated Balance Sheets
(In thousands, except share data)
November 30, May 31,
2005 2005
(unaudited)
Liability and stockholders' equity
Current liabilities:
Accounts payable $32,311 $38,059
Billings on uncompleted contracts in excess
of costs and estimated earnings 13,508 12,311
Accrued insurance 4,827 5,038
Other accrued expenses 14,187 15,759
Current capital lease obligation 299 113
Current portion of long-term debt 20,004 42,765
Current portion of acquisition payable 1,472 1,808
Total current liabilities 86,608 115,853
Convertible notes 25,000 30,000
Acquisition payable 4,276 4,169
Long-term capital lease obligation 548 231
Deferred income taxes 3,618 4,142
Stockholders' equity:
Common stock - $.01 par value; 30,000,000 shares
authorized and 22,595,243 and 19,285,276 shares
issued as of November 30, 2005 and May 31, 2005,
respectively 226 193
Additional paid-in capital 75,612 56,322
Retained deficit (769) (3,307)
Accumulated other comprehensive income (loss) 421 (22)
75,490 53,186
Less: treasury stock, at cost - 1,838,700 and
1,873,750 shares as of November 30, 2005 and
May 31, 2005, respectively (5,107) (5,201)
Total stockholders' equity 70,383 47,985
Total liabilities and stockholders' equity $190,433 $202,380
Matrix Service Company
Segment Information
(In thousands)
Repair &
Construction Maintenance Combined
Services Services Other Total
Three Months Ended
November 30, 2005
Gross revenues $50,589 $78,547 $- $129,136
Less: Inter-segment revenues (2,186) (172) - (2,358)
Consolidated revenues 48,403 78,375 - 126,778
Gross profit 4,111 8,848 - 12,959
Operating income 1,297 4,060 - 5,357
Income before income
tax expense 260 3,299 - 3,559
Net income 153 2,015 - 2,168
Segment Assets 92,239 64,578 33,616 190,433
Capital Expenditures 551 129 456 1,136
Depreciation and
amortization expense 684 733 - 1,417
Three Months ended
November 30, 2004
Gross revenues $62,831 $53,681 $- $116,512
Less: Inter-segment revenues (2,885) (105) - (2,990)
Consolidated revenues 59,946 53,576 - 113,522
Gross profit 5,440 5,528 - 10,968
Operating income 1,278 1,950 27 3,255
Income before income
tax expense 552 1,603 27 2,182
Net income 329 948 16 1,293
Segment Assets 119,478 63,389 29,259 212,126
Capital Expenditures 168 120 107 395
Depreciation and
amortization expense 921 850 - 1,771
Six Months ended
November 30, 2005
Gross revenues $114,834 $125,483 $- $240,317
Less: Inter-segment revenues (4,216) (327) - (4,543)
Consolidated revenues 110,618 125,156 - 235,774
Gross profit 10,552 12,590 - 23,142
Operating income 3,781 4,230 - 8,011
Income before income
tax expense 1,289 2,884 - 4,173
Net income 786 1,757 - 2,543
Segment Assets 92,239 64,578 33,616 190,433
Capital Expenditures 1,169 218 688 2,075
Depreciation and
amortization expense 1,384 1,480 - 2,864
Six Months ended
November 30, 2004
Gross revenues $109,610 $94,438 $- $204,048
Less: Inter-segment revenues (5,338) (249) - (5,587)
Consolidated revenues 104,272 94,189 - 198,461
Gross profit 8,232 9,450 - 17,682
Operating income 310 2,499 (148) 2,661
Income before income
tax expense (983) 1,810 (148) 679
Net income (588) 1,077 (88) 401
Segment Assets 119,478 63,389 29,259 212,126
Capital Expenditures 256 208 323 787
Depreciation and
amortization expense 1,802 1,701 - 3,503
Segment revenue from external customers by industry type are as follows:
Repair &
Construction Maintenance
Services Services Total
Three Months Ended
November 30, 2005
Downstream Petroleum Industry $35,547 $74,126 $109,673
Power Industry 3,148 2,986 6,134
Other Industries 9,708 1,263 10,971
Total $48,403 $78,375 $126,778
Three Months Ended
November 30, 2004
Downstream Petroleum Industry $29,687 $46,873 $76,560
Power Industry 19,314 3,560 22,874
Other Industries 10,945 3,143 14,088
Total $59,946 $53,576 $113,522
Six Months Ended
November 30, 2005
Downstream Petroleum Industry $85,982 $117,069 $203,051
Power Industry 6,692 5,855 12,547
Other Industries 17,944 2,232 20,176
Total $110,618 $125,156 $235,774
Six Months Ended
November 30, 2004
Downstream Petroleum Industry $57,753 $83,502 $141,255
Power Industry 30,568 4,923 35,491
Other Industries 15,951 5,764 21,715
Total $104,272 $94,189 $198,461
Other Industries consists primarily of liquefied natural gas, wastewater, food and beverage, manufacturing and paper industries.
Non-GAAP Financial Measure
EBITDA is a supplemental, non-GAAP financial measure. EBITDA is defined as earnings before interest expense, taxes, 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" 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, the most directly comparable GAAP financial measure, users of this financial information should consider the type of events and transactions, that 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 six-month period ended November 30, 2005 was $12.4 million, compared to $6.2 million for the six-month period ended November 30, 2004. A reconciliation of EBITDA to net income follows:
Three Months Ended Six Months Ended
November 30, November 30, November 30, November 30,
2005 2004 2005 2004
(In thousands) (In thousands)
Net income $2,168 $1,293 $2,543 $401
Interest expense, net 2,636 1,095 5,406 1,996
Provision for
income taxes 1,391 889 1,630 278
Depreciation and
amortization 1,417 1,771 2,864 3,503
EBITDA $7,612 $5,048 $12,443 $6,178
The $6.2 million increase in EBITDA for the six months ended November 30, 2005 as compared to six-month period for the prior year was primarily due to higher revenues and margins in fiscal 2006 combined with the benefit of restructuring efforts, which led to a lower fixed cost structure. In addition, EBITDA for fiscal 2006 was further enhanced by gains on the sale of assets that were part of the Company's restructuring efforts.
