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Matrix Service Reports Record Net Income and Fully Diluted Earnings per Share in the Second Quarter Ended November 30, 2008

Posted on: Thursday, 8 January 2009, 06:30 CST

Company Provides Update of Fiscal 2009 Earnings Guidance

Second Quarter Fiscal 2009 Highlights:

- Gross margins were 14.9%;

- Operating income was $14.6 million;

- Net income was a record $10.1 million;

- Fully diluted EPS was a record $0.38 per share; and

- Backlog at November 30, 2008 was $454.0 million.

Six Month Fiscal 2009 Highlights:

- Revenues were $363.6 million;

- Gross margins improved to 14.6%; and

- Fully diluted EPS was $0.74 per share.

TULSA, Okla., Jan. 8 /PRNewswire-FirstCall/ -- Matrix Service Co. (Nasdaq: MTRX), a leading industrial services company, today reported its financial results for the second quarter ended November 30, 2008.

Second Quarter of Fiscal 2009 Results

Total revenues for the second quarter were $176.9 million compared to the $194.7 million recorded in the second quarter of fiscal 2008. Net income for the second quarter of fiscal 2009 was $10.1 million, or $0.38 per fully diluted share, a $9.9 million increase over prior year second quarter net income of $0.2 million, or $0.01 per fully diluted share. The prior year second quarter results included a pre-tax charge of $16.0 million for cost overruns on a liquefied natural gas (LNG) construction project in the Gulf Coast Region.

Michael J. Bradley, chief executive officer stated, "I am pleased to report that Matrix Service continued its solid operating performance in the second quarter of fiscal 2009. This performance on a sequential basis demonstrates the successful execution of our project backlog and our long-term business strategy. In connection with our long-term business strategy, we recently completed the acquisition of engineering and construction assets and technology from CB&I. We welcome the new employees from this acquisition to Matrix Service and expect this transaction to strengthen our service offerings in key markets."

Construction Services revenues were $100.1 million, down 13.9% from $116.2 million in the same period a year earlier. The $16.1 million decrease was a result of lower Aboveground Storage Tank (AST) revenues, which decreased 22.8% to $45.0 million in fiscal 2009 from $58.3 million a year earlier and lower Specialty revenues, which decreased $8.9 million to $4.3 million in fiscal 2009 from $13.2 million a year earlier, partially offset by higher revenues in Downstream Petroleum, which increased 6.6% to $42.1 million in fiscal 2009 from $39.5 million a year earlier and higher Electrical and Instrumentation (E&I) revenues, which improved $3.5 million. Construction Services' gross margins improved to 12.7% from (1.6)% due primarily to the $16.0 million charge taken on the LNG project in the second quarter of fiscal 2008.

Revenues for the Repair and Maintenance Services segment were $76.8 million compared to $78.5 million a year earlier. The change was due to lower Downstream Petroleum revenues, which decreased $8.6 million to $21.2 million in fiscal 2009 from $29.8 million a year earlier. Largely offsetting this decline was higher AST revenues, which increased 15.3% to $51.3 million in fiscal 2009 from $44.5 million in the prior fiscal year. Gross margins in the second quarter of fiscal 2009 for this segment were 17.7% as compared to 16.7% earned in the second quarter of fiscal 2008.

Consolidated SG&A expenses were $11.8 million in both the second quarter of fiscal 2009 and the second quarter of fiscal 2008. SG&A expense as a percentage of revenue increased to 6.7% in the second quarter of fiscal 2009 compared to 6.1% in the second quarter of fiscal 2008 due to the 9.1% decline in revenues.

EBITDA(1) increased to $17.2 million, from $1.5 million in the same period last year. Gross margins on a consolidated basis for the current quarter increased to 14.9% from 5.8% in the same quarter a year ago as gross margins in both segments improved.

Consolidated backlog at November 30, 2008 was $454.0 million as compared to $458.8 million at the end of the first fiscal quarter. The November 30, 2008 backlog does not include the $38 million contract award that was announced separately today as the award occurred in the third quarter.

Six Month Fiscal 2009 Results

Net income for the six month period was $19.6 million, or $0.74 per fully diluted share, compared to $6.5 million, or $0.24 per fully diluted share, in the comparable period last year. The prior year results for the six month period ended November 30, 2007 included pre-tax charges of $17.5 million for cost overruns on an LNG construction project in the Gulf Coast Region.

For the six months ended November 30, 2008, consolidated revenues increased 2.1% to $363.6 million from $356.1 million in the year-earlier period.

Construction Services revenues were $214.9 million for the six month period ended November 30, 2008 compared with $215.1 million in the year earlier period. Included in the $0.2 million decline were lower Specialty revenues, which decreased $23.7 million as the construction of the tanks on a Gulf Coast LNG project was completed in the fourth quarter of fiscal 2008. Largely offsetting this decline were higher revenues in Downstream Petroleum, which increased $13.5 million to $86.5 million in fiscal 2009 from $73.0 million a year earlier, higher E&I revenues, which improved $6.9 million to $14.3 million in fiscal 2009 from $7.4 million a year earlier, and higher AST revenues, which increased $3.1 million to $100.9 million in fiscal 2009 from $97.8 million a year earlier. Construction Services' gross margins improved to 12.9% from 3.2% due primarily to $17.5 million in pre-tax charges on the LNG project in the six month period ended November 30, 2007.

Revenues for the Repair and Maintenance Services segment increased $7.7 million, or 5.5%, to $148.7 million, for the six month period ended November 30, 2008 from $141.0 million for the same period of fiscal 2008. The improvement was due to higher AST revenues, which increased 15.3% to $99.2 million in fiscal 2009 from $86.0 million in the prior fiscal year. This increase was partially offset by lower Downstream Petroleum revenues, which decreased 10.4% to $42.4 million in fiscal 2009 from $47.3 million a year earlier and lower E&I revenues, which decreased $0.6 million to $7.0 million in fiscal 2009 from $7.6 million a year earlier. Gross margins in fiscal 2009 for the segment were 17.0% as compared to 16.5% earned in the year earlier period.

Consolidated SG&A expenses increased $3.9 million in fiscal 2009 to $23.8 million from $19.9 million for fiscal 2008. The increase was primarily due to costs relating to our expansion into Western Canada and the Gulf Coast Region and higher employee related and facility costs incurred to build the infrastructure and sales force necessary to support our long-term growth plan. SG&A expense as a percentage of revenue increased to 6.6% in fiscal 2009 compared to 5.6% in fiscal 2008.

EBITDA(1) increased to $35.0 million, from $14.1 million in the same period last year. Gross margins on a consolidated basis increased to 14.6% from 8.5% reported a year earlier ago as gross margins in both segments improved.

Mr. Bradley added, "In these challenging economic times, we are focused now, more than ever, on continuing with our long-term strategies to grow and diversify our business while producing quality earnings. We have invested in our infrastructure to ensure we are positioned to execute on this strategy and develop additional business opportunities. As a result, we have been able to maintain backlog and continue to see opportunity for long-term future growth. Our bid flow remains very strong and we are currently tracking more than $2 billion of projects."

Mr. Bradley continued, "As evident in the economy, we experienced a slow down toward the end of the year with anticipated capital awards and maintenance pushed into calendar 2009. Furthermore, there has been a lack of guidance from some of our customers on their capital and maintenance plans as they assess the impact of the economic turmoil on their businesses. Despite these issues and the limited visibility, we expect to achieve earnings around the lower end of our previously stated EPS guidance. Given the expected slowdown in capital spending and lower material costs, we are forecasting fiscal 2009 revenues 10% to 15% below our previous guidance. Our SG&A costs incurred during the first six months of fiscal 2009 included some costs which will not recur. While we remain committed to growing and diversifying our business, we have taken steps to reduce other costs and expect SG&A in the range of 6.0% to 6.5% of revenues. While we are also decreasing our expected capital spending for fiscal 2009 from $25 million to $13 million, the reduction will not impact our business strategy going forward. We are actively managing our liquidity to maintain our strong financial position and to be opportunistic in this economic environment."

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 11:00 a.m. (Eastern) / 10:00 a.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 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 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

(1) The Company believes that EBITDA (earnings before net interest, income taxes, depreciation and amortization) 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 Tom Long, Vice President Finance and CFO T: +1-918-838-8822 E: telong@matrixservice.com Investors and Financial Media: Truc Nguyen, Managing Director Grayling Global T: +1-646-284-9418 E: tnguyen@hfgcg.com

Matrix Service Company Consolidated Statements of Income (In thousands, except per share data) Three Months Ended Six Months Ended November 30, November 30, November 30, November 30, 2008 2007 2008 2007 (unaudited) (unaudited) Revenues $176,937 $194,734 $363,587 $356,061 Cost of revenues 150,568 183,488 310,547 325,911 Gross profit 26,369 11,246 53,040 30,150 Selling, general and administrative expenses 11,776 11,841 23,838 19,887 Operating income (loss) 14,593 (595) 29,202 10,263 Other income (expense): Interest expense (123) (273) (237) (577) Interest income 104 15 213 31 Other 175 47 911 37 Income (loss) before income taxes 14,749 (806) 30,089 9,754 Provision (benefit) for federal, state and foreign income taxes 4,621 (1,016) 10,457 3,208 Net income $10,128 $210 $19,632 $6,546 Basic earnings per common share $0.39 $0.01 $0.75 $0.25 Diluted earnings per common share $0.38 $0.01 $0.74 $0.24 Weighted average common shares outstanding: Basic 26,102 26,625 26,087 26,609 Diluted 26,400 27,131 26,456 27,109

Matrix Service Company Consolidated Balance Sheets (In thousands) November 30, May 31, 2008 2008 (unaudited) Assets Current assets: Cash and cash equivalents $13,538 $21,989 Accounts receivable, less allowances (November 30, 2008 - $300 and May 31, 2008 - $269) 98,809 105,858 Income tax receivable 1,343 - Costs and estimated earnings in excess of billings on uncompleted contracts 52,356 49,940 Inventories 5,893 4,255 Deferred income taxes 4,954 4,399 Prepaid expenses 4,717 3,357 Other current assets - 809 Total current assets 181,610 190,607 Property, plant and equipment at cost: Land and buildings 26,683 24,268 Construction equipment 50,866 47,370 Transportation equipment 17,491 16,927 Furniture and fixtures 13,675 11,781 Construction in progress 2,975 6,712 111,690 107,058 Accumulated depreciation (52,498) (49,811) Property, plant and equipment, net 59,192 57,247 Goodwill 22,166 23,329 Other assets 1,555 3,410 Total assets $264,523 $274,593

Matrix Service Company Consolidated Balance Sheets (In thousands, except share data) November 30, May 31, 2008 2008 (unaudited) Liabilities and stockholders' equity Current liabilities: Accounts payable $45,496 $53,560 Billings on uncompleted contracts in excess of costs and estimated earnings 35,140 48,709 Accrued insurance 7,866 8,451 Accrued wages and benefits 10,477 14,976 Income tax payable - 2,028 Current capital lease obligation 1,195 1,042 Other accrued expenses 1,297 1,015 Total current liabilities 101,471 129,781 Long-term capital lease obligation 777 1,000 Deferred income taxes 4,150 5,112 Stockholders' equity: Common stock - $.01 par value; 60,000,000 shares authorized 27,888,217 shares issued as of November 30, 2008 and May 31, 2008 279 279 Additional paid-in capital 110,465 108,402 Retained earnings 64,436 44,809 Accumulated other comprehensive income (loss) (845) 1,584 174,335 155,074 Less: Treasury stock, at cost - 1,756,235 and 1,825,600 shares as of November 30, 2008 and May 31, 2008 (16,210) (16,374) Total stockholders' equity 158,125 138,700 Total liabilities and stockholders' equity $264,523 $274,593

Results of Operations (In thousands) Repair & Construction Maintenance Services Services Other Total Three Months Ended November 30, 2008 Gross revenues $108,084 $77,499 $- $185,583 Less: Inter-segment revenues 7,955 691 - 8,646 Consolidated revenues 100,129 76,808 - 176,937 Gross profit 12,761 13,608 - 26,369 Operating income 5,618 8,975 - 14,593 Income before income tax expense 5,680 9,069 - 14,749 Net income 4,434 5,694 - 10,128 Segment assets 135,887 96,865 31,771 264,523 Capital expenditures 932 814 1,739 3,485 Depreciation and amortization expense 1,359 1,121 - 2,480 Three Months Ended November 30, 2007 Gross revenues $119,443 $79,420 $- $198,863 Less: Inter-segment revenues 3,170 959 - 4,129 Consolidated revenues 116,273 78,461 - 194,734 Gross profit (loss) (1,839) 13,085 - 11,246 Operating income (loss) (9,269) 8,508 166 (595) Income (loss) before income tax expense (9,432) 8,460 166 (806) Net income (loss) (5,240) 5,350 100 210 Segment assets 163,597 93,030 21,634 278,261 Capital expenditures 2,400 1,870 1,169 5,439 Depreciation and amortization expense 1,178 861 - 2,039 Six Months Ended November 30, 2008 Gross revenues $230,445 $149,666 $- $380,111 Less: Inter-segment revenues 15,558 966 - 16,524 Consolidated revenues 214,887 148,700 - 363,587 Gross profit 27,806 25,234 - 53,040 Operating income 13,110 16,092 - 29,202 Income before income tax expense 13,383 16,706 - 30,089 Net income 8,813 10,819 - 19,632 Segment assets 135,887 96,865 31,771 264,523 Capital expenditures 1,973 1,744 2,873 6,590 Depreciation and amortization expense 2,771 2,090 - 4,861 Six Months Ended November 30, 2007 Gross revenues $222,460 $143,405 $- $365,865 Less: Inter-segment revenues 7,408 2,396 - 9,804 Consolidated revenues 215,052 141,009 - 356,061 Gross profit 6,834 23,316 - 30,150 Operating income (loss) (5,345) 15,527 81 10,263 Income (loss) before income tax expense (5,719) 15,392 81 9,754 Net income (loss) (3,013) 9,510 49 6,546 Segment assets 163,597 93,030 21,634 278,261 Capital expenditures 3,906 2,542 1,879 8,327 Depreciation and amortization expense 2,231 1,582 - 3,813

Segment Revenue from External Customers by Industry Type Repair & Construction Maintenance Services Services Total (In thousands) Three Months Ended November 30, 2008 Aboveground Storage Tanks $45,024 $51,309 $96,333 Downstream Petroleum 42,126 21,204 63,330 Electrical and Instrumentation 8,714 4,295 13,009 Specialty 4,265 - 4,265 Total $100,129 $76,808 $176,937 Three Months Ended November 30, 2007 Aboveground Storage Tanks $58,326 $44,504 $102,830 Downstream Petroleum 39,499 29,810 69,309 Electrical and Instrumentation 5,239 4,147 9,386 Specialty 13,209 - 13,209 Total $116,273 $78,461 $194,734 Six Months Ended November 30, 2008 Aboveground Storage Tanks $100,893 $99,206 $200,099 Downstream Petroleum 86,514 42,449 128,963 Electrical and Instrumentation 14,347 7,045 21,392 Specialty 13,133 - 13,133 Total $214,887 $148,700 $363,587 Six Months Ended November 30, 2007 Aboveground Storage Tanks $97,801 $86,033 $183,834 Downstream Petroleum 73,050 47,347 120,397 Electrical and Instrumentation 7,410 7,629 15,039 Specialty 36,791 - 36,791 Total $215,052 $141,009 $356,061

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 the revenue recognized as of the reporting date.

The following provides a rollforward of our backlog for the three-months ended November 30, 2008:

Repair and Construction Maintenance Services Services Total (In thousands) Backlog as of August 31, 2008 $300,290 $158,471 $458,761 New backlog awarded 82,707 89,490 172,197 Revenue recognized on contracts in backlog (100,129) (76,808) (176,937) Backlog as of November 30, 2008 $282,868 $171,153 $454,021 The following provides a rollforward of our backlog for the six-months ended November 30, 2008: Repair and Construction Maintenance Services Services Total (In thousands) Backlog as of May 31, 2008 $325,341 $141,967 $467,308 New backlog awarded 172,414 177,886 350,300 Revenue recognized on contracts in backlog (214,887) (148,700) (363,587) Backlog as of November 30, 2008 $282,868 $171,153 $454,021

Non-GAAP Financial Measure

EBITDA is a supplemental, non-GAAP financial measure. We define EBITDA as earnings before net 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 Income 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 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 income or expense. Because we borrow money from time to time 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 expense. Because we use capital assets to generate revenue, depreciation expense is a necessary element of our cost structure. Therefore, any measure that excludes depreciation expense has material limitations.

A reconciliation of EBITDA to net income follows:

Three Months Ended Six Months Ended November 30, November 30, November 30, November 30, 2008 2007 2008 2007 (In thousands) (In thousands) Net income $10,128 $210 $19,632 $6,546 Interest expense, net 19 258 24 546 Provision (benefit) for income taxes 4,621 (1,016) 10,457 3,208 Depreciation and amortization 2,480 2,039 4,861 3,813 EBITDA $17,248 $1,491 $34,974 $14,113

SOURCE Matrix Service Co.

Source: PR Newswire

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