What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-05-07 · 252 added, 305 removed, 293 unchanged (66% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

2020 September 30,

Revenue $ 182,771 $ 338,097

Cost of revenue 168,421 305,632

Gross profit 14,350 32,465

Selling, general and administrative expenses 18,128 23,691

Goodwill and other intangible asset impairments

Restructuring costs ( 320 ) —

3 unchanged sentences

Interest income 33 474

Other 1,033 3

Income (loss) before income tax expense ( 2,767 ) 8,862

Provision (benefit) for federal, state and foreign income taxes

Provision for federal, state and foreign income taxes 270 2,711

Net income (loss) $ ( 3,037 ) $ 6,151

2 unchanged sentences

Weighted average common shares outstanding:

Basic 26,265 26,935

Diluted 26,265 27,575

See accompanying notes.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

2020 September 30,

Net income (loss) $ ( 3,037 ) $ 6,151

Other comprehensive gain (loss), net of tax:

Foreign currency translation gain (loss) (net of tax expense (benefit) of ($51) and ($14) for the three and nine months ended March 31, 2020, respectively, and $97 and ($79) for the three and nine months ended March 31, 2019, respectively)

Foreign currency translation gain (loss) (net of tax expense (benefit) of $12 and ($22) for the three months ended September 30, 2020, and 2019, respectively) 404 ( 394 )

Comprehensive income (loss) $ ( 2,633 ) $ 5,757

3 unchanged sentences

(In thousands)

September 30,

2020 June 30,

Current assets:

Cash and cash equivalents $ 82,175 $ 100,036

Accounts receivable, less allowances (March 31, 2020—$1,821 and June 30, 2019—$923)

Accounts receivable, less allowances (September 30, 2020—$830 and June 30, 2020—$905) 171,504 160,671

Costs and estimated earnings in excess of billings on uncompleted contracts 57,694 59,548

Inventories 6,751 6,460

Income taxes receivable 4,071 3,919

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Operating lease right-of-use assets 20,152 21,375

Goodwill 60,437 60,369

Other intangible assets, net of accumulated amortization 8,287 8,837

Deferred income taxes 5,684 5,988

Other assets 6,893 4,833

Total assets $ 512,230 $ 517,310

See accompanying notes.

2 unchanged sentences

(In thousands, except share data)

September 30,

2020 June 30,

Liabilities and stockholders’ equity

5 unchanged sentences

Operating lease liabilities 6,585 7,568

Income taxes payable

Other accrued expenses 7,157 7,890

9 unchanged sentences

60,000,000 shares authorized;

27,888,217 shares issued as of March 31, 2020 and June 30, 2019;

26,131,355 and 26,807,203 shares outstanding as of March 31, 2020 and June 30, 2019

27,888,217 shares issued as of September 30, 2020 and June 30, 2020;

26,460,196 and 26,141,528 shares outstanding as of September 30, 2020 and June 30, 2020 279 279

Additional paid-in capital 132,687 138,966

1 unchanged sentence

Accumulated other comprehensive loss ( 7,969 ) ( 8,373 )

Treasury stock, at cost — 1,756,862 shares as of March 31, 2020, and 1,081,014 shares as of June 30, 2019

328,362 337,274

Treasury stock, at cost — 1,428,021 shares as of September 30, 2020, and 1,746,689 shares as of June 30, 2020 ( 22,342 ) ( 29,385 )

Total stockholders' equity 306,020 307,889

4 unchanged sentences

(In thousands)

Nine Months Ended

Three Months Ended

September 30,

2020 September 30,

Operating activities:

Net income (loss) $ ( 3,037 ) $ 6,151

Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of effects from acquisitions and disposals:

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

Depreciation and amortization 4,639 4,779

Goodwill and other intangible asset impairment

Stock-based compensation expense 2,218 3,024

Operating lease and fixed asset impairments due to restructuring

Operating lease impairment due to restructuring 150 —

Deferred income tax 289 1,990

Gain on disposal of business

Gain on sale of property, plant and equipment ( 941 ) ( 93 )

Provision for uncollectible accounts ( 64 ) 224

Changes in operating assets and liabilities increasing (decreasing) cash, net of effects from acquisitions and disposals:

Changes in operating assets and liabilities increasing (decreasing) cash:

Accounts receivable ( 10,769 ) 3,594

Costs and estimated earnings in excess of billings on uncompleted contracts 1,854 30,087

Inventories ( 291 ) 456

Other assets and liabilities ( 8,018 ) ( 297 )

5 unchanged sentences

Capital expenditures ( 2,777 ) ( 8,684 )

Proceeds from disposal of business

Proceeds from asset sales 1,074 151

4 unchanged sentences

(In thousands)

Nine Months Ended

Three Months Ended

September 30,

2020 September 30,

Financing activities:

1 unchanged sentence

Repayments of advances under senior secured revolving credit facility — ( 2,872 )

Open market purchase of treasury shares

Issuances of common stock

Proceeds from issuance of common stock under employee stock purchase plan 82 83

Repurchase of common stock for payment of statutory taxes due on equity-based compensation ( 1,536 ) ( 3,394 )

Net cash used by financing activities

Net cash provided (used) by financing activities ( 1,454 ) 2,801

Effect of exchange rate changes on cash and cash equivalents 316 ( 198 )

Decrease in cash and cash equivalents

Increase (decrease) in cash and cash equivalents ( 17,861 ) 50,174

Cash and cash equivalents, beginning of period 100,036 89,715

2 unchanged sentences

Cash paid during the period for:

Income taxes $ 122 $ 5,069

Interest $ 470 $ 417

Non-cash investing and financing activities:

4 unchanged sentences

(In thousands, except share data)

Comprehensive

Balances, January 1, 2020

Other comprehensive loss

Issuance of deferred shares (4,650 shares)

Treasury shares sold to Employee Stock Purchase Plan (3,805 shares)

Open market purchases of treasury shares (547,606 shares)

Treasury shares purchased to satisfy tax withholding obligations (1,608 shares)

Stock-based compensation expense

Balances, March 31, 2020

Balances, January 1, 2019

Other comprehensive income

Issuance of deferred shares (22,133 shares)

Treasury shares sold to Employee Stock Purchase Plan (4,584 shares)

Treasury shares purchased to satisfy tax withholding obligations (1,693 shares)

Stock-based compensation expense

Balances, March 31, 2019

See accompanying notes.

Matrix Service Company

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share data)

Stock Additional

Capital Retained

Earnings Treasury

Stock Accumulated

Comprehensive

Income(Loss) Total

Balances, July 1, 2020 $ 279 $ 138,966 $ 206,402 $ ( 29,385 ) $ ( 8,373 ) $ 307,889

Other comprehensive loss

Net loss — — ( 3,037 ) — — ( 3,037 )

Other comprehensive income — — — — 404 404

Issuance of deferred shares (478,703 shares) — ( 8,435 ) — 8,435 — —

Treasury shares sold to Employee Stock Purchase Plan (8,730 shares) — ( 62 ) — 144 — 82

Open market purchases of treasury shares (1,047,606 shares)

Treasury shares purchased to satisfy tax withholding obligations (168,765 shares) — — — ( 1,536 ) — ( 1,536 )

Stock-based compensation expense — 2,218 — — — 2,218

Balances, March 31, 2020

Balances, September 30, 2020 $ 279 $ 132,687 $ 203,365 $ ( 22,342 ) $ ( 7,969 ) $ 306,020

Balances, July 1, 2019 $ 279 $ 137,712 $ 239,476 $ ( 17,759 ) $ ( 7,751 ) $ 351,957

Net income — — 6,151 — — 6,151

Other comprehensive loss — — — — ( 394 ) ( 394 )

Exercise of stock options (12,500 shares)

Issuance of deferred shares (494,274 shares) — ( 7,813 ) — 7,813 — —

Treasury shares sold to Employee Stock Purchase Plan (4,053 shares) — 13 — 70 — 83

Open market purchase of treasury shares (310,532 shares)

Treasury shares purchased to satisfy tax withholding obligations (174,084 shares) — — — ( 3,394 ) — ( 3,394 )

Stock-based compensation expense — 3,024 — — — 3,024

Balances, March 31, 2019

Balances, September 30, 2019 $ 279 $ 132,936 $ 245,627 $ ( 13,270 ) $ ( 8,145 ) $ 357,427

See accompanying notes.

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Basis of Presentation

The condensed consolidated financial statements include the accounts of Matrix Service Company (“Matrix”, “we”, “our”, “us”, “its” or the “Company”) and its subsidiaries, unless otherwise indicated.

The condensed consolidated financial statements include the accounts of Matrix Service Company and its subsidiaries (“Matrix”, “we”, “our”, “us”, “its” or the “Company”), unless otherwise indicated.

Intercompany balances and transactions have been eliminated in consolidation.

3 unchanged sentences

The accompanying condensed financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2020, included in the Company’s Annual Report on Form 10-K for the year then ended.

The results of operations for the three and nine month periods ended March 31, 2020 may not necessarily be indicative of the results of operations for the full year ending June 30, 2020 .

The results of operations for the three month period ended September 30, 2020 may not necessarily be indicative of the results of operations for the full year ending June 30, 2021.

Significant Accounting Policies

The Company has updated its significant accounting policies to include its lease accounting policy as a result of adopting the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No.

2016-02, Leases (Topic 842) on July 1, 2019.

The Company has updated its significant accounting policies to include its accounting policy for recognizing credit losses as a result of adopting the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No.

2016-13, Financial Instruments-Credit Losses (Topic 326) on July 1, 2020, and our change in reportable segments effective July 1, 2020.

The Company's other significant accounting policies are detailed in “Note 1 - Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended June 30, 2020.

Adoption of New Leases Standard

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) .

Under this guidance, lessees are required to recognize virtually all leases on the balance sheet as a right-of-use asset and an associated operating lease liability or finance lease liability.

The right-of-use asset represents the lessee's right to use, or control the use of, a specified asset for the specified lease term.

The lease liability represents the lessee's obligation to make lease payments arising from the lease, measured on a discounted basis.

Based on certain characteristics, leases are classified as operating leases or finance leases.

Operating lease liabilities and right-of-use assets are adjusted to result in a single straight-line lease expense over the life of the lease.

Finance lease liabilities and right-of-use assets, which contain provisions similar to capital leases under the prior accounting standards, result in the recognition of interest expense on the lease liability and amortization expense on the right-of-use asset over the term of the lease.

On July 1, 2019, the Company adopted the standard using the modified retrospective method.

The modified retrospective method permits the Company to record right-of-use assets and lease liabilities for existing leases as of the date of adoption rather than at the beginning of the earliest period presented.

The Company recorded operating lease right-of-use assets of $ 24.6 million and operating lease liabilities of $ 25.8 million as of July 1, 2019.

The adoption of the standard did not have a material impact on the Company’s retained earnings, Condensed Consolidated Statements of Income or Condensed Consolidated Statements of Cash Flows.

Financial results reported in prior periods are unchanged and reflect the prior lease accounting standards in place at the time.

The Company elected the package of practical expedients permitted under the transition guidance for the new standard, which among other things, allowed the Company to carry forward the historical lease classification of its existing leases.

All of the Company's existing leases were classified as operating leases prior to adoption and have retained this classification after adoption.

In addition, the Company elected not to utilize the hindsight practical expedient to determine the lease term for existing leases at adoption.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Lease Accounting Policy

The Company enters into lease arrangements for real estate, construction equipment and information technology equipment in the normal course of business.

The Company determines if an arrangement is or contains a lease at inception of the arrangement.

An arrangement is determined to be a lease if it conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration.

If certain criteria are satisfied, the lease is classified as a financing lease.

If none of these criteria are satisfied, the lease is considered an operating lease.

All of the Company's leases are classified as operating leases.

Operating lease right-of-use assets are recognized as the present value of future lease payments over the lease term as of the commencement date, plus any lease payments made prior to commencement, and less any lease incentives received.

Operating right-of-use assets are presented as noncurrent in the Condensed Consolidated Balance Sheets.

Operating lease liabilities are recognized as the present value of the future lease payments over the lease term as of the commencement date and are presented as current and noncurrent in the Condensed Consolidated Balance Sheets.

The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases with an initial term of 12 months or less.

The lease term used to measure the right-of-use assets and lease liabilities is generally the non-cancelable lease term for real estate leases and information technology equipment.

Construction equipment is typically rented on a "month-to-month" basis and the lease term is estimated based on the expected duration of the rental.

An option to renew or terminate a lease is included in the lease term when it is reasonably certain that the Company will exercise the option.

Renewal options for real estate leases are typically for five years or less.

Future lease payments are discounted based on the Company's estimate of its incremental borrowing rate at lease commencement.

The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments.

Determinations with respect to lease term, including any renewals, incremental borrowing rate, and future lease payments require the use of judgment based on the facts and circumstances related to each lease.

The Company considers various factors, including economic incentives, intent, past history and business need, to determine the likelihood that a renewal option will be exercised.

After the commencement date, operating lease expense is recognized based on the undiscounted future lease payments over the remaining lease term on a straight-line basis.

Lease expense related to short-term leases is recognized on a straight-line basis over the lease term.

Lease expense is included in cost of revenue and in selling, general and administrative expenses in the Condensed Consolidated Statements of Income.

See Note 3 - Leases for the required periodic disclosures about the Company's leases.

Recently Issued Accounting Standards

Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

On June 16, 2016, the FASB issued ASU 2016-13, which will change how the Company accounts for credit losses, including those related to its trade accounts receivable.

The amendments in this update require a financial asset (or a group of financial assets) to be presented at the net amount expected to be collected.

The income statement will reflect any increases or decreases of expected credit losses that have taken place during the period.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.

Current GAAP delays the recognition of the full amount of credit losses until the loss is probable of occurring.

The amendments in this update eliminate the probable initial recognition threshold and, instead, reflect the Company's current estimate of all expected credit losses.

In addition, current guidance limits the information the Company may consider in measuring a credit loss to its past events and current conditions.

The amendments in this update broaden the information the Company may consider in developing its expected credit loss estimate to include forecasted information.

The Company will adopt these amendments on July 1, 2020.

The Company must apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

At this time, the Company does not expect this update will have a material impact on its estimate of the allowance for uncollectible accounts.

Credit Losses

Adoption of New Credit Losses Standard

On June 16, 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which changed how the Company accounts for credit losses, including those related to its accounts receivable and contract assets.

Under this guidance, a financial asset (or a group of financial assets) are required to be presented at the net amount expected to be collected.

The income statement reflects any increases or decreases of expected credit losses that have taken place during the period.

The amendments in this update eliminate the probable initial recognition threshold and, instead, reflect the Company's current estimate of all lifetime expected credit losses on its accounts receivable and contract asset balances.

The Company determines its allowance for credit losses by using a loss-rate methodology, in which it assesses historical write-offs against total receivables and contract asset balances over several periods.

In addition, the Company places reserves on specific balances as needed based on the most recent estimates of collectibility.

The Company's adoption of this standard on July 1, 2020 did not have a material impact on its estimate of the allowance for credit losses.

Change in Reportable Segments

Due to changing markets facing our clients and to better align the financial reporting of the Company with our long-term strategic growth areas, we began reporting our financial results under new reportable segments effective July 1, 2020.

The new reportable segments along with a description of each are as follows:

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

• Utility and Power Infrastructure :

consists of power delivery services provided to investor owned utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, upgrades and maintenance, as well as emergency and storm restoration services.

The Company also provides construction and maintenance services to a variety of power generation facilities, including gas fired facilities in simple or combined cycle design, and provides engineering, fabrication, and construction services for liquefied natural gas ("LNG") utility peak shaving facilities.

• Process and Industrial Facilities :

primarily serves customers in the downstream and midstream petroleum industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas and natural gas liquids.

The Company also serves customers in various other industries such as petrochemical, sulfur, mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and other industrial customers.

The Company's services include plant maintenance, turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.

• Storage and Terminal Solutions :

consists of work related to aboveground storage tanks and terminals.

Also included in this segment are cryogenic and other specialty storage tanks and terminals, including LNG, liquid nitrogen/liquid oxygen, liquid petroleum and other specialty vessels such as spheres, as well as marine structures and truck and rail loading/offloading facilities.

The Company's services include engineering, fabrication, construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals.

Finally, the Company offers tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

All prior period segment information has been restated to conform with our new reportable segments.

In addition, beginning July 1, 2020, the Company is reporting separately corporate selling, general and administrative expenses and other corporate expenses that were previously allocated to the segments.

Refer to Note 9 - Segment Information, and Part I, Item 2 - Management's Discussion and Analysis - Results of Operations, for more information.

Note 2 – Revenue

Remaining Performance Obligations

The Company had $ 536.7 million of remaining performance obligations yet to be satisfied as of March 31, 2020 .

The Company had $ 490.4 million of remaining performance obligations yet to be satisfied as of September 30, 2020 .

The Company expects to recognize $ 386.0 million of its remaining performance obligations as revenue within the next twelve months.

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The following table provides information about CIE and BIE:

September 30,

2020 June 30,

(in thousands)

3 unchanged sentences

The difference between the beginning and ending balances of the Company's CIE and BIE primarily results from the timing of revenue recognized relative to its billings.

The amount of revenue recognized during the nine months ended March 31, 2020 that was included in the June 30, 2019 BIE balance was $ 102.6 million .

The amount of revenue recognized during the three months ended September 30, 2020 that was included in the June 30, 2020 BIE balance was $ 41.2 million.

This revenue consists primarily of work performed during the period on contracts with customers that had advance billings.

Progress billings in accounts receivable at March 31, 2020 and June 30, 2019 included retentions to be collected within one year of $ 39.8 million and $ 21.9 million , respectively.

Contract retentions collectible beyond one year are included in other assets in the Condensed Consolidated Balance Sheet and totaled $ 5.7 million as of March 31, 2020 and $ 17.7 million as of June 30, 2019 .

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Progress billings in accounts receivable at September 30, 2020 and June 30, 2020 included retentions to be collected within one year of $ 33.0 million and $ 37.3 million, respectively.

Contract retentions collectible beyond one year are included in other assets in the Condensed Consolidated Balance Sheet and totaled $ 3.8 million as of September 30, 2020 and $ 1.6 million as of June 30, 2020.

Disaggregated Revenue

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Three Months Ended

Nine Months Ended

September 30,

2020 September 30,

(In thousands)

United States $ 161,377 $ 314,416

Canada 19,611 21,170

Other international 1,783 2,511

Total Revenue $ 182,771 $ 338,097

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Contract Type Disaggregation:

Three Months Ended

Nine Months Ended

September 30,

2020 September 30,

(In thousands)

2 unchanged sentences

Total Revenue $ 182,771 $ 338,097

Typically, the Company assumes more risk with fixed-price contracts since increases in cost to perform the work may not be recoverable.

Typically, the Company assumes more risk with fixed-price contracts since increases in costs to perform the work may not be recoverable.

However, these types of contracts typically offer higher profits than time and materials and other cost reimbursable contracts when completed at or below the costs originally estimated.

The profitability of time and materials and other cost reimbursable contracts is typically lower than fixed-price contracts and is usually less volatile than fixed-price contracts since the profit component is factored into the rates charged for labor, equipment and materials, or is expressed in the contract as a percentage of the reimbursable costs incurred.

The mix of revenue by contract type shifted significantly during the third quarter of fiscal 2020 due to the Company's strategic initiative to exit the domestic iron and steel industry, which was comprised primarily of time and materials and other cost reimbursable contracts.

Note 3 – Leases

The Company enters into lease arrangements for real estate, construction equipment and information technology equipment in the normal course of business.

Real estate leases accounted for approximately 86 % of all right-of-use assets as of March 31, 2020 .

Real estate leases accounted for approximately 90 % of all right-of-use assets as of September 30, 2020 .

Most real estate and information technology equipment leases generally have fixed payments that follow an agreed upon payment schedule and have remaining lease terms ranging from less than a year to 15 years.

Construction equipment leases generally have "month-to-month" lease terms that automatically renew as long as the equipment remains in use.

The Company incurred $ 2.2 million of impairments to right-of-use assets related to leased office space that was closed in connection with a restructuring plan, see Note 10 – Restructuring Costs for additional information.

During the three months ended September 30, 2020, the Company recognized a $ 0.2 million impairment of a right-of-use asset in connection with the closure of a leased office space.

The impairment is included in restructuring costs in the condensed consolidated statements of income.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

The components of lease expense in the condensed consolidated statements of income are as follows:

Three Months Ended

Nine Months Ended

March 31, 2020

Lease expense

Location of Expense in Statements of Income

(in thousands)

Operating lease expense

Cost of revenues and selling, general and administrative expenses

September 30, 2020 September 30, 2019

Lease expense Location of Expense in Statements of Income (in thousands)

Operating lease expense Cost of revenue and selling, general and administrative expenses $ 2,488 $ 3,117

Short-term lease expense (1)

Cost of revenues

Cost of revenue 5,975 9,608

Total lease expense $ 8,463 $ 12,725

(1) Primarily represents the lease expense of construction equipment that is subject to month-to-month rental agreements with expected rental durations of less than one year.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

The future undiscounted lease payments, as reconciled to the discounted operating lease liabilities presented in the Company's Condensed Consolidated Balance Sheets, were as follows:

March 31, 2020

September 30, 2020

Maturity Analysis:

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Remainder of Fiscal 2021 $ 6,313

Fiscal 2022 5,542

Fiscal 2023 3,871

Fiscal 2024 2,862

Fiscal 2025 2,300

Thereafter 9,647

Total future operating lease payments 30,535

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Non-current operating lease liabilities $ 18,820

The following is a summary of the weighted average remaining operating lease term and weighted average discount rate as of March 31, 2020 :

Weighted-average remaining lease term (in years)

The following is a summary of the weighted average remaining operating lease term and weighted average discount rate as of September 30, 2020 :

Weighted-average remaining lease term (in years) 6.4 years

Weighted-average discount rate 5.6 %

Supplemental cash flow information related to leases is as follows:

Nine Months Ended

March 31, 2020

Three Months Ended

September 30, 2020

(in thousands)

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Operating leases $ 902

During the third quarter, the Company received leasehold improvements of $ 2.4 million from a lessor as a tenant incentive.

This incentive is considered to be a non-cash investing activity.

Matrix Service Company

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The changes in the carrying value of goodwill by segment are as follows:

Infrastructure

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal Solutions Total

(In thousands)

Net balance at June 30, 2020 $ 6,905 $ 26,846 $ 26,618 $ 60,369

Goodwill impairment

Translation adjustment (1)

Net balance at March 31, 2020

Net balance at September 30, 2020 $ 6,926 $ 26,853 $ 26,658 $ 60,437

(1) The translation adjustments relate to the periodic translation of Canadian Dollar and South Korean Won denominated goodwill recorded as a part of prior acquisitions in Canada and South Korea, in which the local currency was determined to be the functional currency.

The Company tests its goodwill for impairment annually in May.

However, during the third quarter the Company concluded that goodwill impairment indicators existed based on the uncertainties caused by the COVID-19 pandemic and the significant decline in the price of crude oil.

These uncertainties have resulted in lowered revenue expectations for the remainder of fiscal 2020 and fiscal 2021 and led to significant volatility in the Company's stock price.

Accordingly, the Company performed an interim test as of March 31, 2020, which did not result in any impairments.

While near-term revenue expectations were reduced, the Company also projected significant reductions in its cost structure.

As of March 31, 2020, there were three reporting units with goodwill totaling $ 14.1 million that had low headroom, which we define as the percentage difference between the fair value of a reporting unit and its carrying value.

Our financial projections were based on the current assessment of our markets.

Our markets are at historically volatile levels and future developments are difficult to predict.

If the markets that impact our business continue to deteriorate, particularly in the reporting units mentioned above, the Company could recognize a significant goodwill impairment.

In the second quarter, the Company concluded that a goodwill impairment indicator existed in the Electrical Infrastructure segment based on the recent history of depressed gross margins and the second quarter’s downward acceleration of revenue and gross margin.

Accordingly, the Company performed an interim impairment test as of December 31, 2019, reflecting updated revenue and gross margin assumptions, and concluded that the reporting unit's $24.9 million of goodwill was fully impaired.

Additionally, in December 2019, the Company concluded that a goodwill impairment indicator existed for an Industrial segment reporting unit based on several second quarter events.

These events included the deterioration of the relationship with a significant customer in the iron and steel industry in the second quarter.

As a result, the customer canceled other previously awarded work and the Company is expecting little to no business from this customer in the foreseeable future.

Accordingly, the Company performed an interim impairment test as of December 31, 2019 and concluded that the reporting unit's $8.0 million of goodwill was fully impaired.

The remaining goodwill in the Industrial segment is related to a separate reporting unit that serves a broader customer base beyond iron and steel.

The estimated fair value of each reporting unit was derived primarily by utilizing a discounted cash flow analysis.

The key assumptions used are described in Part II, Item 8.

Financial Statements and Supplementary Data, Note 1 - Summary of Significant Accounting Policies, Goodwill in our fiscal 2019 Annual Report on Form 10-K.

While there continues to be uncertainty around the near-term level of spending by some of our customers due to the impacts of the COVID-19 pandemic on our markets and the economy, this uncertainty did not result in any impairment indicators as of September 30, 2020 .

We will continue to monitor the latest developments and perform interim tests for goodwill impairment as needed.

Other Intangible Assets

In December 2019, in connection with the factors disclosed for the Industrial segment goodwill impairment above, the Company fully impaired a customer relationship with a net book value of $ 5.6 million and a remaining useful life of 9 years.

This intangible asset had a gross carrying amount of $ 9.4 million and accumulated amortization of $ 3.8 million .

The impairment is included within the goodwill and other intangible asset impairment caption in the condensed consolidated statements of income.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Information on the carrying value of other intangible assets is as follows:

At March 31, 2020

Gross Carrying

(In thousands)

Intellectual property

Customer-based

Non-compete agreements

At September 30, 2020

Useful Life Gross Carrying

Amount Accumulated

Amortization Net Carrying

(Years) (In thousands)

Intellectual property 10 to 15 $ 2,558 $ ( 1,979 ) $ 579

Customer-based 6 to 15 17,062 ( 9,354 ) 7,708

Total amortizing intangible assets $ 19,620 $ ( 11,333 ) $ 8,287

At June 30, 2020

Gross Carrying

(In thousands)

Intellectual property

Customer-based

Non-compete agreements

Useful Life Gross Carrying

Amount Accumulated

Amortization Net Carrying

(Years) (In thousands)

Intellectual property 10 to 15 $ 2,579 $ ( 1,956 ) $ 623

Customer-based 6 to 15 21,840 ( 13,626 ) 8,214

Total amortizing intangible assets $ 24,419 $ ( 15,582 ) $ 8,837

Amortization expense totaled $ 0.8 million and $ 2.7 million during the three and nine months ended March 31, 2020 and $ 0.8 million and $ 2.5 million for the three and nine months ended March 31, 2019 , respectively.

We estimate that the remaining amortization expense related to March 31, 2020 amortizing intangible assets will be as follows (in thousands):

Amortization expense totaled $ 0.6 million and $ 0.9 million during the three months ended September 30, 2020 and September 30, 2019, respectively.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

We estimate that the remaining amortization expense related to September 30, 2020 amortizing intangible assets will be as follows (in thousands):

Period ending:

Remainder of Fiscal 2021 $ 1,679

Total estimated remaining amortization expense at March 31, 2020

Fiscal 2022 1,812

Fiscal 2023 1,729

Fiscal 2024 1,416

Fiscal 2025 1,096

Fiscal 2026 555

Total estimated remaining amortization expense at September 30, 2020 $ 8,287

Note 5 – Debt

On February 8, 2017, the Company entered into the Fourth Amended and Restated Credit Agreement (the "Credit Agreement"), by and among the Company and certain foreign subsidiaries, as Borrowers, various subsidiaries of the Company, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, Sole Lead Arranger and Sole Bookrunner, and the other Lenders party thereto.

The Credit Agreement provides for a five-year senior secured revolving credit facility of $ 300.0 million that expires February 8, 2022 .

On November 2, 2020, the Company entered into the Fifth Amended and Restated Credit Agreement (the "Credit Agreement"), by and among the Company and certain foreign subsidiaries, as Borrowers, various subsidiaries of the Company, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, Sole Lead Arranger and Sole Bookrunner, and the other Lenders party thereto, which replaced the Fourth Amended and Restated Credit Agreement (the "Prior Credit Agreement") that was in place at September 30, 2020, and which is described in Part II, Item 8.

Financial Statements and Supplementary Data, Note 5 - Debt, in the Company's Annual Report on Form 10-K for the year ended June 30, 2020.

The Credit Agreement provides for a three-year senior secured revolving credit facility of $ 200.0 million that expires November 2, 2023 .

The credit facility may be used for working capital, acquisitions, capital expenditures, issuances of letters of credit and other lawful purposes.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

The Credit Agreement includes the following covenants and borrowing limitations:

Our Leverage Ratio, determined as of the end of each fiscal quarter, may not exceed 3.00 to 1.00 .

We are required to maintain a Fixed Charge Coverage Ratio, determined as of the end of each fiscal quarter, greater than or equal to 1.25 to 1.00 .

Asset dispositions (other than dispositions in which all of the net cash proceeds therefrom are reinvested into the Company and dispositions of inventory and obsolete or unneeded equipment in the ordinary course of business) are limited to $ 20.0 million per 12-month period.

The credit facility includes a U.S.

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• The Canadian Prime Rate or the CDOR rate, in the case of revolving loans denominated in Canadian Dollars;

The Adjusted LIBO Rate, in the case of revolving loans denominated in Pounds Sterling or Australian Dollars;

The EURIBO Rate, in the case of revolving loans denominated in Euros,

• The Adjusted LIBO Rate or the Adjusted EURIBOR Rate, in the case of revolving loans denominated in Pounds Sterling or Australian Dollars;

• The Adjusted EURIBOR Rate, in the case of revolving loans denominated in Euros,

in each case, plus the Applicable Margin, which is based on the Company's Leverage Ratio.

The Applicable Margin on ABR loans ranges between 1.00 % and 2.00 %.

The Applicable Margin for Adjusted LIBO, EURIBO and CDOR loans ranges between 1.625 % and 2.625 % and the Applicable Margin for Canadian Prime Rate loans ranges between 2.125 % and 3.125 % .

The Applicable Margin for Adjusted LIBO, Adjusted EURIBOR and CDOR loans ranges between 2.00 % and 3.00 % and the Applicable Margin for Canadian Prime Rate loans ranges between 2.50 % and 3.50 %.

The unused credit facility fee is between 0.35 % and 0.50 % based on the Leverage Ratio.

The Credit Agreement includes a Leverage Ratio covenant, which provides that Consolidated Funded Indebtedness, as of the end of any fiscal quarter, may not exceed 3.0 times Consolidated EBITDA, as defined in the Credit Agreement, or "Covenant EBITDA," over the previous four quarters.

For the four quarters ended March 31, 2020 , Covenant EBITDA was $ 64.4 million .

Consolidated Funded Indebtedness at March 31, 2020 was $ 64.2 million .

Availability under the senior secured revolving credit facility at March 31, 2020 was as follows:

Covenants and limitations under the Credit Agreement are effective for the quarter ended September 30, 2020 and include the following:

• Our Leverage Ratio, determined as of the end of each fiscal quarter, may not exceed 3.00 to 1.00 .

The Leverage Ratio covenant requires that Consolidated Funded Indebtedness, as defined in the Credit Agreement, as of the end of any fiscal quarter, may not exceed 3.0 times Consolidated EBITDA, as defined in the Credit Agreement, or "Covenant EBITDA," over the previous four quarters.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

• We are required to maintain a Fixed Charge Coverage Ratio ("FCCR"), determined as of the end of each fiscal quarter, greater than or equal to 1.25 to 1.00 .

The FCCR is calculated as follows:

◦ If no borrowings are outstanding at quarter end, then the FCCR covenant requires that, as of the end of any fiscal quarter, Covenant EBITDA, after deducting capital expenditures and dividends for the previous four quarters, may not be less than 1.25 times the total of interest expense and cash paid for income taxes over the previous four quarters plus scheduled maturities of certain indebtedness for the next four quarters.

◦ If borrowings are outstanding at quarter end:

▪ for the fiscal quarters ending September 30, 2020 through June 30, 2021, Covenant EBITDA, after deducting capital expenditures, dividends, and share repurchases in excess of $ 7.5 million for the previous four quarters, may not be less than 1.25 times the total of interest expense and cash paid for income taxes over the previous four quarters plus scheduled maturities of certain indebtedness for the next four quarters.

▪ for all fiscal quarters ending on or after September 30, 2021, the FCCR is calculated the same except that all share repurchases for the previous four quarters are deducted from Covenant EBITDA.

• Asset dispositions (other than dispositions in which all of the net cash proceeds therefrom are reinvested into the Company and dispositions of inventory and obsolete or unneeded equipment in the ordinary course of business) are limited to $ 20.0 million per 12-month period.

• Share repurchases are limited to $ 30.0 million per calendar year.

As of September 30, 2020, the Company is in compliance with all affirmative, negative, and financial covenants under the Credit Agreement.

Availability at September 30, 2020 under the senior secured revolving credit facility established under the Prior Credit Agreement was as follows:

September 30,

2020 June 30,

(In thousands)

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Availability under the senior secured revolving credit facility $ 51,716 $ 93,399

At March 31, 2020 , the Company was in compliance with all affirmative, negative, and financial covenants under the Credit Agreement.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Availability under the new $200.0 million senior secured revolving credit facility at September 30, 2020 would have been the same if the Credit Agreement had been in place on such date due to the capacity constraint.

Note 6 – Income Taxes

Coronavirus Aid, Relief, and Economic Security Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the "CARES Act") was signed into law.

The purpose of the CARES Act was to provide $ 2.2 trillion in funding to fight the COVID-19 pandemic and provide economic relief in the form of tax relief, government loans and grants.

The CARES Act contains the following key provisions which affect income taxes:

Eliminates the 80 % of taxable income limitations by allowing corporations to fully utilize net operating loss carryforwards to offset taxable income in 2018, 2019, or 2020 and reinstating it for tax years after 2020;

Allows net operating losses generated in 2018, 2019 or 2020 to be carried back five years;

Increases the net interest expense deduction limit to 50 % of adjusted taxable income from 30 % for the 2019 and 2020 tax years;

Allows taxpayers with alternative minimum tax credits to claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cuts and Jobs Act;

Allows entities to deduct more of their charitable cash contributions made during calendar year 2020 by increasing the taxable income limitation to 25 % from 10 % .

The income tax provisions in the CARES Act have not had a material impact on the Company as of March 31, 2020.

Effective Tax Rate

Our effective tax rates for the three and nine months ended March 31, 2020 were 16.9 % and 5.9 % , respectively.

The tax benefit for the three months ended March 31, 2020 was negatively impacted by higher than normal non-deductible expenses.

The tax benefit for the nine months ended March 31, 2020 was negatively impacted by a $ 2.5 million valuation allowance placed on a deferred tax asset that was created by net operating loss carryforwards and other tax credits in Canada and by the non-deductible portion of the goodwill impairments booked in the second quarter of fiscal 2020.

Our effective tax rates for the three months ended September 30, 2020 and September 30, 2019 were ( 9.8 )% and 30.6 %, respectively.

We expect our effective tax rate to be approximately 27.0 % in fiscal 2021.

The effective tax rate for the three months ended September 30, 2020 was negatively impacted by a $ 1.0 million deferred tax asset adjustment.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Deferred Payroll Taxes

The Company has deferred $ 7.4 million of U.S.

payroll tax as of September 30, 2020 through provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the "CARES Act").

The deferred payroll taxes are included within other liabilities in the consolidated balance sheets.

The Company must repay half of the deferred payroll tax by December 31, 2021 and the remainder by December 31, 2022.

Note 7 – Commitments and Contingencies

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Unpriced Change Orders and Claims

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $ 10.8 million at March 31, 2020 and $ 10.1 million at June 30, 2019 .

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $ 13.9 million at September 30, 2020 and $ 14.5 million at June 30, 2020.

Generally, collection of amounts related to unpriced change orders and claims is expected within twelve months.

However, since customers may not pay these amounts until final resolution of related claims, collection of these amounts may extend beyond one year.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

During the third quarter, the Company commenced litigation in an effort to collect $ 16.5 million in accounts receivable from an iron and steel customer following the deterioration of the relationship in the second quarter.

Based on the terms of the contract with this customer, the Company is entitled to collect the full amount owed under the contract.

However, the timing of collection is uncertain.

During the third quarter of fiscal 2020, the Company commenced litigation in an effort to collect $ 17.8 million in accounts receivable from an iron and steel customer following the deterioration of the relationship in the second quarter of fiscal 2020.

Litigation is unpredictable, however, based on the terms of the contract with this customer, the Company is entitled to collect the full amount owed under the contract.

The Company and its subsidiaries are participants in various legal actions.

It is the opinion of management that none of the other known legal actions, including a contract dispute with a customer involving the construction of a crude terminal, will have a material impact on the Company’s financial position, results of operations or liquidity.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Note 8 – Earnings per Common Share

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

2020 September 30,

(In thousands, except per share data)

9 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

2020 September 30,

(In thousands)

5 unchanged sentences

Note 9 – Segment Information

We operate our business through four reportable segments:

Electrical Infrastructure;

Oil Gas & Chemical;

Storage Solutions;

and Industrial.

The Electrical Infrastructure segment consists of power delivery services provided to investor owned utilities, including construction of new substations, upgrades of existing substations, short-run transmission line installations, distribution upgrades and maintenance, as well as emergency and storm restoration services.

We also provide construction and maintenance services to a variety of power generation facilities, such as combined cycle plants and other natural gas fired power stations.

The Oil Gas & Chemical segment serves customers primarily in the downstream and midstream petroleum industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas and natural gas liquids.

We also perform work in the petrochemical, upstream petroleum, and sulfur extraction, recovery and processing markets.

Our services include plant maintenance, turnarounds, engineering and capital construction.

We also offer industrial cleaning services, including hydro-blasting, hydro-excavating, advanced chemical cleaning and vacuum services.

The Storage Solutions segment consists of work related to aboveground storage tanks ("AST") and terminals.

Also included in this segment are cryogenic and other specialty storage tanks and terminals including liquefied natural gas, liquid nitrogen/liquid oxygen, liquid petroleum and other specialty vessels such as spheres as well as marine structures and truck and rail loading/offloading facilities.

Our services include engineering, fabrication and construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals.

Finally, we offer AST products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

The Industrial segment consists of work for various industries, including major mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and various industrial facilities.

Our services include engineering, fabrication and construction, and maintenance and repair, which includes planned and emergency services.

We also design instrumentation and control systems and offer specialized expertise in the design and construction of bulk material handling systems.

Change in Reportable Segments

The new reportable segments along with a description of each are as follows:

• Utility and Power Infrastructure :

• Process and Industrial Facilities :

The Company's services include plant maintenance, turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.

• Storage and Terminal Solutions :

consists of work related to aboveground storage tanks and terminals.

The Company's services include engineering, fabrication, construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals.

Finally, the Company offers tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

All prior period segment information has been restated to conform with our new reportable segments.

The Company evaluates performance and allocates resources based on operating income.

The accounting policies of the reportable segments are the same as those described in the Summary of Significant Accounting Policies footnote included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019 and in Note 1 of this Quarterly Report on Form 10-Q.

Intersegment sales and transfers are recorded at cost;

therefore, no intersegment profit or loss is recognized.

Segment assets consist primarily of accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, property, plant and equipment, operating lease right-of-use assets, goodwill and other intangible assets.

therefore, no intercompany profit or loss is recognized.

Segment assets consist primarily of accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, property, plant and equipment, right-of-use lease assets, goodwill and other intangible assets.

Matrix Service Company

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Three Months Ended

Nine Months Ended

Gross revenues

Electrical Infrastructure

Oil Gas & Chemical

Storage Solutions

Total gross revenues

Inter-segment revenues

Oil Gas & Chemical

Storage Solutions

Total inter-segment revenues

Consolidated revenues

Electrical Infrastructure

Oil Gas & Chemical

Storage Solutions

Total consolidated revenues

September 30,

2020 September 30,

Gross revenue

Utility and Power Infrastructure $ 60,671 $ 47,727

Process and Industrial Facilities 46,728 155,452

Storage and Terminal Solutions 77,596 136,001

Total gross revenue $ 184,995 $ 339,180

Inter-segment revenue

Process and Industrial Facilities $ 797 $ 575

Storage and Terminal Solutions 1,427 508

Total inter-segment revenue $ 2,224 $ 1,083

Consolidated revenue

Utility and Power Infrastructure $ 60,671 $ 47,727

Process and Industrial Facilities 45,931 154,877

Storage and Terminal Solutions 76,169 135,493

Total consolidated revenue $ 182,771 $ 338,097

Gross profit (loss)

Electrical Infrastructure

Oil Gas & Chemical

Storage Solutions

Utility and Power Infrastructure $ 6,913 $ ( 168 )

Process and Industrial Facilities 3,659 13,590

Storage and Terminal Solutions 3,778 19,742

Corporate — ( 699 )

Total gross profit $ 14,350 $ 32,465

Intangible asset impairments and restructuring costs

Electrical Infrastructure

Oil Gas & Chemical

Storage Solutions

Total intangible asset impairments and restructuring costs

Selling, general and administrative expenses

Utility and Power Infrastructure $ 2,222 $ 2,632

Process and Industrial Facilities 4,050 6,938

Storage and Terminal Solutions 5,143 6,986

Corporate 6,713 7,135

Total selling, general and administrative expenses $ 18,128 $ 23,691

Restructuring costs

Utility and Power Infrastructure $ 11 $ —

Process and Industrial Facilities ( 500 ) —

Storage and Terminal Solutions 13 —

Corporate 156 —

Total restructuring costs $ ( 320 ) $ —

Operating income (loss)

Electrical Infrastructure

Oil Gas & Chemical

Storage Solutions

Utility and Power Infrastructure $ 4,680 $ ( 2,800 )

Process and Industrial Facilities 109 6,652

Storage and Terminal Solutions ( 1,378 ) 12,756

Corporate ( 6,869 ) ( 7,834 )

Total operating income (loss) $ ( 3,458 ) $ 8,774

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Total assets by segment were as follows:

Electrical Infrastructure

Oil Gas & Chemical

Storage Solutions

Unallocated assets

September 30,

2020 June 30,

Utility and Power Infrastructure $ 95,415 $ 67,398

Process and Industrial Facilities 115,056 138,734

Storage and Terminal Solutions 180,667 187,167

Corporate 121,092 124,011

Total segment assets $ 512,230 $ 517,310

Note 10 – Restructuring Costs

In February 2020, the Company announced a business improvement plan related to its strategic initiatives to exit the domestic iron and steel industry and to implement business improvements in the Electrical Infrastructure segment.

Planned activities under the business improvement plan have been expanded due to lower revenue expectations for the remainder of fiscal 2020 and fiscal 2021 following the uncertainties caused by the COVID-19 pandemic and the significant decline in the price of crude oil, both of which began during the third quarter.

The business improvement plan consists of discretionary cost reductions, workforce reductions and closures of certain offices in order to increase the utilization of the Company's staff and bring the cost structure of the business in line with the near-term expectation of lower revenue.

The restructuring costs are primarily comprised of severance and personnel-related costs related to reductions in workforce and impairments of operating lease right-of-use assets and other fixed assets related to the closure of certain office spaces.

The Company incurred $6.6 million of restructuring costs during the three months ended March 31, 2020 and expects to incur an additional $4.0 to $6.0 million of restructuring costs related to activities planned during the fourth quarter of fiscal 2020.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Restructuring costs incurred are classified as follows:

Three Months Ended March 31, 2020

(in thousands)

Electrical Infrastructure

Severance costs and other benefits

Facility costs

Total Electrical Infrastructure

Oil Gas & Chemical

Severance costs and other benefits

Facility costs

Total Oil Gas & Chemical

Storage Solutions

Severance costs and other benefits

Facility costs

Total Storage Solutions

Severance costs and other benefits

Facility costs

Total Industrial

Total restructuring costs

Restructuring Costs by Type:

Total severance costs and other benefits

Total facility costs

Total restructuring costs

The table below is a reconciliation of the beginning and ending restructuring reserve balance (in thousands):

Balance as of December 31, 2019

Restructuring costs incurred

Non-cash restructuring costs (1)

Cash payments

Balance as of March 31, 2020

Non-cash restructuring costs consisted of impairments of operating lease right-of-use assets and other fixed asset impairments related to the closure of certain leased office spaces.

During the second half of fiscal 2020, the Company implemented a business improvement plan related to:

• its strategic initiative to exit the domestic iron and steel industry;

• the implementation of business improvements in the power delivery portion of the Utility and Power Infrastructure segment;

• the reduction of its cost structure following the decline in revenue caused by the COVID-19 pandemic and related market disruption and the decline in the price of crude oil.

The business improvement plan consisted of discretionary cost reductions, workforce reductions and closures of certain offices in order to increase the utilization of the Company's staff and bring the cost structure of the business in line with the expected near-term decrease in revenue.

The Company incurred $ 14.0 million of restructuring costs during fiscal 2020 and substantially completed its restructuring activities under the business improvement plan.

However, the Company recognized a $0.3 million gain on restructuring activities during the three months ended September 30, 2020 as a result of various trailing restructuring expenses and credits.

The restructuring reserve was $ 0.9 million as of September 30, 2020, which primarily relates to the unpaid portion of severance costs.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements