What changed in this filing

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Item 1. Business

2022-10-11 compared with 2021-09-13 · 53 added, 59 removed, 168 unchanged (40% of the section changed)

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These forward-looking statements include, among others, such things as:

• the impact to our business of the COVID-19 pandemic;

• amounts and nature of future project awards, revenue and margins from each of our segments;

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• our ability to comply with the covenants in our credit agreement;

• the impact to our business of changes in crude oil, natural gas and other commodity prices;

• the impact to our business from economic, market or business conditions in general and in the oil, natural gas, power, petrochemical, agricultural and mining industries in particular;

• the impact of inflation on our operating expenses and our business operations;

• the likely impact of new or existing regulations or market forces on the demand for our services;

• the impact to our business of the COVID-19 pandemic and its related disruptions to supply chains, inflation and availability of materials and labor;

• our expectations with respect to the likelihood of a future impairment;

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These statements are based on certain assumptions and analyses we made in light of our experience and our historical trends, current conditions and expected future developments as well as other factors we believe are appropriate.

However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ materially from our expectations many of which are beyond our control, including:

• the risk factors discussed in Item 1A of this Annual Report and listed from time to time in our filings with the Securities and Exchange Commission ("SEC");

• economic, market or business conditions in general (including the length and severity of the COVID-19 pandemic) and in the oil, natural gas, power, petrochemical, agricultural and mining industries in particular;

• economic, market or business conditions in general and in the oil, natural gas, power, petrochemical, agricultural and mining industries in particular;

• the transition to renewable energy sources and its impact on our current customer base;

• the under- or over-utilization of our work force;

• delays in the commencement or progression of major projects, whether due to COVID-19 concerns, permitting issues or other factors;

• reduced creditworthiness of our customer base and the higher risk of non-payment of receivables due to volatility of crude oil, natural gas, and other commodity prices which affect our customers' businesses;

• delays in the commencement or progression of major projects, whether due to permitting issues or other factors;

• reduced creditworthiness of our customer base and the higher risk of non-payment of receivables;

• the inherently uncertain outcome of current and future litigation;

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In 1989, we incorporated in the State of Delaware under the name of Matrix Service Company.

We provide engineering, fabrication, infrastructure, construction, and maintenance services primarily to the oil, natural gas, power, petrochemical, industrial, agricultural, mining and minerals markets.

We also sell products for crude oil and refined product aboveground storage tanks.

We provide engineering, fabrication, construction, and maintenance services to support critical energy infrastructure and industrial markets.

We maintain regional offices throughout the United States, Canada and other international locations, and operate through separate union and merit subsidiaries.

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Our public website is matrixservicecompany.com .

We make available free of charge through the "Investor Relations" section of our website our annual reports to stockholders, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

We make available free of charge through the "Investor Relations" section of our website our annual reports to stockholders, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including exhibits, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Any materials we file with or furnish to the SEC are also maintained on the SEC website ( sec.gov ).

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Investors, the media or other interested parties can subscribe to the Twitter feed at the address listed above.

The information contained in our social media accounts is not incorporated into this Annual Report or other documents we file with, or furnish to, the SEC.

OPERATING SEGMENTS

Due to changing markets facing our clients and to better align our financial reporting 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:

We operate our business through three reportable segments:

• 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.

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.

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

• Process and Industrial Facilities :

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Most of our revenue comes from long-term customer relationships.

One customer individually accounted for $86.7 million or 12.9% of our consolidated revenue in fiscal 2021, all of which was included in the Utility and Power Infrastructure segment.

One customer accounted for $87.2 million or 12.3% of our consolidated revenue in fiscal 2022, which was primarily included in the Process and Industrial Facilities segment.

Another customer accounted for $78.1 million or 11.0% of our consolidated revenue in fiscal 2022, all of which was included in the Utility and Power Infrastructure segment.

No other customers individually accounted for more than 10% of our consolidated revenue in fiscal 2022.

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We compete with local, regional, national and international contractors and service providers.

Competitors vary with the markets we serve with few competitors competing in all of the markets we serve or in all of the services we provide.

Competitors vary with the markets we serve with few competitors competing in all of the markets we serve or in providing all of the services we provide.

Contracts are generally awarded based on price, quality, safety performance, schedule, experience and customer satisfaction.

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Project awards 152,109 412,358 270,212 834,679

Other adjustment (1)

— — (74,219) (74,219)

Revenue recognized (220,093) (254,848) (232,839) (707,780)

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0.7 1.6 1.2 1.2

(1) The other adjustment in the Storage and Terminal Solutions segment was due to a customer's decision not to renew our existing LNTP for a storage tank capital project.

We were paid for all work performed on the project.

This project is still active and we will be required to update pricing when the customer makes its final investment decision, which we expect will occur in fiscal 2022.

(1) Calculated by dividing project awards by revenue recognized.

Due to the impact of the COVID-19 pandemic and the resulting disruption to energy and industrial markets, some of our customers continue to be conservative with their spending levels.

In the Utility and Power Infrastructure segment, performance in the power delivery business continues to be strong on lower revenue.

Bidding activity is strong and we expect project awards to increase.

Similarly, our opportunity pipeline for LNG peak shaving projects is building, however those awards, while significant, can be less frequent.

During the third quarter of fiscal 2021, we received a key contract for an upgrade of an LNG peak shaving facility.

We are optimistic that electrical infrastructure and LNG peak shaving will be critical to the spending priorities of the Biden Administration and lead to increased opportunities in this segment.

In the Process and Industrial Facilities segment, the short-term impact of the global pandemic on our refinery maintenance operations has moderated.

We saw an increase in demand for refinery and maintenance work on existing long-term maintenance contracts with certain customers.

However, other customers continue to delay or reduce discretionary maintenance and capital spending.

In addition, we continue to see strong demand for thermal vacuum chambers, as well as increasing opportunities in mining and minerals and chemicals.

The larger midstream natural gas projects continue to be limited, but we are seeing some activity in smaller capital work.

We are also seeing increasing opportunities in projects that support the ongoing transition to greener energy.

In the Storage and Terminal Solutions segment, opportunities for crude oil tanks and terminals continue to be limited as our customers rationalize the near-term demand for crude oil storage and terminalling, which has been significantly disrupted by the pandemic.

We believe crude oil will continue to play an important role in the global economy for some time and we expect crude oil storage and terminal opportunities to return as the world recovers from the pandemic, however, based on the transition to greener energy, the longer-term demand for crude oil storage is less certain.

This segment also includes a strong funnel of opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, NGLs, and chemical feed stocks.

We are also seeing an increase in inquiries related to renewable energy, especially for hydrogen storage and related facilities.

In the Utility and Power Infrastructure segment, backlog decreased by 40.0% as we booked $152.1 million of project awards in fiscal 2022.

Our opportunity pipeline for LNG peak shaving projects continues to be promising, however those awards, while significant, can be less frequent.

Bidding activity is strong in the power delivery portion of the business.

During fiscal 2022, we received several key contracts for electrical infrastructure services including substation and transmission line rebuilds, relay upgrades, and fiber installation.

In the Process and Industrial Facilities segment, backlog increased by 116.9% as we booked $412.4 million of project awards in fiscal 2022.

Client spending related to refinery maintenance operations has returned to near-normal pre-pandemic levels.

During fiscal 2022, we received key awards for two thermal vacuum chamber projects, a midstream gas processing plant, a borate mining facility, a refinery capital project, and other renewable energy capital projects.

We continue to see strong demand for thermal vacuum chambers in the coming quarters, as well as increasing opportunities in mining and minerals, and chemicals.

In addition, we are seeing more opportunities for midstream gas work, including some larger scale projects.

In the Storage and Terminal Solutions segment, backlog increased by 23.7% as we booked $270.2 million of project awards during fiscal 2022.

This segment includes significant opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, hydrogen, NGLs and other forms of renewable energy.

We believe LNG and hydrogen projects in particular will be key growth drivers for this segment.

Bidding activity on LNG projects has been strong and we have been positioning ourselves for growth in hydrogen by entering into key relationships, such as the signing of a memorandum of understanding ("MOU") with Korea Gas Corporation in August 2022 to support South Korea’s development of a hydrogen economy as it transforms itself from natural gas and the signing of a MOU with Chart Industries, Inc.

in January of 2021 to support the development of hydrogen solutions.

Oil and natural gas producers have remained cautious with capital spending, which has limited opportunities in crude oil tanks and terminals.

However, the price of crude oil and natural gas increased significantly during fiscal 2022, which, if sustained, may lead to higher production volumes and more opportunities for crude oil tanks, terminals and export facilities in the coming quarters.

Project awards in all segments are cyclical and are typically the result of a sales process that can take several months or years to complete.

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Therefore, revenue volume in the summer months is typically lower than in other periods throughout the year.

During fiscal 2021, our operations were significantly impacted by the COVID-19 pandemic, which led to the closure of certain offices, shutdowns of certain job sites and the loss of productivity, among other issues.

Our business can also be affected, both positively and negatively, by seasonal factors such as energy demand or weather conditions including hurricanes, snowstorms, and abnormally low or high temperatures.

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Material Sources and Availability

The ongoing COVID-19 pandemic has resulted in disruptions to global supply chains, which have led to higher prices for some of the materials we need to run our business, including, but not limited to, structural steel, steel piping, rebar, valves, copper, and delivery freight.

The COVID-19 pandemic and increased demand and competition for qualified labor have resulted in disruptions to global supply chains, which have led to higher prices for some of the materials we need to run our business, including, but not limited to, structural steel, steel piping, rebar, valves, copper, electrical components, fabricated products and equipment, and delivery freight.

We have been proactive with managing our procurement processes to help reduce the impacts of rising materials prices on our business and to help ensure we continue to have the materials we need available.

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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.

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 may also be required to name the customer as an additional insured up to the limits of insurance available, to purchase special insurance policies or surety bonds for specific customers or to 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.

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Successful execution of our business strategy is dependent on attracting, developing, and retaining key employees who represent our core values and the communities we serve.

Our people are our greatest resource, which makes our certification in fiscal 2021 as a Great Place To Work® — for the fifth consecutive year — both a point of pride and an invaluable tool for continuous improvement supporting our objective of always being an employer of choice.

Our office-based employee retention rate has consistently been above 90% for the past 5 years.

Our people are our greatest resource, which makes our certification in fiscal 2022 as a Great Place To Work® — for the sixth consecutive year — both a point of pride and an invaluable tool for continuous improvement supporting our objective of remaining an employer of choice.

Given the nature of our work, the size of our employee population can vary significantly throughout the year because of the number, type, and size of projects we have in progress at any particular time.

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2,467 located in the United States, 309 in Canada, and 34 across other international locations.

At the end of fiscal 2021, 48% of our overall workforce and 28% of our management team was represented by women and minorities, and 33% of the independent directors serving on our Board of Directors are female.

At the end of fiscal 2022, 45% of our overall workforce and 28% of our management team was represented by women and minorities.

Recognizing that commitment to Diversity, Equity and Inclusion (DEI) begins at the top, in fiscal 2022, Matrix increased the overall diversity of our Independent Board Members to 43%, with 29% female and 14% ethnically diverse.

The percentage of our employees represented by unions as of June 30, 2022, was approximately 30%.

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This metric is also used by others in our industry, which allows for a more objective comparison of our performance.

In fiscal 2021, our TRIR was 0.28, which represents a record for us and world-class safety performance.

Our commitment to health and safety during the pandemic reached far beyond our employees and included their families, our clients, and our communities.

Relying on our Business Continuity Plan, we took swift, immediate action across our network of offices and on our project sites to help protect our people and those with whom we work.

We provided our clients with our COVID-19 Mitigation Plan and Infectious Disease Response Program, both of which also address supplier requirements, and we worked proactively with our clients to ensure proper protocols were in place and followed.

Our TRIR was 0.51, 0.28, and 0.50 during fiscal years 2022, 2021, and 2020, respectively.

Diversity, Equity, and Inclusion (DEI)

Foundational to attracting, developing, and retaining a diverse, engaged workforce is our commitment to making sure our employees feel safe, know they are valued and that their work matters, and that they are provided opportunities to achieve their maximum potential.

Foundational to attracting, developing, and retaining a diverse, engaged workforce is our commitment to making sure our employees feel safe, know they are valued, that their work matters, and that they are provided opportunities to achieve their maximum potential.

We believe when we value each other’s differences and encourage everyone’s voice to be heard, we can break down the barriers that stifle ideas and opportunities.

In fiscal 2021, we established our employee diversity baseline to identify areas for improvement and help shape our recruiting efforts, succession planning, and professional development.

We sponsored Days of Understanding and other events covering topics such as implicit and unconscious bias, racism and the Tulsa Race Massacre, uncomfortable conversations, LGBTQ+ history and inclusion, and more.

In late fiscal 2021, we also established the framework to support Employee Resource Groups ("ERGs") and, with input from our employees enterprise-wide, identified our first ERGs, which will focus on the following communities:

Asian, Black, Hispanic/Latino, LGBTQ+, Women, and Veterans.

Our ERGs will be designed to foster a diverse and inclusive workplace through employee-led, organic efforts.

In fiscal 2022, we continued to advance and strengthen our culture.

We launched our first Employee Resource Groups (ERGs), creating employee-led pathways for inclusion.

We also continued year-round learning opportunities on unconscious bias and other DEI-specific topics and enhanced our DEI education offering available to all employees through Matrix University.

We strengthened our accountability by increasing the diversity of our independent Board Members based on gender and ethnicity;

establishing our ERG Executive Sponsor Program;

advancing development of an employee survey designed to measure effectiveness of our DEI efforts and setting the framework for data analysis to identify opportunities for improvement.

We also continued our participation in CEO Action for Diversity & Inclusion and participated in a variety of community events including Advancing Oklahoma, a state-wide conversation on race, where Matrix leadership served on the committee that developed comprehensive programming to engage participants in discussions about race and history, the criminal justice system, everyday conversations, education, business, image and attitudes, advocacy, and the future.

Total Rewards Package

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In addition to base salaries, additional programs include incentive and project bonus opportunities, comprehensive healthcare coverage and insurance benefits, Company matched retirement plans, health savings and flexible spending accounts, an Employee Stock Purchase Plan, paid holidays and other paid time off, family leave, and flexible work schedules where possible.

Other offerings include employee assistance programs with 365/24/7 access to resources and help, and Matrix HealthMatters, our robust wellness program that provides resources and education to help employees and their families get and stay healthy, focusing wholistically on physical, mental and financial health.

Other offerings include employee assistance programs with 365/24/7 access to resources and support, and Matrix HealthMatters, our robust wellness program that provides resources and education to help employees and their families get and stay healthy, focusing wholistically on physical, mental and financial health.

Training and Employee Development Programs

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Patents and Proprietary Technology

Our subsidiaries have several patents and patents pending, and continue to pursue new ideas and innovations to better serve our customers in several areas of our business.

Our subsidiaries have several patents and continue to pursue new ideas and innovations to better serve our customers in several areas of our business.

The Flex-A-Span® and Flex-A-Seal® trademarks are utilized to market our unique seals for floating roof tanks.

The FastFroth® trademark is utilized to market our unique industrial cleaning process.

Our patented RS 1000 Tank Mixer controls sludge build-up in crude oil tanks through resuspension.

The Flexible Fluid Containment System patent covers a system that captures and contains flue leaking from pipe and valve connections.

The Flex-A-Swivel® patent refers to our unique pipe swivel joint assembly.

Our patent for Spacerless or Geocomposite Double Bottom for Storage Tanks relates to a replacement bottom with leak detection and containment that allows for the retrofitting of an existing tank while minimizing the loss of capacity.

The Flowdome® trademark is used to market our geodesic dome tank roofs.

Our SwingMaster® trademark is used to market our central type swing joints.

The patent for the Training Tank for Personnel Entry, Exit and Rescue relates to a training device that can be used to train personnel on equipment that is made to simulate confined space scenarios.

We hold two separate patents for Pipe Lifting and Orienting Apparatus and Method that is used to raise and lower pipes and to move them around the upper surface of floating roof of tanks.

The Batten Joint for an Internal Floating Roof of a Fluid Tank allows us to overcome many of the disadvantages associated with other types of joints used for internal floating roofs for floating tanks.

We also hold a perpetual license to use various patents and technologies related to LNG storage tanks, liquid nitrogen/liquid oxygen storage tanks, liquid petroleum gas storage tanks and thermal vacuum chambers.

While our intellectual property is not our main business, we believe that the ability to use these patents and technology enables us to expand our presence in the markets we serve and minimizes the development costs typically associated with organic growth.

While our intellectual property is not our main business, we believe that the ability to use these patents, trademarks, and technology enables us to expand our presence in the markets we serve and minimizes the development costs typically associated with organic growth.

Health and Safety Regulations

Our operations are subject to regulation by the U.S.

Occupational Safety and Health Administration (“OSHA”) and Mine Safety and Health Administration (“MSHA”), the U.S.

Department of Labor Occupational Safety and Health Administration (“OSHA”) and Mine Safety and Health Administration (“MSHA”), the U.S.

Department of Transportation, and to regulation under state laws and by the Canadian Workers’ Compensation Board and its Workplace Health, Safety and Compensation Commission.

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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-K

Item 1. Business