What changed in this filing

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Item 1. Financial Statements

2021-11-09 compared with 2021-05-10 · 178 added, 261 removed, 361 unchanged (55% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended Nine Months Ended

2021 March 31,

2020 March 31,

2021 March 31,

Three Months Ended

September 30,

2021 September 30,

Revenue $ 168,093 $ 182,771

Cost of revenue 171,601 168,421

Gross profit 1,560 20,477 31,223 82,943

Gross profit (loss) ( 3,508 ) 14,350

Selling, general and administrative expenses 16,629 18,128

Goodwill and other intangible asset impairments — — — 38,515

Restructuring costs 605 ( 320 )

1 unchanged sentence

Other income (expense):

Interest expense ( 322 ) ( 398 ) ( 1,055 ) ( 1,231 )

Interest expense (Note 5) ( 1,999 ) ( 375 )

Interest income 21 33

1 unchanged sentence

Loss before income tax benefit ( 22,803 ) ( 2,767 )

Benefit from federal, state and foreign income taxes ( 5,060 ) ( 1,114 ) ( 6,002 ) ( 1,705 )

Provision (benefit) from federal, state and foreign income taxes ( 5,265 ) 270

Net loss $ ( 17,538 ) $ ( 3,037 )

8 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

2021 March 31,

2020 March 31,

2021 March 31,

Three Months Ended

September 30,

2021 September 30,

Net loss $ ( 17,538 ) $ ( 3,037 )

Other comprehensive income (loss), net of tax:

Foreign currency translation gain (loss) (net of tax expense (benefit) of ($33) and $20 for the three and nine months ended March 31, 2021, respectively, and ($51) and ($14) for the three and nine months ended March 31, 2020, respectively) 68 ( 1,104 ) 1,291 ( 975 )

Foreign currency translation gain (loss) (net of tax expense of $54 and $12 for the three months ended September 30, 2021 and 2020, respectively ( 795 ) 404

Comprehensive loss $ ( 18,333 ) $ ( 2,633 )

3 unchanged sentences

(In thousands)

September 30,

2021 June 30,

Current assets:

Cash and cash equivalents $ 73,751 $ 100,036

Accounts receivable, less allowances (March 31, 2021—$856 and June 30, 2020—$905) 158,099 160,671

Cash and cash equivalents (Note 1) $ 34,678 $ 83,878

Restricted cash (Note 1) 2,600 —

Accounts receivable, less allowances (September 30, 2021—$586 and June 30, 2021—$898) 144,892 148,030

Costs and estimated earnings in excess of billings on uncompleted contracts 33,766 30,774

12 unchanged sentences

Property, plant and equipment - net 65,798 69,407

Restricted cash, non-current (Note 1) 25,000 —

Operating lease right-of-use assets 21,515 22,412

2 unchanged sentences

Deferred income taxes 10,687 5,295

Other assets 11,048 4,833

Other assets, non-current 10,368 11,973

Total assets $ 450,277 $ 467,556

3 unchanged sentences

(In thousands, except share data)

September 30,

2021 June 30,

10 unchanged sentences

Operating lease liabilities 19,951 20,771

Borrowings under senior secured revolving credit facility — 9,208

Other liabilities 7,897 4,208

Other liabilities, non-current 7,722 7,810

Total liabilities 181,979 182,017

3 unchanged sentences

60,000,000 shares authorized;

27,888,217 shares issued as of March 31, 2021 and June 30, 2020;

26,519,217 and 26,141,528 shares outstanding as of March 31, 2021 and June 30, 2020 279 279

27,888,217 shares issued as of September 30, 2021 and June 30, 2021;

26,697,028 and 26,549,438 shares outstanding as of September 30, 2021 and June 30, 2021 279 279

Additional paid-in capital 135,308 137,575

2 unchanged sentences

285,683 306,283

Treasury stock, at cost — 1,369,000 shares as of March 31, 2021, and 1,746,689 shares as of June 30, 2020 ( 21,280 ) ( 29,385 )

Treasury stock, at cost — 1,191,189 shares as of September 30, 2021, and 1,338,779 shares as of June 30, 2021 ( 17,385 ) ( 20,744 )

Total stockholders' equity 268,298 285,539

4 unchanged sentences

(In thousands)

Nine Months Ended

2021 March 31,

Three Months Ended

September 30,

2021 September 30,

Operating activities:

Net loss $ ( 17,538 ) $ ( 3,037 )

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

Adjustments to reconcile net loss to net cash used by operating activities:

Depreciation and amortization 4,052 4,639

Goodwill and other intangible asset impairment — 38,515

Stock-based compensation expense 1,869 2,218

3 unchanged sentences

Provision for uncollectible accounts 4 ( 64 )

Other 317 ( 110 )

Accelerated amortization of deferred debt amendment fees (Note 5) 1,518 —

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

6 unchanged sentences

Accrued expenses ( 1,112 ) 3,646

Net cash provided (used) by operating activities ( 13,212 ) 31,487

Net cash used by operating activities ( 19,153 ) ( 15,020 )

Investing activities:

6 unchanged sentences

(In thousands)

Nine Months Ended

2021 March 31,

Three Months Ended

September 30,

2021 September 30,

Financing activities:

Advances under senior secured revolving credit facility $ 1,125 $ 18,567

Repayments of advances under senior secured revolving credit facility ( 10,913 ) ( 14,357 )

Payment of debt amendment fees $ ( 922 ) $ —

Open market purchase of treasury shares — ( 17,045 )

Issuances of common stock 92 —

Proceeds from issuance of common stock under employee stock purchase plan 76 82

Repurchase of common stock for payment of statutory taxes due on equity-based compensation ( 853 ) ( 1,536 )

Repayment of principal portion of long-term liability ( 236 ) —

Other ( 118 ) —

Net cash used by financing activities ( 1,817 ) ( 1,454 )

Effect of exchange rate changes on cash and cash equivalents 1,220 ( 958 )

Decrease in cash and cash equivalents ( 26,285 ) ( 2,212 )

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

Cash and cash equivalents, end of period $ 73,751 $ 87,503

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 514 ) 316

Decrease in cash, cash equivalents and restricted cash ( 21,600 ) ( 17,861 )

Cash, cash equivalents and restricted cash, beginning of period (Note 1) 83,878 100,036

Cash, cash equivalents and restricted cash, end of period (Note 1) $ 62,278 $ 82,175

Supplemental disclosure of cash flow information:

1 unchanged sentence

Income taxes $ — $ 122

Interest $ 1,404 $ 1,535

Interest, including payment of debt amendment fees $ 1,603 $ 470

Non-cash investing and financing activities:

9 unchanged sentences

Comprehensive

Income(Loss) Total

Balances, January 1, 2021 $ 279 $ 133,957 $ 198,774 $ ( 21,571 ) $ ( 7,150 ) $ 304,289

Net loss — — ( 12,873 ) — — ( 12,873 )

Other comprehensive income — — — — 68 68

Exercise of stock options (9,000 shares) — ( 68 ) — 160 — 92

Issuance of deferred shares (900 shares) — ( 16 ) — 16 — —

Treasury shares sold to Employee Stock Purchase Plan (6,785 shares) — ( 45 ) — 120 — 75

Treasury shares purchased to satisfy tax withholding obligations (428 shares) — — — ( 5 ) — ( 5 )

Stock-based compensation expense — 2,214 — — — 2,214

Balances, March 31, 2021 $ 279 $ 136,042 $ 185,901 $ ( 21,280 ) $ ( 7,082 ) $ 293,860

Balances, January 1, 2020 $ 279 $ 135,057 $ 217,619 $ ( 22,538 ) $ ( 7,622 ) $ 322,795

Balances, July 1, 2021 $ 279 $ 137,575 $ 175,178 $ ( 20,744 ) $ ( 6,749 ) $ 285,539

Net loss — — ( 17,538 ) — — ( 17,538 )

2 unchanged sentences

Treasury shares sold to Employee Stock Purchase Plan (7,209 shares) — ( 52 ) — 128 — 76

Open market purchase of treasury shares (547,606 shares) — — — ( 7,132 ) — ( 7,132 )

Treasury shares purchased to satisfy tax withholding obligations (76,703 shares) — — — ( 853 ) — ( 853 )

Stock-based compensation expense — 1,869 — — — 1,869

Balances, March 31, 2020 $ 279 $ 137,306 $ 212,124 $ ( 29,557 ) $ ( 8,726 ) $ 311,426

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, September 30, 2021 $ 279 $ 135,308 $ 157,640 $ ( 17,385 ) $ ( 7,544 ) $ 268,298

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

1 unchanged sentence

Other comprehensive income — — — — 404 404

Exercise of stock options (9,000 shares) — ( 68 ) — 160 — 92

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

2 unchanged sentences

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

Balances, March 31, 2021 $ 279 $ 136,042 $ 185,901 $ ( 21,280 ) $ ( 7,082 ) $ 293,860

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

Net loss — — ( 27,352 ) — — ( 27,352 )

Other comprehensive loss — — — — ( 975 ) ( 975 )

Issuance of deferred shares (539,710 shares) — ( 8,563 ) — 8,563 — —

Treasury shares sold to Employee Stock Purchase Plan (12,326 shares) — 42 — 201 — 243

Open market purchase of treasury shares (1,047,606 shares) — — — ( 17,045 ) — ( 17,045 )

Treasury shares purchased to satisfy tax withholding obligations (180,278 shares) — — — ( 3,517 ) — ( 3,517 )

Stock-based compensation expense — 8,115 — — — 8,115

Balances, March 31, 2020 $ 279 $ 137,306 $ 212,124 $ ( 29,557 ) $ ( 8,726 ) $ 311,426

See accompanying notes.

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

Matrix Service Company

7 unchanged sentences

The information furnished reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair statement of the results of operations, cash flows and financial position for the interim periods presented.

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, 2021 may not necessarily be indicative of the results of operations for the full year ending June 30, 2021.

The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2021, included in our Annual Report on Form 10-K for the year then ended.

The results of operations for the three month period ended September 30, 2021 may not necessarily be indicative of the results of operations for the full year ending June 30, 2022.

Significant Accounting Policies

The Company has updated its significant accounting policies 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.

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 statement of income 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 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 amounts.

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 configuration, 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, hydrogen 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.

We updated our significant accounting policies as a result of entering into an asset-backed credit agreement (the "ABL Facility"), which requires us to maintain a restricted cash balance (See Note 5 - Debt for more information about the ABL Facility).

Our 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, 2021.

Cash, Cash Equivalents and Restricted Cash

The ABL Facility requires us to maintain a minimum of $25.0 million of restricted cash at all times.

Since this cash must be restricted through the maturity date of the ABL Facility, which is beyond one year, we have classified this restricted cash as non-current in our Condensed Consolidated Balance Sheets.

In addition, we must maintain a restricted cash balance of $2.6 million in support of the purchase card program that is associated with our prior card administrator.

We have included this restricted cash in current assets in our Condensed Consolidated Balance Sheets since we expect to dissolve the prior purchase card program during fiscal 2022.

The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Condensed Consolidated Balance Sheets to the total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows (in thousands):

September 30,

2021 June 30,

Cash and cash equivalents $ 34,678 $ 83,878

Restricted cash, current 2,600 —

Restricted cash, non-current 25,000 —

Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows $ 62,278 $ 83,878

Note 2 – Revenue

Remaining Performance Obligations

The Company had $ 444.5 million of remaining performance obligations yet to be satisfied as of March 31, 2021 .

The Company expects to recognize $ 340.8 million of its remaining performance obligations as revenue within the next twelve months.

We had $ 365.4 million of remaining performance obligations yet to be satisfied as of September 30, 2021 .

We expect to recognize $ 302.2 million of our remaining performance obligations as revenue within the next twelve months.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Contract Balances

7 unchanged sentences

The following table provides information about CIE and BIE:

September 30,

2021 June 30,

3 unchanged sentences

Net contract liabilities $ ( 17,207 ) $ ( 23,058 ) $ 5,851

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, 2021 that was included in the June 30, 2020 BIE balance was $ 57.9 million.

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

The amount of revenue recognized during the three months ended September 30, 2021 that was included in the June 30, 2021 BIE balance was $ 44.3 million.

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

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Progress billings in accounts receivable at March 31, 2021 and June 30, 2020 included retentions to be collected within one year of $ 20.7 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 March 31, 2021 and $ 1.6 million as of June 30, 2020.

Progress billings in accounts receivable at September 30, 2021 and June 30, 2021 included retentions to be collected within one year of $ 12.8 million and $ 19.9 million, respectively.

Contract retentions collectible beyond one year are included in other assets, non-current in the Condensed Consolidated Balance Sheet and totaled $ 2.6 million as of September 30, 2021 and $ 3.1 million as of June 30, 2021.

Disaggregated Revenue

2 unchanged sentences

Geographic Disaggregation:

Three Months Ended Nine Months Ended

2021 March 31,

2020 March 31,

2021 March 31,

Three Months Ended

September 30,

2021 September 30,

(In thousands)

4 unchanged sentences

Contract Type Disaggregation:

Three Months Ended Nine Months Ended

2021 March 31,

2020 March 31,

2021 March 31,

Three Months Ended

September 30,

2021 September 30,

(In thousands)

2 unchanged sentences

Total Revenue $ 168,093 $ 182,771

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.

Our results of operations were materially impacted by an increase in the forecasted costs to complete a large capital project in the Utility and Power Infrastructure segment, which resulted in a decrease in gross profit of $ 8.9 million in the three and nine months ended March 31, 2021.

The change in estimate was due to lower than previously forecasted productivity caused by excessive rain at the project site, the continuing impact of COVID-19, and rework which led to higher costs and some schedule compression.

The profit on future revenue related to this project will be recognized based on the current project forecast, which is at a reduced gross profit margin.

During the third quarter, the Company achieved mechanical completion of a large crude oil terminal project, demobilized from the project site and completed its assessment of additional recovery of unpriced change orders.

The project's financial impact for the nine months ended March 31, 2021 was a $ 3.8 million reduction to gross profit.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Typically, we assume 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.

Our results of operations were materially impacted by an increase in the forecasted costs to complete a large capital project in the Utility and Power Infrastructure segment, which resulted in a decrease in gross profit of $ 5.9 million in the three months ended September 30, 2021.

The change in estimate was principally due to unexpected equipment repairs during commissioning that delayed the scheduled completion and increased the estimated costs to complete.

We achieved a critical performance milestone in the second quarter of fiscal 2022, which significantly reduced our financial exposure.

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 95 % of all right-of-use assets as of March 31, 2021 .

We enter into lease arrangements for real estate, construction equipment and information technology equipment in the normal course of business.

Real estate leases accounted for approximately 93 % of all right-of-use assets as of September 30, 2021 .

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 14 years.

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

During the nine months ended March 31, 2021, the Company recognized $ 0.5 million of impairments of right-of-use assets in connection with the closure of leased office space.

The impairments are included in restructuring costs in the condensed consolidated statements of income.

The components of lease expense in the Condensed Consolidated Statements of Income are as follows:

Three Months Ended Nine Months Ended

March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020

Three Months Ended

September 30, 2021 September 30, 2020

Lease expense Location of Expense (in thousands)

4 unchanged sentences

(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.

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, 2021

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

September 30, 2021

Maturity Analysis:

11 unchanged sentences

Non-current operating lease liabilities $ 19,951

The following is a summary of the weighted average remaining operating lease term and weighted average discount rate as of March 31, 2021 :

Weighted-average remaining lease term (in years) 7.4 years

Weighted-average discount rate 5.4 %

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

The following is a summary of the weighted average remaining operating lease term and weighted average discount rate as of September 30, 2021 :

Weighted-average remaining lease term (in years) 7.2 years

Weighted-average discount rate 5.2 %

Supplemental cash flow information related to leases is as follows:

Nine Months Ended

March 31, 2021

Three Months Ended

September 30, 2021

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 8,072

Operating lease payments $ 2,188

Right-of-use assets obtained in exchange for lease liabilities:

7 unchanged sentences

( 30 ) ( 8 ) ( 58 ) ( 96 )

Net balance at March 31, 2021 $ 6,975 $ 26,873 $ 26,757 $ 60,605

Net balance at September 30, 2021 $ 6,954 $ 26,870 $ 26,716 $ 60,540

(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 as of May 31st.

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 and the timing of the economic recovery in certain energy markets, the Company concluded, that based on the totality of both positive and negative factors, no impairment indicators existed at March 31, 2021.

However, if customer spending levels do not improve or if the outlook in certain key markets deteriorates, the Company may need to recognize an impairment in conjunction with the annual test in the fourth quarter.

We test our goodwill for impairment annually as of May 31st.

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 and the timing of the economic recovery in certain energy markets, we concluded, that based on the totality of both positive and negative factors, no impairment indicators existed at September 30, 2021.

However, if customer spending levels do not improve or if the outlook in certain key markets deteriorates, we may need to perform an interim goodwill impairment test, which could result in an impairment.

Other Intangible Assets

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

At March 31, 2021

At September 30, 2021

Useful Life Gross Carrying

15 unchanged sentences

Total amortizing intangible assets $ 19,837 $ ( 13,223 ) $ 6,614

Amortization expense totaled $ 0.6 million and $ 1.7 million during the three and nine months ended March 31, 2021 and $ 0.8 million and $ 2.7 million during the three and nine months ended March 31, 2020, respectively.

We estimate that the remaining amortization expense related to March 31, 2021 amortizing intangible assets will be as follows (in thousands):

Amortization expense totaled $ 0.5 million and $ 0.6 million during the three months ended September 30, 2021 and September 30, 2020, respectively.

We estimate that the remaining amortization expense related to September 30, 2021 amortizing intangible assets will be as follows (in thousands):

Period ending:

4 unchanged sentences

Fiscal 2026 555

Fiscal 2026 167

Thereafter 358

Total estimated remaining amortization expense at March 31, 2021 $ 7,181

Total estimated remaining amortization expense at September 30, 2021 $ 6,094

Note 5 – Debt

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.

The Credit Agreement replaced the Fourth Amended and Restated Credit Agreement, 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.

The credit facility includes a U.S.

Dollar equivalent sublimit of $ 75.0 million for revolving loans denominated in Australian Dollars, Canadian Dollars, Euros and Pounds Sterling and letters of credit in Australian Dollars, Euros, and Pounds Sterling.

Each revolving borrowing under the Credit Agreement will bear interest at a rate per annum equal to:

• The ABR or the Adjusted LIBO Rate, in the case of revolving loans denominated in U.S.

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

• 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,

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

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, 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.

Covenants and limitations under the Credit Agreement 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.

• 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, the FCCR is calculated the same except that all share repurchases for the previous four quarters are also 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.

On May 4, 2021, the Company entered into the First Amendment to Fifth Amended and Restated Credit Agreement (the “Amended 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, and the other Lenders party thereto, which amended the Credit Agreement.

The Company entered into the Amended Credit Agreement to obtain temporary relief from the financial covenants due to the continued decline in operating results.

Under the Amended Credit Agreement, the Company will not be required to comply with the Leverage Ratio and FCCR financial covenants for the quarters ending March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021.

The Amended Credit Agreement adds a number of new requirements and restrictions.

During a “Covenant Relief Period” commencing May 4, 2021 and ending on the date on which the Company provides a compliance certificate for the quarter ending March 31, 2022:

• No revolving loans will be made under the credit facility.

• If any new letters of credit are issued during the Covenant Relief Period, the Company will be required to provide cash collateral equal to 50 % of the face value of the letter of credit (or 105 % of the face value of the letter of credit if the aggregate amount of letters of credit outstanding exceeds $ 100 million).

• At all times prior to July 1, 2021, the Company will be required to maintain at least $ 50.0 million of unrestricted cash.

Beginning July 1, 2021, and at all times during the remainder of the Covenant Relief Period, the Company will be required to maintain at least $ 60.0 million of unrestricted cash.

The requirement to maintain unrestricted cash is in addition to any cash which would be required as collateral for any new letters of credit.

• Acquisitions, stock repurchases under the Company’s existing stock buyback program and cash dividends are prohibited.

ABL Credit Facility

On September 9, 2021 , we and our primary U.S.

and Canada operating subsidiaries entered into an asset-backed credit agreement (the "ABL Facility") as borrowers with Bank of Montreal, as Administrative Agent, Swing-Line Lender, a Letter of Credit Issuer and a Lender.

The ABL Facility is guaranteed by substantially all of our remaining U.S.

and Canadian subsidiaries.

The ABL Facility provides for available borrowings of up to $ 100.0 million, which may be increased further by an amount not to exceed $ 15.0 million, subject to certain conditions, including obtaining additional commitments.

The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes.

Our obligations under the ABL Facility are secured by a first lien on all our assets and the assets of our co-borrowers and guarantors under the ABL Facility.

The maximum amount that we may borrow under the ABL Facility is subject to a borrowing base, which is based on restricted cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced for certain reserves.

We are required to maintain a minimum of $ 25.0 million of restricted cash at all times, but such amounts are also included in the borrowing base.

At September 30, 2021, availability under the ABL Facility was $ 32.1 million and there were $ 43.1 million in letters of credit outstanding.

The ABL Facility matures and any outstanding amounts become due and payable on September 9, 2026 .

Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate equal to any of a base rate (“Base Rate”), Canadian prime rate, CDOR rate or a LIBOR rate, plus an applicable margin.

The Base Rate is defined as a fluctuating interest rate equal to the greatest of (i) rate of interest announced by Bank of Montreal from time to time as its prime rate;

(ii) the U.S.

federal funds rate plus 0.50 %;

(iii) LIBOR rate for one month period plus 1.00 %;

and (iv) 1.00 %.

Depending on the amount of average availability, the applicable margin is between 1.00 % to 1.50 % for either U.S.

Base Rate Loans or Canadian prime rate, and between 2.00 % and 2.50 % for CDOR and LIBOR rate borrowings.

Interest is payable either (i) monthly for Base Rate borrowings or (ii) the last day of the interest period for LIBOR or CDOR rate borrowings, as set forth in the Credit Agreement.

The fee for undrawn amounts is 0.25 % per annum and is due quarterly.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

• Capital expenditures may not exceed $ 2.0 million in any fiscal quarter.

In addition to these provisions, the Amended Credit Agreement requires the Company to generate Covenant EBITDA of at least:

• $ 2.5 million for the fiscal quarter ending June 30, 2021;

• $ 8.0 million for the six months ending September 30, 2021;

• $ 16.5 million for the nine months ending December 31, 2021.

As of March 31, 2021 , the Company had $ 41.4 million in letters of credit issued under the credit facility and no borrowings.

The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that restrict our ability to sell assets, engage in mergers and acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay cash dividends, issue equity instruments, make distribution or redeem or repurchase capital stock.

In the event that our availability is less than the greater of (i) $ 15.0 million and (ii) 15.00 % of the lesser of (1) the current borrowing base and (2) the commitments under the ABL Facility then in effect, a consolidated Fixed Charge Coverage Ratio of at least 1.00 to 1.00 must be maintained.

Senior Secured Revolving Credit Facility

The ABL Facility replaced the Fifth Amended and Restated Credit Agreement (the "Prior Credit Agreement"), that was entered into on November 2, 2020, and subsequently amended on May 4, 2021, by and among us and certain foreign subsidiaries, as Borrowers, various subsidiaries of ours, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, Sole Lead Arranger and Sole Book Runner, and the other Lenders party thereto.

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

We had no borrowings and $ 41.3 million of letters of credit outstanding under the Prior Credit Agreement as of the date we commenced the ABL Facility.

Interest expense during the three months ended September 30, 2021 included $1.5 million of accelerated amortization of deferred debt amendment fees associated with the Prior Credit Agreement.

Note 6 – Income Taxes

Effective Tax Rate

Our effective tax rates for the three and nine months ended March 31, 2021 were 28.2 % and 22.6 %, respectively;

compared to 16.9 % and 5.9 % for the three and nine months ended March 31, 2020, respectively.

Based on the third quarter and full year projected operating results for fiscal 2021, the Company, through provisions in the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), has an income tax benefit from the ability to carryback the fiscal 2021 federal net operating loss five years.

$ 3.2 million of this benefit impacts the effective rate for the third quarter and is a result of the statutory federal income tax rate differential between the current and carryback years.

The effective rate during the quarter was negatively impacted by $ 1.9 million of valuation allowances on certain deferred tax assets.

In prior quarters this fiscal year, the Company recorded $ 1.2 million of other discrete deferred tax asset adjustments, which negatively impacted the effective rate for the nine months ended March 31, 2021.

The Company estimates that it will receive a $ 7.8 million tax refund in connection with the carryback of the projected fiscal 2021 net operating loss, which is included in income taxes receivable in the condensed consolidated balance sheets.

Our effective tax rates were 23.1 % and ( 9.8 )% for the three months ended September 30, 2021 and September 30, 2020, respectively.

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

Net Operating Loss Carryback and Refund of Prior Years Overpayment

Through provisions in the CARES Act, we had income tax benefits of $ 5.2 million during fiscal 2021 and $ 0.3 million during the three months ended September 30, 2021 from the ability to carryback the fiscal 2021 federal net operating loss to a period with a higher statutory federal income tax rate.

We estimate that we will receive a $ 13.6 million tax refund in connection with this carryback, which is included in income taxes receivable in the Condensed Consolidated Balance Sheets.

In addition, we expect to receive a $ 2.4 million tax refund in connection with overpayments from prior years, which is included in income taxes receivable in the Condensed Consolidated Balance Sheets.

Deferred Payroll Taxes

The Company has deferred $ 11.1 million of U.S.

payroll tax as of March 31, 2021 through provisions of CARES Act.

The deferred payroll taxes are included within other accrued expenses and 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.

We have deferred $ 11.1 million of U.S.

payroll tax as of September 30, 2021 through provisions of CARES Act.

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

The current portion of deferred payroll taxes is included within accrued wages and benefits and the non-current portion is included within other liabilities, non-current in the Condensed Consolidated Balance Sheets.

Note 7 – Commitments and Contingencies

Insurance Reserves

The Company maintains insurance coverage for various aspects of its operations.

We maintain insurance coverage for various aspects of its operations.

However, exposure to potential losses is retained through the use of deductibles, self-insured retentions and coverage limits.

Typically, our contracts require us to indemnify our customers for injury, damage or loss arising from the performance of our services and provide warranties for materials and workmanship.

The Company may also be required to name the customer as an additional insured up to the limits of insurance available, or we may be required to purchase special insurance policies or surety bonds for specific customers or provide letters of credit in lieu of bonds to satisfy performance and financial guarantees on some projects.

Matrix maintains a performance and payment bonding line sufficient to support the business.

The Company generally requires its subcontractors to indemnify the Company and the Company’s customer and name the Company as an additional insured for activities arising out of the subcontractors’ work.

We also require certain subcontractors to provide additional insurance policies, including surety bonds in favor of the Company, to secure the subcontractors’ work or as required by the subcontract.

There can be no assurance that our insurance and the additional insurance coverage provided by our subcontractors will fully protect us against a valid claim or loss under the contracts with our customers.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Typically, our contracts require us to indemnify our customers for injury, damage or loss arising from the performance of our services and provide warranties for materials and workmanship.

We may also be required to name the customer as an additional insured up to the limits of insurance available, or we may be required to purchase special insurance policies or surety bonds for specific customers or provide letters of credit in lieu of bonds to satisfy performance and financial guarantees on some projects.

We maintain a performance and payment bonding line sufficient to support the business.

We generally require our subcontractors to indemnify us and our customer and name us as an additional insured for activities arising out of the subcontractors’ work.

We also require certain subcontractors to provide additional insurance policies, including surety bonds in favor of us, to secure the subcontractors’ work or as required by the subcontract.

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 $ 16.6 million at March 31, 2021 and $ 14.5 million at June 30, 2020.

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $ 15.3 million at September 30, 2021 and $ 14.6 million at June 30, 2021.

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.

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

The unpaid receivable balance at March 31, 2021 was $ 17.0 million.

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.

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

The unpaid receivable balance at September 30, 2021 was $ 17.0 million.

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

We and our 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 our financial position, results of operations or liquidity.

Note 8 – Earnings per Common Share

3 unchanged sentences

The computation of basic and diluted earnings per share is as follows:

Three Months Ended Nine Months Ended

2021 March 31,

2020 March 31,

2021 March 31,

Three Months Ended

September 30,

2021 September 30,

(In thousands, except per share data)

7 unchanged sentences

Note 9 – Segment Information

Change in Reportable Segments

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

We report our results of operations through three reportable segments:

Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions.

• Utility and Power Infrastructure :

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

We also provide construction and maintenance services to a variety of power generation facilities, including natural gas fired facilities in simple or combined cycle configuration, and provide engineering, fabrication, and construction services for LNG utility peak shaving facilities.

• Process and Industrial Facilities :

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

We also serve 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.

Our 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.

Intersegment sales and transfers are recorded at cost;

We also include work related to cryogenic and other specialty storage tanks and terminals, including LNG, liquid nitrogen/liquid oxygen, liquid petroleum, hydrogen and other specialty vessels such as spheres in this segment, as well as work related to marine structures and truck and rail loading/offloading facilities.

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

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

We evaluate performance and allocate resources based on operating income.

We record intersegment sales and transfers at cost;

therefore, no intercompany profit or loss is recognized.

In addition, corporate selling, general and administrative expenses are reported separately from the three reportable segments.

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.

3 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

2021 March 31,

2020 March 31,

2021 March 31,

Three Months Ended

September 30,

2021 September 30,

Gross revenue

17 unchanged sentences

Corporate ( 685 ) —

Total gross profit $ 1,560 $ 20,477 $ 31,223 $ 82,943

Total gross profit (loss) $ ( 3,508 ) $ 14,350

Selling, general and administrative expenses

4 unchanged sentences

Total selling, general and administrative expenses $ 16,629 $ 18,128

Intangible asset impairments and restructuring costs

Restructuring costs

Utility and Power Infrastructure $ 9 $ 11

2 unchanged sentences

Corporate 622 156

Total asset impairments and restructuring costs $ 1,860 $ 6,559 $ 6,585 $ 45,074

Total restructuring costs $ 605 $ ( 320 )

Operating income (loss)

7 unchanged sentences

Total assets by segment were as follows:

September 30,

2021 June 30,

5 unchanged sentences

Note 10 – Restructuring Costs

During the third quarter of fiscal 2020, the Company initiated a business improvement plan to increase profitability and reduce its cost structure 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 decline in revenue caused by the ongoing effects of the COVID-19 pandemic and related market disruptions.

The business improvement plan consists of discretionary cost reductions, workforce reductions, reduction of capital expenditures and the reduction in size or closure 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 revenue volumes.

The Company incurred $ 14.0 million of restructuring costs during fiscal 2020 and $6.6 million during the nine months ended March 31, 2021.

The restructuring costs consist primarily of severance costs, facility closure costs, intangible asset impairments and other liabilities as a result of exiting certain operations.

The Company will continue to assess whether further reductions in its cost structure are necessary and may incur additional restructuring costs in the near-term.

In fiscal 2020, we initiated a business improvement plan to increase profitability and reduce our cost structure due to our strategic initiative to exit the domestic iron and steel industry and the decline in revenue caused by the ongoing effects of the COVID-19 pandemic and related market disruptions.

The business improvement plan consists of discretionary cost reductions, workforce reductions, reduction of capital expenditures and the reduction in size or closure of certain offices in order to increase the utilization of our staff and bring the cost structure of the business in line with revenue volumes.

We incurred $0.6 million of restructuring costs during the three months ended September 30, 2021 and $21.4 million of restructuring costs since inception of the plan.

The restructuring costs consist primarily of severance costs, facility closure costs, and other liabilities as a result of exiting certain operations.

We expect to substantially complete this initiative in fiscal 2022.

Matrix Service Company

1 unchanged sentence

Restructuring costs under our business improvement plan are classified as follows:

Three Months Ended Nine Months Ended Since Inception of Business Improvement Plan

March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020

Three Months Ended Since Inception of Business Improvement Plan

September 30, 2021 September 30, 2020

(In thousands)

16 unchanged sentences

Facility costs 16 150 98

Other costs 562 — 562

Total Corporate $ 622 $ 156 $ 1,788

8 unchanged sentences

Balance as of June 30, 2021 $ 2,435

Restructuring costs incurred 3,510

Cash payments ( 272 )

Adjustment to liability ( 510 )

Balance as of March 31, 2021 $ 2,260

Balance as of September 30, 2021 $ 2,192

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