MATRIX SERVICE CO - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - FORM 8-K - MATRIX SERVICE CO	d8k.htm
EX-99.2 - TRAMSCRIPT OF THE COMPANY'S SEPTEMBER 28, 2010 CONFERENCE CALL - MATRIX SERVICE CO	dex992.htm

Exhibit 99.1

LOGO

MATRIX SERVICE ANNOUNCES RESULTS FOR THE FOURTH QUARTER AND FISCAL

YEAR ENDED JUNE 30, 2010

TULSA, OK – September 28, 2010 – Matrix Service Co. (Nasdaq: MTRX) today reported its financial results for the fourth quarter and fiscal year ended June 30, 2010.

Revenues for the fourth quarter ended June 30, 2010 were $140.7 million compared to $179.9 million in fiscal 2009. The decrease was primarily due to a lower overall level of spending by customers caused by weak industry conditions. Net income for the fourth quarter of fiscal 2010, adjusted for the charges discussed below, was $0.9 million, or $0.03 per fully diluted share ⁽¹⁾. Net income was $6.7 million, or $0.26 per fully diluted share, in the comparable period a year earlier.

Fiscal year 2010 revenues were $550.8 million compared to $689.7 million in fiscal 2009. The decrease was primarily due to a lower overall level of spending in our core markets due to weak industry conditions that became evident in the third quarter of fiscal year 2009. Net income for fiscal 2010, adjusted for the charges discussed below, was $14.4 million, or $0.54 per fully diluted share ⁽¹⁾. Net income was $30.6 million, or $1.16 per fully diluted share, in fiscal 2009.

Adjusted results for fiscal year 2010 exclude the following charges:

•

Loss on projects at a Gulf Coast site – We recorded a pretax charge of $4.6 million in the fourth quarter of fiscal 2010 and $5.4 million for the fiscal year ended June 30, 2010 caused by increased cost estimates on a series of projects at a customer site.

•

California pay practice class action lawsuits – We recorded a pretax charge of $3.1 million in the fourth quarter of fiscal 2010 and $5.1 million for the fiscal year ended June 30, 2010 related to the settlement of this legal matter.

•

Claims receivable write-down – We recorded pretax charges totaling $2.9 million in fiscal 2010 caused by a write-down of the value of claim receivables acquired in the February 2009 acquisition of S.M. Electric Company, Inc. (“SME”).

•

Claims receivable collection costs – Costs incurred to collect the claims acquired in the SME acquisition were higher than estimated and resulted in a pretax charge of $0.4 million in the fourth quarter of fiscal 2010 and $1.9 million for the fiscal year ended June 30, 2010.

GAAP net income (loss), fully reflecting these charges, was ($4.2) million, or ($0.16) per fully diluted share for the fourth quarter fiscal 2010, and $4.9 million, or $0.18 for the fiscal year ended June 30, 2010.

Backlog

Consolidated backlog increased $50.8 million, or 16.8% to $353.2 million as of June 30, 2010 compared to $302.4 million as of March 31, 2010.

Financial Position

At June 30, 2010, Matrix Service’s cash balance was $50.9 million. The Company did not borrow under its revolving credit facility during the twelve months ended June 30, 2010.

Earnings Guidance

“We are pleased with the recent backlog growth and are optimistic given the improvements we are seeing in our core markets,” said Michael J. Bradley, President and CEO of Matrix Service Company. “In fiscal 2011, our focus will be on growing profitable backlog, maintaining a strong financial position and continuing our cost optimization efforts as part of our long-term growth strategy. Our earnings for fiscal 2011 is expected to be in a range from $0.60 per fully diluted share to $0.80 per fully diluted share.”

Fraud Investigation Update

The Company will provide an update on its investigation into recently discovered fraudulent activities by current and former employees in one operating location in the United States in its Annual Report on Form 10-K to be filed with the Securities and Exchange Commission.

⁽¹⁾

Adjusted net income is a non-GAAP financial measure that excludes the impact of the charges specifically discussed in this earnings release and the related earnings conference call. Management believes that results excluding these items are more meaningful and comparable to estimates provided by securities analysts and are useful in comparing operational trends of Matrix Service Company relative to its competitors. A reconciliation to the applicable GAAP measures is included at the end of this press release.

Conference Call Details

In conjunction with the press release, Matrix Service will host a conference call with Michael J. Bradley, president and CEO, and Thomas E. Long, vice president and CFO. The call will take place at 5:00 p.m. (Eastern) / 4:00 p.m. (Central) today and will be simultaneously broadcast live over the Internet at www.matrixservice.com or 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 engineering, 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 California, Delaware, Illinois, Michigan, New Jersey, Oklahoma, Pennsylvania, Texas, and Washington in the U.S. and in 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.

For more information, please contact:

Matrix Service Company

Tom Long

Vice President and CFO

T: 918-838-8822

E: telong@matrixservice.com

Matrix Service Company

Consolidated Statements of Income

(In thousands, except per share data)


	Twelve Months Ended									One Month Ended
	June 30, 2010			May 31, 2009			May 31, 2008			June 30, 2009

Revenues	$	550,814		$	689,720		$	731,301		$	45,825
Cost of revenues		497,892			595,397			656,184			40,676


Gross profit		52,922			94,323			75,117			5,149
Selling, general and administrative expenses		45,169			47,006			40,566			3,570


Operating income		7,753			47,317			34,551			1,579

Other income (expense):
Interest expense		(672	)		(563	)		(890	)		(91	)
Interest income		79			330			82			17
Other		250			675			(27	)		98


Income before income tax expense		7,410			47,759			33,716			1,603
Provision for federal, state and foreign income taxes		2,534			17,170			12,302			609


Net income	$	4,876		$	30,589		$	21,414		$	994


Basic earnings per common share	$	0.19		$	1.17		$	0.81		$	0.04


Diluted earnings per common share	$	0.18		$	1.16		$	0.80		$	0.04


Weighted average common shares outstanding:
Basic		26,275			26,121			26,427			26,192
Diluted		26,499			26,390			26,875			26,434

Matrix Service Company

Consolidated Balance Sheets

(In thousands)


	June 30, 2010			May 31, 2009

Assets
Current assets:
Cash and cash equivalents	$	50,899		$	34,553
Accounts receivable, less allowances (2010 - $1,404; 2009 - $710)		87,327			122,283
Costs and estimated earnings in excess of billings on uncompleted contracts		40,920			35,619
Inventories		3,451			4,926
Income tax receivable		1,779			647
Deferred income taxes		8,073			4,843
Prepaid expenses		4,557			3,935
Other current assets		1,519			3,044

Total current assets		198,525			209,850

Property, plant and equipment, at cost:
Land and buildings		27,859			27,319
Construction equipment		52,086			53,925
Transportation equipment		19,192			17,971
Furniture and fixtures		14,358			14,527
Construction in progress		1,251			812

		114,746			114,554
Accumulated depreciation		(61,817	)		(55,745	)

		52,929			58,809

Goodwill		27,216			25,768
Other intangible assets		4,141			4,571
Other assets		1,997			4,453

Total assets	$	284,808		$	303,451

Matrix Service Company

Consolidated Balance Sheets (continued)

(In thousands, except share data)


	June 30, 2010			May 31, 2009

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	44,769		$	48,668
Billings on uncompleted contracts in excess of costs and estimated earnings		28,877			51,305
Accrued insurance		8,257			7,612
Accrued wages and benefits		13,538			16,566
Current capital lease obligation		772			1,039
Other accrued expenses		6,572			2,200

Total current liabilities		102,785			127,390

Long-term capital lease obligation		259			850
Deferred income taxes		4,179			4,822

Commitments and contingencies		—			—

Stockholders’ equity:
Common stock - $.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of June 30, 2010 and May 31, 2009		279			279
Additional paid-in capital		111,637			110,272
Retained earnings		81,252			75,393
Accumulated other comprehensive income		495			596

		193,663			186,540

Less treasury stock, at cost – 1,546,512 and 1,696,517 shares as of June 30, 2010 and May 31, 2009		(16,078	)		(16,151	)


Total stockholders’ equity		177,585			170,389


Total liabilities and stockholders’ equity	$	284,808		$	303,451

Results of Operations

(In thousands)


	Construction Services			Repair and Maintenance Services			Other		Total

Three Months Ended June 30, 2010

Gross revenues	$	89,453		$	54,048		$	—	$	143,501
Less: Inter-segment revenues		2,773			2			—		2,775

Consolidated revenues		86,680			54,046			—		140,726
Gross profit		1,287			2,483			—		3,770
Operating income (loss)		(5,195	)		(1,494	)		—		(6,689	)
Segment assets		131,079			93,224			60,505		284,808
Capital expenditures		60			151			1,032		1,243
Depreciation and amortization expense		1,602			1,269			—		2,871

Three Months Ended May 31, 2009

Gross revenues	$	106,171		$	79,393		$	—	$	185,564
Less: Inter-segment revenues		5,685			8			—		5,693

Consolidated revenues		100,486			79,385			—		179,871
Gross profit		13,821			9,501			—		23,322
Operating income		6,360			4,710			—		11,070
Segment assets		154,817			112,929			35,705		303,451
Capital expenditures		225			491			649		1,365
Depreciation and amortization expense		1,928			1,215			—		3,143

Twelve Months Ended June 30, 2010

Gross revenues	$	333,937		$	229,774		$	—	$	563,711
Less: Inter-segment revenues		12,683			214			—		12,897

Consolidated revenues		321,254			229,560			—		550,814
Gross profit		34,374			18,548			—		52,922
Operating income		5,957			1,796			—		7,753
Segment assets		131,079			93,224			60,505		284,808
Capital expenditures		625			1,233			3,444		5,302
Depreciation and amortization expense		6,578			5,173			—		11,751

Twelve Months Ended May 31, 2009

Gross revenues	$	422,223		$	295,579		$	—	$	717,802
Less: Inter-segment revenues		26,983			1,099			—		28,082

Consolidated revenues		395,240			294,480			—		689,720
Gross profit		50,959			43,364			—		94,323
Operating income		22,111			25,206			—		47,317
Segment assets		154,817			112,929			35,705		303,451
Capital expenditures		2,586			2,316			5,081		9,983
Depreciation and amortization expense		6,271			4,489			—		10,760

One Month Ended June 30, 2009

Gross revenues	$	29,224		$	17,297		$	—	$	46,521
Less: Inter-segment revenues		693			3			—		696

Consolidated revenues		28,531			17,294			—		45,825
Gross profit		3,251			1,898			—		5,149
Operating income		1,141			438			—		1,579
Capital expenditures		121			64			163		348
Depreciation and amortization expense		543			451			—		994

Segment Revenue from External Customers by Industry Type

(In thousands)


	Construction Services		Repair and Maintenance Services		Total

Three Months Ended June 30, 2010
Aboveground Storage Tanks	$	40,147	$	21,261	$	61,408
Downstream Petroleum		17,753		25,683		43,436
Electrical and Instrumentation		24,273		7,102		31,375
Specialty		4,507		—		4,507

Total	$	86,680	$	54,046	$	140,726


Three Months Ended May 31, 2009
Aboveground Storage Tanks	$	40,049	$	29,950	$	69,999
Downstream Petroleum		29,962		41,545		71,507
Electrical and Instrumentation		21,808		7,890		29,698
Specialty		8,667		—		8,667

Total	$	100,486	$	79,385	$	179,871

Twelve Months Ended June 30, 2010
Aboveground Storage Tanks	$	135,883	$	91,085	$	226,968
Downstream Petroleum		87,003		114,976		201,979
Electrical and Instrumentation		71,999		23,499		95,498
Specialty		26,369		—		26,369

Total	$	321,254	$	229,560	$	550,814


Twelve Months Ended May 31, 2009
Aboveground Storage Tanks	$	177,821	$	166,348	$	344,169
Downstream Petroleum		144,179		106,149		250,328
Electrical and Instrumentation		45,874		21,983		67,857
Specialty		27,366		—		27,366

Total	$	395,240	$	294,480	$	689,720


One Month Ended June 30, 2009
Aboveground Storage Tanks	$	10,267	$	8,634	$	18,901
Downstream Petroleum		8,593		7,039		15,632
Electrical and Instrumentation		7,459		1,621		9,080
Specialty		2,212		—		2,212

Total	$	28,531	$	17,294	$	45,825

Backlog

We define backlog as the total dollar amount of revenues that we expect to recognize as a result of performing work that has been awarded to us through a signed contract that we consider firm. The following contract types are considered firm:

•

fixed-price arrangements;

•

minimum customer commitments on cost plus arrangements; and

•

certain time and material contracts in which the estimated contract value is firm or can be estimated with a reasonable amount of certainty in both timing and amounts.

For long-term maintenance contracts 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 revenues recognized as of the reporting date.

The following table provides a summary of changes in our backlog for the three months ended June 30, 2010:


	Construction Services			Repair and Maintenance Services			Total
	(In thousands)
Backlog as of March 31, 2010	$	150,413		$	152,009		$	302,422
New backlog awarded		133,942			57,578			191,520
Backlog cancelled		—			—			—
Revenue recognized on contracts in backlog		(86,680	)		(54,046	)		(140,726	)

Backlog as of June 30, 2010	$	197,675		$	155,541		$	353,216

The following table provides a summary of changes in our backlog for the twelve months ended June 30, 2010:


	Construction Services			Repair and Maintenance Services			Total
	(In thousands)
Backlog as of June 30, 2009	$	224,260		$	167,837		$	392,097
New backlog awarded		312,907			217,264			530,171
Backlog cancelled		(18,238	)		—			(18,238	)
Revenue recognized on contracts in backlog		(321,254	)		(229,560	)		(550,814	)

Backlog as of June 30, 2010	$	197,675		$	155,541		$	353,216

Reconciliation of Non-GAAP Financial Measures – Quarter and Year Ended June 30, 2010


	Year Ended June 30, 2010
	Construction Services									Repair and Maintenance Services									Consolidated
	As Reported			Special Items (1)			Adjusted			As Reported			Special Items (1)			Adjusted			As Reported			Special Items (1)		Adjusted
	(In thousands, except percentages and earnings per share)

Gross profit	$	34,374		$	7,671	(2)	$	42,045		$	18,548		$	2,793	(4)	$	21,341		$	52,922		$	10,464	$	63,386
Gross margin		10.7	%					13.4	%		8.1	%					9.3	%		9.6	%				11.7	%
Operating income	$	5,957		$	12,528	(3)	$	18,485		$	1,796		$	2,816	(4)	$	4,612		$	7,753		$	15,344	$	23,097
Net income																			$	4,876		$	9,513	$	14,389
Earnings per share - diluted																			$	0.18		$	0.36	$	0.54

	Quarter Ended June 30, 2010
	Construction Services									Repair and Maintenance Services									Consolidated
	As Reported			Special Items (1)			Adjusted			As Reported			Special Items (1)			Adjusted			As Reported			Special Items (1)		Adjusted
	(In thousands, except percentages and earnings per share)\

Gross profit	$	1,287		$	6,045	(5)	$	7,332		$	2,482		$	1,716	(4)	$	4,198		$	3,769		$	7,761	$	11,530
Gross margin		1.5	%					8.4	%		4.6	%					7.8	%		2.7	%				8.1	%
Operating income (loss)	$	(5,195	)	$	6,485	(6)	$	1,290		$	(1,494	)	$	1,716	(4)	$	222		$	(6,689	)	$	8,201	$	1,512
Net income (loss)																			$	(4,229	)	$	5,085	$	856
Earnings (loss) per share - diluted																			$	(0.16	)	$	0.19	$	0.03

(1)	These items are referred to as "Non-routine Charges" and "Significant Loss on Projects" in Part II, Item 7. of the June 30, 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

(2)	Includes $5.4 million related to the loss on projects at a Gulf Coast site and $2.3 million related to the California pay practice class action lawsuits.

(3)	Includes $5.4 million related to the loss on projects at a Gulf Coast site, $2.3 million related to the California pay practice class action lawsuits, $2.9 million related to a claims receivable write-down and $1.9 million for excess collection costs on claims receivable.

(4)	Charge related to California pay practice class action lawsuits.

(5)	Includes $4.6 million related to the loss on projects at a Gulf Coast site and $1.4 million related to the California pay practice class action lawsuits.

(6)	Includes $4.6 million related to the loss on projects at a Gulf Coast site, $1.4 million related to the California pay practice class action lawsuits and $0.4 million for excess collection costs on claims receivable.

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