Bank Debt Completely Repaid
Third Quarter 2006 Highlights:
- Revenues were $119.6 million versus $111.4 million a year earlier;
- Net income was $1.8 million compared with a net loss of $35.5 million
in the third quarter a year ago;
- Gross margins increased to 9.8% from 5.3% for the third quarter a year
earlier; and
- Fully diluted EPS was $0.08 versus a net loss of $2.05 in the same
quarter a year ago.
Nine Month 2006 Highlights:
- Revenues were $355.3 million versus $309.9 million for the same period
in fiscal 2005;
- Fully diluted EPS was $0.21 versus a net loss of $2.03 a year earlier;
and
- Bank debt was zero at February 28, 2006 versus $42.8 million at May 31,
2005.
TULSA, Okla., April 6 - Matrix Service Co. (Nasdaq: MTRX), a leading industrial services company, today reported its financial results for the third quarter of fiscal 2006 ended, February 28, 2006. Total revenues for the quarter were $119.6 million compared to $111.4 million recorded in the third quarter of fiscal 2005.
Michael J. Hall, president and chief executive officer of Matrix Service Company, said, "We continue to experience strong revenue gains, particularly in the Downstream Petroleum Industry where third quarter revenues are up almost 15%. Bidding activity continues to strengthen and we have been able to maintain our historically high backlog levels at approximately $238 million. With our bank debt repaid and restructuring efforts complete, our improved capital structure should allow for sustained revenue growth into the future."
Net income for the third quarter of fiscal 2006 was $1.8 million, or $0.08 per fully diluted share, which included pre-tax charges of $0.4 million, or $0.01 per fully diluted share, for legal fees related to three major contract disputes. These results also include pre-tax charges of $0.4 million, or $0.01 per fully diluted share, for amortization of debt issuance cost primarily due to the accelerated amortization of certain previously paid bank fees resulting from the prepayment of the term portion of the Company's senior credit facility. These results compare favorably to prior year third quarter net loss of $35.5 million, or $2.05 per fully diluted share, which included pre-tax charges of $25.0 million, or $1.44 per share, for goodwill impairment, $10.4 million, or $0.40 per share, for an additional reserve on the previously disclosed disputed contracts, and $1.6 million, or $0.09 per share, for establishing a valuation reserve for a deferred tax asset relating to net operating loss carryforwards.
EBITDA(1) for the third quarter of fiscal 2006 was $5.8 million, compared to an EBITDA loss of $35.5 million for the same period last year. Gross margins on a consolidated basis for the current quarter were 9.8% compared to 5.3% reported in the same quarter a year ago. The gross margins were driven by improvements in both the Construction Services and Repair & Maintenance Services segments.
Construction Services revenues for the third quarter of fiscal 2006 were $54.2 million compared to $48.7 million in the same period a year earlier. The increase was a result of higher construction work in the Downstream Petroleum Industry, where third quarter revenues increased 6.4% to $41.0 million, from $38.5 million in the third quarter of fiscal 2005, and by Other Industries' revenues, which improved 48.8% to $10.4 million, from $7.0 million for the year earlier period. These increases were slightly offset by Power Industry revenues, which decreased 11.2% to $2.8 million, from $3.2 million a year earlier. Construction Services' gross margins were 7.2% versus 3.5% in the third quarter of fiscal 2005. The third quarter margin improvement in fiscal 2006 was primarily attributable to the inclusion of higher margin work for Other Industries and Downstream Petroleum tank construction work. Although improvement occurred, gross margins were still below expectations due to higher than anticipated cost on two projects, one on the East Coast and one on the West Coast, and less revenue and gross profit on a LNG project this quarter due to weather delays.
Repair & Maintenance Services revenues advanced by $2.6 million, or 4.2%, in the third quarter of fiscal 2006 to $65.3 million, from $62.7 million in the same quarter in fiscal 2005. The increase was primarily a result of higher Downstream Petroleum Industry revenues, where third quarter revenues rose 20.6% to $63.0 million, from $52.2 million a year earlier. This increase was somewhat offset by a decrease from the Power Industry, which was $1.5 million versus $8.2 million in the third quarter of fiscal 2005, and from Other Industries' revenues, which fell to $0.8 million, versus $2.3 million in the third quarter of fiscal 2005. Gross margins were 11.9% in the quarter versus 6.6% in the third quarter a year ago. The Company benefited from the realization of higher margins on turnaround projects at the Eastern division.
Mr. Hall added, "Repair & Maintenance revenues should continue its strong performance through the fourth fiscal quarter and into fiscal 2007. We should also see a higher level of revenue in the Other Industries' revenues as our LNG project revenues increase. Our fourth quarter of fiscal 2006 should continue to show improvement over the third quarter results. Revenues are expected to be in the range of $105 million to $115 million and we would expect some margin improvement in the Construction Services segment. Gross margins in Repair and Maintenance should be excellent, although they may not be at the same level as the third quarter of fiscal 2006."
Nine Months Results
For the nine months ended, February 28, 2006, Matrix Service reported consolidated revenues of $355.3 million compared to $309.9 million recorded in the year earlier period.
Net income for the nine month period was $4.3 million, or $0.21 per fully diluted share, which included pre-tax charges of $1.6 million, or $0.04 per fully diluted share, for legal fees related to three major contract disputes. These results also include pre-tax charges of $2.6 million, or $0.06 per fully diluted share, for amortization of debt issuance cost primarily due to the accelerated amortization of certain previously paid bank fees resulting from the Company's refinancing of its senior credit facility and the subsequent repayment of its term loan. These charges were partially offset by $1.5 million, or $0.04 per share, for pre-tax gains associated with disposed excess facilities and equipment. These results compare favorably to the prior year nine month net loss of $35.1 million, or $2.03 per fully diluted share, which included pre-tax charges of $25.0 million, or $1.44 per share, for goodwill impairment, $10.4 million, or $0.40 per share, for an additional reserve on the previously disclosed disputed contracts, and $1.6 million, or $0.09 per share, for establishing a valuation reserve for a deferred tax asset relating to net operating loss carryforwards.
EBITDA(1) for the nine months ended February 28, 2006 was $18.3 million, compared with an EBITDA loss of $29.3 million for the year earlier period. Consolidated gross margins increased to 9.8% from 7.6% a year earlier. The gross margins were driven by improvements in both the Construction Services and Repair & Maintenance Services segments.
Revenues for the Construction Services segment were $164.9 million, compared with $153.0 million for the nine months ending, February 28, 2005. The increase was due to significantly higher construction work in the Downstream Petroleum Industry, where revenues for the nine month period increased 45.9% to $140.4 million versus $96.3 million for the same nine month period last year. Revenues declined in the Power Industry to $9.4 million, versus $33.8 million a year earlier. Other Industries also saw a decline to $15.0 million, versus $23.0 million a year earlier. Gross margins in the Construction Services segment increased to 8.8% from 6.5% 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 $33.6 million, or 21.4%, to $190.5 million for the nine month period ending February 28, 2006, from $156.9 million for the first nine months of fiscal 2005. The increase was primarily due to significantly higher Downstream Petroleum Industry work, where revenues rose 32.0% to $179.1 million, versus $135.7 million for the same nine month period last year. This increase was partially offset by a decrease from the Power Industry, which dropped to $7.4 million versus $13.1 million for the same nine month period last year, and from Other Industries' revenues, which fell to $4.0 million, versus $8.1 million in the same nine month period last year. Gross margins were 10.7% versus 8.7% a year earlier as fiscal 2006 benefited from higher margin turnaround work performed at the Eastern division.
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 CFO. The call will take place at 11:00 a.m. (EDT)/10:00 a.m. (CDT) today and will be simultaneously broadcast live over the Internet at http://www.matrixservice.com or 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, 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 Nine Months Ended
February 28, February 28, February 28, February 28,
2006 2005 2006 2005
(unaudited) (unaudited)
Revenues $119,575 $111,447 $355,349 $309,908
Cost of revenues 107,910 105,573 320,542 286,352
Gross profit 11,665 5,874 34,807 23,556
Selling, general
and
administrative
expenses 7,048 18,076 21,742 32,949
Impairment and
abandonment
costs - 25,000 70 25,000
Restructuring 236 2 603 150
Operating income
(loss) 4,381 (37,204) 12,392 (34,543)
Other income
(expense):
Interest
expense (1,537) (1,637) (6,952) (3,634)
Interest income 46 - 55 1
Other 4 84 1,572 98
Income (loss)
before income
taxes 2,894 (38,757) 7,067 (38,078)
Income tax
provision
(benefit) 1,123 (3,288) 2,753 (3,010)
Net income
(loss) $1,771 $(35,469) $4,314 $(35,068)
Basic earnings
per common share $0.09 $(2.05) $0.22 $(2.03)
Diluted earnings
per common share $0.08 $(2.05) $0.21 $(2.03)
Weighted average
common shares
outstanding:
Basic 20,805,535 17,339,069 19,245,130 17,309,133
Diluted 26,560,079 17,339,069 25,442,564 17,309,133
Matrix Service Company
Consolidated Balance Sheets
(In thousands)
February 28, May 31,
2006 2005
Assets (unaudited)
Current assets:
Cash and cash equivalents $2,435 $1,496
Accounts receivable, less allowances
($181 as of February 28, 2006 and
$461 as of May 31, 2005, respectively) 65,530 70,088
Contract dispute receivables, net 11,709 20,975
Costs and estimated earnings in
excess of billings on uncompleted
contracts 20,831 22,733
Inventories 4,302 4,739
Income tax receivable 1,798 3,004
Deferred income taxes 2,234 4,820
Prepaid expenses 4,528 8,245
Assets held for sale 809 1,479
Total current assets 114,176 137,579
Property, plant and equipment at cost:
Land and buildings 22,864 23,087
Construction equipment 30,034 29,711
Transportation equipment 10,902 10,862
Furniture and fixtures 9,366 8,889
Construction in progress 1,124 318
74,290 72,867
Accumulated depreciation (38,570) (35,791)
35,720 37,076
Goodwill 23,571 24,834
Other assets 2,030 2,891
Total assets $175,497 $202,380
Matrix Service Company
Consolidated Balance Sheets
(In thousands, except share data)
February 28, May 31,
2006 2005
(unaudited)
Liability and stockholders' equity
Current liabilities:
Accounts payable $30,640 $38,059
Billings on uncompleted contracts
in excess of costs and estimated
earnings 18,115 12,311
Accrued insurance 5,104 5,038
Other accrued expenses 13,702 15,759
Current capital lease obligation 350 113
Current portion of long-term debt - 42,765
Current portion of acquisition payable 1,478 1,808
Total current liabilities 69,389 115,853
Convertible notes 25,000 30,000
Acquisition payable 4,330 4,169
Long-term capital lease obligation 548 231
Deferred income taxes 3,471 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 February 28, 2006 and
May 31, 2005, respectively 226 193
Additional paid-in capital 75,809 56,322
Retained earnings (deficit) 980 (3,307)
Accumulated other comprehensive
income (loss) 592 (22)
77,607 53,186
Less: treasury stock, at
cost - 1,744,586 and 1,873,750
shares as of February 28, 2006
and May 31, 2005, respectively (4,848) (5,201)
Total stockholders' equity 72,759 47,985
Total liabilities and stockholders'
equity $175,497 $202,380
Matrix Service Company
Segment Information
(In thousands)
Repair &
Construction Maintenance Combined
Services Services Other Total
Three Months ended
February 28, 2006
Gross revenues $56,995 $65,375 $- $122,370
Less: Inter-segment revenues (2,746) (49) - (2,795)
Consolidated revenues 54,249 65,326 - 119,575
Gross profit 3,882 7,783 - 11,665
Operating income (loss) 1,223 3,258 (100) 4,381
Income (loss) before
income tax expense 261 2,733 (100) 2,894
Net income (loss) 163 1,670 (62) 1,771
Segment assets 84,982 62,311 28,204 175,497
Capital expenditures 1,294 306 467 2,067
Depreciation and amortization
expense 705 723 - 1,428
Three Months ended
February 28, 2005
Gross revenues $51,618 $63,018 $- $114,636
Less: Inter-segment revenues (2,891) (298) - (3,189)
Consolidated revenues 48,727 62,720 - 111,447
Gross profit 1,727 4,147 - 5,874
Operating income (loss) (37,474) 272 (2) (37,204)
Income (loss) before income
tax expense (38,483) (272) (2) (38,757)
Net income (loss) (35,305) (163) (1) (35,469)
Segment assets 82,831 76,767 29,207 188,805
Capital expenditures 62 69 405 536
Depreciation and amortization
expense 873 795 - 1,668
Nine Months ended
February 28, 2006
Gross revenues $171,829 $190,858 $- $362,687
Less: Inter-segment revenues (6,962) (376) - (7,338)
Consolidated revenues 164,867 190,482 - 355,349
Gross profit 14,434 20,373 - 34,807
Operating income (loss) 5,004 7,488 (100) 12,392
Income (loss) before income
tax expense 1,550 5,617 (100) 7,067
Net income (loss) 949 3,427 (62) 4,314
Segment assets 84,982 62,311 28,204 175,497
Capital expenditures 2,467 524 1,155 4,146
Depreciation and amortization
expense 2,089 2,203 - 4,292
Nine Months ended
February 28, 2005
Gross revenues $161,228 $157,456 $- $318,684
Less: Inter-segment
revenues (8,229) (547) - (8,776)
Consolidated revenues 152,999 156,909 - 309,908
Gross profit 9,959 13,597 - 23,556
Operating income (loss) (37,164) 2,771 (150) (34,543)
Income (loss) before income
tax expense (39,466) 1,538 (150) (38,078)
Net income (loss) (35,893) 914 (89) (35,068)
Segment assets 82,831 76,767 29,207 188,805
Capital expenditures 318 277 728 1,323
Depreciation and
amortization expense 2,675 2,496 - 5,171
Segment revenue from external customers by industry type are as follows:
Repair &
Construction Maintenance
Services Services Total
(In thousands)
Three Months Ended
February 28, 2006
Downstream Petroleum Industry $41,000 $62,978 $103,978
Power Industry 2,836 1,541 4,377
Other Industries 10,413 807 11,220
Total $54,249 $65,326 $119,575
Three Months Ended
February 28, 2005
Downstream Petroleum Industry $38,534 $52,230 $90,764
Power Industry 3,193 8,161 11,354
Other Industries 7,000 2,329 9,329
Total $48,727 $62,720 $111,447
Nine Months Ended
February 28, 2006
Downstream Petroleum Industry $140,442 $179,130 $319,572
Power Industry 9,435 7,370 16,805
Other Industries 14,990 3,982 18,972
Total $164,867 $190,482 $355,349
Nine Months Ended
February 28, 2005
Downstream Petroleum Industry $96,287 $135,732 $232,019
Power Industry 33,761 13,084 46,845
Other Industries 22,951 8,093 31,044
Total $152,999 $156,909 $309,908
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, income 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 income taxes. Because the payment of income taxes
is a necessary and ongoing part of our operations, any measure that
excludes income 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 nine-month period ended February 28, 2006 was $18.3 million, compared to an EBITDA loss of $29.3 million for the nine-month period ended February 28, 2005. A reconciliation of EBITDA to net income follows:
For the Three Months Ended For the Nine Months Ended
February 28, February 28, February 28, February 28,
2006 2005 2006 2005
(In thousands) (In thousands)
Net income $1,771 $(35,469) $4,314 $(35,068)
Interest expense,
net 1,491 1,637 6,897 3,633
Provision(benefit)
for income taxes 1,123 (3,288) 2,753 (3,010)
Depreciation and
amortization 1,428 1,668 4,292 5,171
EBITDA $5,813 $(35,452) $18,256 $(29,274)
The $47.5 million increase in EBITDA for the nine months ended February 28, 2006 as compared to the nine-month period for the prior year was primarily due to an impairment charge of $25.0 million and a contract dispute reserve of $10.4 million recorded in the third quarter of fiscal 2005. Higher revenues and margins in fiscal 2006 combined with the benefit of restructuring efforts, which led to a lower fixed cost structure, contributed to the increase in EBITDA. 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.
(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.
