What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-10-11 compared with 2021-09-13 · 224 added, 211 removed, 267 unchanged (62% of the section changed)

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RESULTS OF OPERATIONS

Change in Reportable 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:

Reportable Segments

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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Finally, we offer 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, we separately report corporate selling, general and administrative expenses and other corporate expenses that were previously allocated to the segments.

The majority of the work for all segments is performed in the United States, with 9.5% of revenue generated internationally during fiscal 2022, 10.2% in fiscal 2021 and 7.3% in fiscal 2020.

The percentage of revenue generated internationally increased in fiscal 2021 compared to fiscal 2020 and fiscal 2019 due to higher levels of work in Canada.

Significant period to period changes in revenue, gross profits and operating results between fiscal 2021 and fiscal 2020 and fiscal 2020 and fiscal 2019 are discussed below on a consolidated basis and for each segment.

The percentage of revenue generated internationally decreased in fiscal 2022 compared to fiscal 2021 primarily due to higher levels of revenue generated domestically.

Significant period to period changes in revenue, gross profits and operating results between fiscal 2022 and fiscal 2021 are discussed below on a consolidated basis for each segment.

A discussion of results of operations changes between fiscal 2021 and fiscal 2020 is included in Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended June 30, 2021, which was filed with the SEC on September 13, 2021.

Matrix Service Company

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Consolidated revenue $ 220,093 $ 254,848 $ 232,839 $ — $ 707,780

Gross profit 1,506 17,642 13,617 — 32,765

Gross profit % 0.7 % 8.8 % 5.2 % — % 4.9 %

Gross profit (loss) (8,586) 9,270 262 (2,152) (1,206)

Gross profit (loss) % (3.9) % 3.6 % 0.1 % — % (0.2) %

Selling, general and administrative expenses 11,771 12,506 17,284 26,129 67,690

Restructuring costs 1,312 3,807 1,391 246 6,756

Goodwill impairment and restructuring costs 2,746 6,867 7,330 2,015 18,958

Operating loss (23,103) (10,103) (24,352) (30,296) (87,854)

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Consolidated revenue $ 210,052 $ 199,917 $ 263,429 $ — $ 673,398

Gross profit (loss) 7,081 36,349 61,413 (2,667) 102,176

Gross profit 1,506 17,642 13,617 — 32,765

Selling, general and administrative expenses 10,047 24,266 26,386 25,577 86,276

Intangible asset impairments and restructuring costs 27,625 22,914 1,066 920 52,525

Operating income (loss) (30,591) (10,831) 33,961 (29,164) (36,625)

Operating income (loss) % (14.4) % (2.6) % 7.3 % — % (3.3) %

Variances Fiscal Year 2021 to Fiscal Year 2020 Increase/(Decrease)

Consolidated revenue $ (1,949) $ (221,954) $ (203,637) $ — $ (427,540)

Gross profit % 0.7 % 8.8 % 5.2 % — % 4.9 %

Selling, general and administrative expenses 9,882 14,756 18,644 26,474 69,756

Intangible asset impairments and restructuring costs (26,313) (19,107) 325 (674) (45,769)

Operating income (loss) 20,903 9,910 (40,379) 2,444 (7,122)

Matrix Service Company

Results of Operations

(In thousands)

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

Fiscal Year 2020

Consolidated revenue $ 212,001 $ 421,871 $ 467,066 $ — $ 1,100,938

Gross profit (loss) 7,081 36,349 61,413 (2,667) 102,176

Gross profit % 3.3 % 8.6 % 13.1 % — % 9.3 %

Selling, general and administrative expenses 10,047 24,266 26,386 25,577 86,276

Intangible asset impairments and restructuring costs 27,625 22,914 1,066 920 52,525

Operating income (loss) (30,591) (10,831) 33,961 (29,164) (36,625)

Operating income (loss) % (14.4) % (2.6) % 7.3 % — % (3.3) %

Fiscal Year 2019

Consolidated revenue $ 249,867 $ 654,014 $ 512,799 $ — $ 1,416,680

Gross profit (loss) 21,161 58,853 54,600 (2,663) 131,951

Gross profit % 8.5 % 9.0 % 10.6 % — % 9.3 %

Selling, general and administrative expenses 9,842 26,932 30,319 26,928 94,021

Operating income (loss) 11,319 31,921 24,281 (29,591) 37,930

Operating income % 4.5 % 4.9 % 4.7 % — % 2.7 %

Restructuring costs 1,312 3,807 1,391 246 6,756

Operating loss (9,688) (921) (6,418) (26,720) (43,747)

Operating loss % (4.6) % (0.5) % (2.4) % — % (6.5) %

Variances Fiscal Year 2022 to Fiscal Year 2021 Increase/(Decrease)

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Selling, general and administrative expenses 1,889 (2,250) (1,360) (345) (2,066)

Intangible asset impairments and restructuring costs 27,625 22,914 1,066 920 52,525

Operating income (loss) (41,910) (42,752) 9,680 427 (74,555)

Goodwill impairment and restructuring costs 1,434 3,060 5,939 1,769 12,202

Operating loss (13,415) (9,182) (17,934) (3,576) (44,107)

Operational Update

Throughout the course of the COVID-19 pandemic, our top priority has been to maintain a safe working environment for all field and office employees, customers and business partners.

Our project teams, in coordination with our clients, are monitoring the impact of new variants of COVID-19 and continue to operate under enhanced work processes to protect the health and safety of everyone on our job sites.

Since the beginning of the pandemic we have reduced our cost structure in excess of $60 million, or approximately 25%, with a third of those reductions related to SG&A and the rest related to construction overhead, which is included in cost of revenue in the Consolidated Statements of Income.

In order to achieve these cost savings, we incurred $14.0 million of restructuring costs during fiscal 2020 and $6.8 million during fiscal 2021.

Despite these significant reductions in construction overhead, our revenue volume in fiscal 2021 did not allow for complete recovery of overhead, which reduced gross margin.

In fiscal 2021, we engaged a third party consultant to help us perform a strategic review of our end markets in support of updating our business strategy and to ensure that our organizational structure is properly designed to support our updated strategy.

Based on the preliminary results of this review, we believe there are opportunities for us to be more competitive, which will require organizational and process changes and will likely result in additional restructuring costs.

We expect to substantially complete this initiative in fiscal 2022.

Bidding activity, project award volumes, and revenue volumes all improved in fiscal 2022 as the economy recovered from the pandemic.

However, delays in project starts on certain projects in our backlog as well as delays in awards of larger projects have negatively impacted our operating results.

Therefore, we have not been able to generate enough revenue to fully recover construction overhead and SG&A costs despite significant reductions in our cost structure.

In addition, projects bid during a competitive environment and increased forecasted costs to complete certain projects have further pressured profitability during the fiscal year (see the discussion of our fiscal 2022 results, and Part II, Item 8-Financial Statements and Supplementary Data, Note 2 - Revenue - Revisions in Estimates, for more information).

Based on improving market conditions and strong bidding activity, we are expecting project awards to increase into fiscal 2023, which we expect to lead to higher revenue volume, increased cost leverage, better margins, and improved earnings.

In fiscal 2022, we commenced the second phase of our ongoing business improvement plan to focus on centralization of support functions, including business development, accounting, human resources, procurement and project services into shared service centers.

Since the beginning of fiscal 2020, we estimate that we have reduced our cost structure by approximately $83 million, or approximately 30%, with approximately one-third of those reductions related to SG&A and the rest related to construction overhead, which is included in cost of revenue in the Consolidated Statements of Income.

Financial Statements and Supplementary Data, Note 14 - Restructuring Costs, for more information about our business improvement plan.

In order to more clearly depict our core profitability, the following tables present our operating results after certain adjustments:

Reconciliation of Adjusted Net Income (Loss) and Diluted Earnings (Loss) per Common Share (1)

Reconciliation of Net Loss to Adjusted Net Income (Loss) (1)

(In thousands, except per share data)

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June 30, 2022 June 30, 2021 June 30, 2020

Net income (loss), as reported $ (31,224) $ (33,074) $ 27,982

Net loss, as reported $ (63,900) $ (31,224) $ (33,074)

Restructuring costs incurred 646 6,756 14,010

Goodwill and intangible asset impairments 18,312 — 38,515

Gain on sale of facilities ( 2 )

Accelerated amortization of deferred debt amendment fees (3)

Deferred tax valuation allowance (4)

Tax impact of adjustments and other net tax items 4,464 (1,739) (8,644)

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Adjusted earnings (loss) per fully diluted share $ (2.00) $ (0.99) $ 0.40

(1) This table presents non-GAAP financial measures of our adjusted net income (loss) and adjusted diluted earnings (loss) per common share for fiscal 2021, 2020 and 2019.

The most directly comparable financial measures are net loss and net loss per diluted share, respectively, presented in the Consolidated Statements of Income.

(1) This table presents non-GAAP financial measures of our adjusted net income (loss) and adjusted earnings (loss) per fully diluted share for fiscal 2022, 2021 and 2020.

The most directly comparable financial measures are net loss and loss per fully diluted share, respectively, presented in the Consolidated Statements of Income.

We have presented these non-GAAP financial measures because we believe they more clearly depict our core operating results during the periods presented and provide a more comparable measure of our operating results to other companies considered to be in similar businesses.

Since adjusted net income (loss) and adjusted diluted earnings (loss) per common share are not measures of performance calculated in accordance with GAAP, they should be considered in addition to, rather than as a substitute for, the most directly comparable GAAP financial measures.

Reconciliation of Net Income (Loss) to Adjusted EBITDA (1)

Fiscal Years Ended

2021 June 30,

2020 June 30,

(in thousands)

Net income (loss) $ (31,224) $ (33,074) $ 27,982

Goodwill and other intangible asset impairment — 38,515 —

Restructuring costs 6,756 14,010 —

Stock-based compensation 8,156 9,877 11,908

Interest expense 1,559 1,597 1,296

Provision (benefit) for federal, state and foreign income taxes (12,039) (3,570) 10,430

Depreciation and amortization 17,858 19,124 18,224

Adjusted EBITDA $ (8,934) $ 46,479 $ 69,840

(1) This table presents Adjusted EBITDA, which we define as net income (loss) before impairment of goodwill and other intangible assets, restructuring costs, stock-based compensation expense, interest expense, income taxes, depreciation and amortization, because it is used by the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in similar businesses.

We believe that the line item on our Consolidated Statements of Income entitled “Net income (loss)” is the most directly comparable GAAP measure to Adjusted EBITDA.

Since adjusted net income (loss) and adjusted earnings (loss) per fully diluted share are not measures of performance calculated in accordance with GAAP, they should be considered in addition to, rather than as a substitute for, the most directly comparable GAAP financial measures.

(2) Gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.)

(3) Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 5 - Debt, for more information).

(4) See Part II, Item 8-Financial Statements and Supplementary Data, Note 6 - Income Taxes, for more information about the deferred tax asset valuation allowance.

Reconciliation of Net Loss to Adjusted EBITDA

We have presented Adjusted EBITDA, which we define as net loss before goodwill and other intangible asset impairments, restructuring costs, gain on sale of facilities, stock-based compensation, interest expense, income taxes, and depreciation and amortization, because it is used by the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in similar businesses.

We believe that the line item on our Consolidated Statements of Income entitled “Net loss” is the most directly comparable GAAP measure to Adjusted EBITDA.

Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance.

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In addition, this measure is not a measure of our ability to fund our cash needs.

As Adjusted EBITDA excludes certain financial information compared with net income (loss), the most directly comparable GAAP financial measure, users of this financial information should consider the type of events and transactions that are excluded.

Adjusted EBITDA has certain material limitations as follows:

As Adjusted EBITDA excludes certain financial information compared with net loss, the most directly comparable GAAP financial measure, users of this financial information should consider the type of events and transactions that are excluded.

Our non-GAAP performance measure, Adjusted EBITDA, has certain material limitations as follows:

• It does not include impairments to goodwill and other intangible assets.

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Any measure that excludes impairments to intangible assets has material limitations since these expenses represent the loss of an asset that was acquired in exchange for cash or other assets.

• It does not include gain on sale of facilities.

While the sale occurred outside the normal course of business and similar sales are not expected to be recurring or sustainable, any measure that excludes this gain has inherent limitations since the sale resulted in a material inflow of cash.

• It does not include restructuring costs.

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Therefore, any measure that excludes depreciation or amortization expense has material limitations.

Fiscal Years Ended

2022 June 30,

2021 June 30,

(in thousands)

Net loss $ (63,900) $ (31,224) $ (33,074)

Goodwill and other intangible asset impairment 18,312 — 38,515

Gain on sale of facilities (1)

Restructuring costs 646 6,756 14,010

Stock-based compensation 7,877 8,156 9,877

Interest expense 2,951 1,559 1,597

Provision (benefit) for federal, state and foreign income taxes 5,617 (12,039) (3,570)

Depreciation and amortization 15,254 17,858 19,124

Adjusted EBITDA $ (45,635) $ (8,934) $ 46,479

(1) Gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.)

Fiscal 2022 Versus Fiscal 2021

Consolidated revenue was $673.4 million for the fiscal year ended June 30, 2021, compared to $1.101 billion in fiscal 2020.

On a segment basis, revenue decreased for the Process and Industrial Facilities, Storage and Terminal Solutions, and Utility and Power Infrastructure segments by $222.0 million, $203.7 million, and $1.9 million respectively.

Consolidated gross profit was $32.8 million in fiscal 2021 compared to $102.2 million in fiscal 2020.

Gross margin was 4.9% in fiscal 2021 compared to 9.3% in fiscal 2020.

Consolidated revenue was $707.8 million for fiscal 2022 compared to $673.4 million in fiscal 2021.

On a segment basis, revenue increased in the Process and Industrial Facilities and Utility and Power Infrastructure segments by $54.9 million and $10.1 million, respectively.

The increases were partially offset by a decrease in revenue of $30.6 million in the Storage and Terminal Solutions segment.

Consolidated gross profit (loss) was ($1.2) million in fiscal 2022 compared to $32.8 million in fiscal 2021.

Gross margin (loss) was (0.2)% in fiscal 2022 compared to 4.9% in fiscal 2021.

Gross margins in fiscal 2022 were negatively impacted by low revenue volume, which led to the under recovery of construction overhead costs.

In addition, the competitive bidding environment and increased forecasts in costs to complete projects negatively impacted gross margins.

Gross margins in fiscal 2021 were negatively impacted by lower than forecasted volume, which led to under recovery of construction overhead costs, lower than previously forecasted margins on large capital projects in the Utility and Power Infrastructure and Storage and Terminal Solutions segments, and an unfavorable settlement on a contract dispute in the Storage and Terminal Solutions segment.

Gross margins in fiscal 2020 were the result of strong project execution, offset by the under recovery of construction overhead costs due to lower than anticipated revenue volume, particularly in the fourth quarter as the COVID-19 pandemic began impacting our operations.

Consolidated SG&A expenses were $67.7 million in fiscal 2022 compared to $69.8 million in fiscal 2021.

The decrease in fiscal 2022 was primarily attributable to implemented cost reductions.

We recorded non-cash goodwill and other intangible asset impairments of $38.5 million during the second quarter of fiscal 2020.

Financial Statements, Note 4 - Goodwill and Other Intangible Assets for more information about the impairments.

As a result of actions taken to reduce our cost structure, we recorded $6.8 million and $14.0 million of restructuring costs in fiscal 2021 and fiscal 2020, respectively.

See "Operational Update" in this Results of Operations section and Item 8.

Financial Statements and Supplementary Data, Note 14 - Restructuring Costs, for more information.

Interest expense was $1.6 million in fiscal 2021 and fiscal 2020.

Interest income was $0.1 million during fiscal 2021 compared to $1.3 million in fiscal 2020.

The decrease in interest income was primarily due to lower interest rates in the current period.

In the third quarter of fiscal 2022, we recorded $18.3 million of goodwill impairment.

Item 8, Financial Statements, Note 4 - Goodwill and Other Intangible Assets - Goodwill, for more information about the impairments.

As a result of actions taken to reduce our cost structure, we recorded $0.6 million of restructuring costs in fiscal 2022.

These costs were net of a $1.6 million credit recorded in restructuring costs in the third quarter.

The credit was due to a favorable settlement of a restructuring obligation related to our exit from the domestic iron and steel industry in fiscal 2020.

See "Operational Update" in this Results of Operations section and Part II.

Item 8, Financial Statements and Supplementary Data, Note 14 - Restructuring Costs, for more information.

Interest expense was $3.0 million in fiscal 2022 and $1.6 million in fiscal 2021.

Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees in the first quarter (see Part II.

Item 8, Financial Statements, Note 5 - Debt, for more information.) The remaining interest expense in fiscal 2022 was comprised of letter of credit fees, unused capacity fees, interest on outstanding advances, and amortization of deferred debt issuance costs.

Other income included a $32.4 million gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California during the fourth quarter of fiscal 2022.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.

Our effective tax rate for fiscal 2022 was (9.6)% compared to 27.8% in fiscal 2021.

Through provisions in the CARES Act, we have an income tax benefit of $5.2 million from the ability to carryback the fiscal 2021 federal net operating loss to a period with a higher statutory federal income tax rate.

The effective tax rate during fiscal 2022 was primarily impacted by a $17.9 million valuation allowance placed on our deferred tax assets.

Item 8, Financial Statements, Note 6 - Income Taxes, for more information about the valuation allowance.

The effective tax rate during fiscal 2021 was positively impacted by a provision of the CARES Act that allowed us to carryback $5.2 million of the fiscal 2021 net operating loss to a period with a higher statutory federal income tax rate.

The carryback benefit was offset by $2.8 million of valuation allowances on various deferred tax assets and $1.8 million of excess tax expense related to the vesting of stock-based compensation.

The effective tax rate for fiscal 2020 was negatively impacted by $3.1 million of valuation allowances placed on deferred tax assets that were created by net operating loss carryforwards and other tax credits primarily in Canada, the non-deductible portion of the goodwill impairments that would have resulted in a $1.8 million reduction of income tax expense, and $1.7 million of other non-deductible expenses.

These negative impacts were partially offset by $1.8 million of research and development and other tax credits.

In fiscal 2022 and 2021, net loss was $63.9 million and $31.2 million, respectively;

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Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment decreased $1.9 million to $210.1 million in fiscal 2021 compared to $212.0 million in fiscal 2020.

The decrease is primarily due lower volume of power delivery and power generation work, partially offset by a higher volume of LNG utility peak shaving work.

The segment gross margin was 0.7% in fiscal 2021 compared to 3.3% in fiscal 2020.

Our results of operations in fiscal 2021 were materially impacted by increases in the forecasted costs to complete a large capital project.

Revenue for the Utility and Power Infrastructure segment was $220.1 million in fiscal 2022 compared to $210.1 million in fiscal 2021.

The increase is primarily due to higher volumes of power generation and power delivery work, partially offset by lower volumes of natural gas utility peak shaving and storm response service work.

The segment gross margin (loss) was (3.9)% in fiscal 2022 compared to 0.7% in fiscal 2021.

Fiscal 2022 segment gross margin was materially impacted by changes in the forecasted costs to complete two large capital projects.

Improved execution on the first project resulted in an increase in gross profit of $2.2 million during the second half of fiscal 2022.

However, increases in the forecasted costs to complete this project during the first half of fiscal 2022 resulted in the project reducing gross profit by $3.6 million during the year.

The increase in forecasted costs during the first half of the fiscal year 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 during the second quarter of fiscal 2022, which significantly reduced our financial exposure on the project.

Increased forecasted costs to the complete the second project resulted in the project reducing gross profit by $2.2 million during the fourth quarter of fiscal 2022 and $0.1 million during fiscal 2022.

We recognized $78.1 million of revenue on this project during the year at a near break-even margin as a result of the change in estimate.

The increase in forecasted costs was the result of higher than anticipated subcontractor costs and labor costs as the project neared completion.

We expect to complete the project during the second quarter of fiscal 2023.

The segment gross margin in fiscal 2022 was also negatively impacted by low revenue volume, which led to the under recovery of construction overhead costs, and by an unfavorable settlement of a claim with a customer in the first quarter of fiscal 2022.

Results of operations in fiscal 2021 were materially impacted by increases in the forecasted costs to complete a large capital project.

This project reduced gross profit by $5.8 million in fiscal 2021.

The changes in estimate were 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 schedule compression.

This project was nearly complete at year-end and we are performing start-up and commissioning work in the first quarter of fiscal 2022.

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

In addition, segment gross margin was negatively impacted by low volume, which led to the under recovery of construction overhead costs.

These negative impacts were partially offset by good project execution in the remainder of the segment.

The fiscal 2020 segment gross margin was negatively impacted by poor execution in the first and second quarters, including a lower than previously expected margin on a capital project due to costs to remediate faulty equipment designed by a subcontractor.

In addition, low volume led to the under recovery of construction overhead costs.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $254.8 million in fiscal 2022 compared to $199.9 million in fiscal 2021.

The decrease of $222.0 million is primarily due to our strategic exit from the domestic iron and steel industry in the third quarter of fiscal 2020, lower volume of midstream natural gas projects, and the completion of a small number of major capital projects.

The decrease was partially offset by an increase in refinery turnaround and maintenance work, primarily in the fourth quarter.

The increase of $54.9 million is primarily due to higher levels of refinery maintenance and turnaround work.

The segment gross margin was 3.6% in fiscal 2022 compared to 8.8% in fiscal 2021.

Despite generally strong project execution and higher volumes, the segment gross margin in fiscal 2022 was negatively impacted by an increase in forecasted costs to complete a midstream gas processing project.

The project reduced gross profit by $8.7 million during fiscal 2022.

The increase in forecasted costs was primarily due to poor performance of a now terminated subcontractor, which required rework, as well as supply chain and escalation issues, in order to meet our client's expectations.

Segment gross margin was also negatively impacted by under recovered construction overhead costs in fiscal 2022.

Segment gross margin in fiscal 2021 was positively impacted by strong project execution and the positive impact of a one-time workers' compensation item recorded in the second quarter, but these positive impacts were partially offset by lower revenue volume, which led to the under recovery of construction overhead costs.

The fiscal 2020 segment gross margin was supported by good project execution on both capital and repair and maintenance iron and steel projects in the first and second quarters, partially offset by a lower volume of turnaround work, which led to the under recovery of construction overhead costs.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $232.8 million in fiscal 2022 compared to $263.4 million in fiscal 2021, a decrease of $30.6 million.

The decrease in segment revenue is primarily a result of lower volume of crude oil tank and terminal capital work and lower repair and maintenance work.

The decrease in segment revenue is primarily a result of lower volumes of crude oil tank and terminal capital work.

The segment gross margin was 0.1% in fiscal 2022 compared to 5.2% in fiscal 2021.

The fiscal 2022 segment gross margin was negatively impacted by low revenue volume, which led to under recovery of construction overhead costs and a lower than previously forecasted margin on a thermal energy storage tank repair and maintenance project due to changes in repair scope, expanded client weld testing and associated schedule delays, which reduced segment gross profit by $6.3 million.

In addition, segment gross margin was negatively impacted by smaller competitively priced capital projects.

The fiscal 2021 segment gross margin was negatively impacted by increases in the costs to complete a large crude oil terminal project, partially offset by an increase in the estimated recovery of those costs.

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Fiscal 2021 gross margin was also negatively impacted by low volume, which led to the under recovery of construction overhead costs.

The fiscal 2020 segment gross margin was positively impacted by strong project execution on large capital projects and higher volume than fiscal 2021, which resulted in better recovery of construction overhead costs.

Unallocated corporate expenses were $30.3 million during fiscal 2022 compared to $26.7 million in the same period last year.

The decrease is primarily attributable to cost reductions we implemented.

Fiscal 2020 Versus Fiscal 2019

Consolidated revenue was $1.101 billion for the fiscal year ended June 30, 2020, compared to $1.417 billion in fiscal 2019.

On a segment basis, revenue decreased for the Process and Industrial Facilities, Storage and Terminal Solutions, and Utility and Power Infrastructure segments by $232.1 million, $45.7 million, and $37.9 million, respectively.

Consolidated gross profit was $102.2 million in fiscal 2020 compared to $132.0 million in fiscal 2019.

Gross margin was 9.3% in fiscal 2020 and fiscal 2019.

Gross margins in fiscal 2020 are the result of strong project execution, offset by the under recovery of construction overhead costs due to lower than anticipated revenue volume, particularly in the fourth quarter.

Fiscal 2019 was positively impacted by higher revenue volume, which led to an over recovery of construction overhead costs.

Consolidated SG&A expenses were $86.3 million in fiscal 2020 compared to $94.0 million in fiscal 2019.

The decrease in fiscal 2020 was primarily attributable to lower incentive compensation due to weaker operating results in fiscal 2020 and savings from the business improvement plan described in Item 8.

Financial Statements, Note 14 - Restructuring Costs.

We recorded non-cash goodwill and other intangible asset impairments of $38.5 million during the second quarter of fiscal 2020.

Financial Statements, Note 4 - Goodwill and Other Intangible Assets for more information about the impairments.

In addition, we recorded $14.0 million of restructuring costs in the third and fourth quarters of fiscal 2020 due to actions taken under our business improvement plan.

See Operational Update in this Results of Operations section and Item 8.

Financial Statements, Note 14 - Restructuring Costs, for more information.

Interest expense was $1.6 million in fiscal 2020 and $1.3 million in fiscal 2019.

The increase in interest expense was primarily due to a higher average debt balance during fiscal 2020, partially offset by lower interest rates in fiscal 2020.

Interest income was $1.3 million during fiscal 2020 compared to $1.2 million in fiscal 2019 due to an increase in our average cash balance during fiscal 2020, partially offset by lower interest rates in fiscal 2020.

Our effective tax rate for fiscal 2020 was 9.7% compared to 27.2% in fiscal 2019.

The tax benefit for fiscal 2020 was negatively impacted by a $3.1 million of valuation allowances placed on deferred tax assets that were created by net operating loss carryforwards and other tax credits primarily in Canada, the non-deductible portion of the goodwill impairments that would have resulted in a $1.8 million reduction of income tax expense, and $1.7 million of other non-deductible expenses.

These negative impacts were partially offset by $1.8 million of research and development and other tax credits.

The effective tax rate in fiscal 2019 was negatively impacted by $4.5 million of valuation allowances placed on net operating loss carryforwards and foreign tax credits generated by our branch operations in Canada, and $1.2 million of non-deductible expenses.

These negative impacts were largely offset by the reversal of $3.5 million of branch liabilities associated with the valuation allowances placed on our Canadian branch net operating loss carryforwards and foreign tax credits, $2.0 million of research and development and other tax credits and $0.3 million of excess tax benefits related to the vesting of stock-based compensation.

A full analysis of our provision for income taxes is included in Item 8.

Financial Statements and Supplementary Data, Note 6 - Income Taxes.

In fiscal 2020, net loss was $33.1 million, or $1.24 per fully diluted share, compared to net income of $28.0 million, or $1.01 per fully diluted share, in fiscal 2019.

Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment decreased $37.9 million to $212.0 million in fiscal 2020 compared to $249.9 million in fiscal 2019.

The decrease is primarily due to lower volume of power delivery and power generation work.

The segment gross margin was 3.3% in fiscal 2020 compared to 8.5% in fiscal 2019.

The fiscal 2020 segment gross margin was negatively impacted by poor execution in the first and second quarters and lower volume throughout the year, which led to the under recovery of construction overhead costs.

The segment gross margin in fiscal 2019 was positively impacted by strong project execution on power generation package work, partially offset by lower than previously forecasted margins on a limited number of power delivery projects and proceeds from the settlement of a customer dispute that were less than previously anticipated.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $421.9 million in fiscal 2020 compared to $654.0 million in fiscal 2019.

The decrease of $232.1 million is primarily due to our strategic exit from the domestic iron and steel industry in the third quarter of fiscal 2020, and lower volume of turnaround, refinery maintenance, and thermal vacuum chamber work.

The segment gross margin was 8.6% in fiscal 2020 compared to 9.0% in fiscal 2019.

The fiscal 2020 segment gross margin was negatively impacted by sharply lower volume and under recovery of overhead costs during the second half of the year due to the wind down of the domestic iron and steel business.

The fiscal 2019 segment gross margin was negatively impacted by a lower than previously forecasted margin on a thermal vacuum chamber project, partially offset by good project execution in the remainder of the segment and higher volume, which led to the over recovery of construction overhead costs.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $467.1 million in fiscal 2020 compared to $512.8 million in fiscal 2019, a decrease of $45.7 million.

The decrease in segment revenue is primarily a result of lower volume of crude oil tank and terminal capital work.

The segment gross margin was 13.1% in fiscal 2020 compared to 10.6% in fiscal 2019.

The fiscal 2020 segment gross margin was positively impacted by strong project execution on large capital projects.

During the first half of fiscal 2019, the segment gross margin was negatively impacted by the wind down of lower margin work awarded in a highly competitive environment and lower than previously forecasted margins on a limited number of those projects.

Unallocated corporate expenses were $29.2 million during fiscal 2020 compared to $29.6 million in the same period last year.

The decrease is primarily attributable to cost reductions we implemented in the second half of fiscal 2020.

The increase is primarily attributable to an increase in legal costs for outstanding litigation (see Item 8.

Financial Statements, Note 7 - Commitment and Contingencies, for more information), third party consulting services and centralization of support costs related to restructuring activities (see "Operational Update" in this Results of Operations section), partially offset by cost reductions we implemented.

LIQUIDITY AND CAPITAL RESOURCES

We define liquidity as the ongoing ability to pay our liabilities as they become due, fund business operations and meet all monetary contractual obligations.

Our primary sources of liquidity as of June 30, 2021 were cash and cash equivalents of $83.9 million and cash flows from operations.

On September 9, 2021, we entered into a new Credit Agreement, which had availability of $25.9 million as of the closing date of the agreement.

See the "ABL Credit Facility" section below for more information about our new Credit Agreement.

There continues to be significant uncertainty regarding the near- and intermediate-term business impacts from the COVID-19 pandemic and its disruption of our markets.

However, we continue to maintain a strong balance sheet, which we believe is sufficient to support our near- to intermediate-term needs.

Our primary sources of liquidity at June 30, 2022 were unrestricted cash and cash equivalents on hand, capacity under our ABL Facility (see "ABL Credit Facility" in this Liquidity and Capital Resources section and Item 8.

Financial Statements and Supplementary Data, Note 5 - Debt, for more information), and cash generated from operations.

Unrestricted cash and cash equivalents at June 30, 2022 totaled $52.4 million and availability under the ABL Facility totaled $42.5 million, resulting in total liquidity of $94.8 million.

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

June 30, 2022 June 30, 2021

Cash and cash equivalents $ 52,371 $ 83,878

Restricted cash $ 25,000 —

Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows $ 77,371 $ 83,878

The following table provides a summary of changes in our liquidity for the year ended June 30, 2022 (in thousands):

Liquidity at June 30, 2021 $ 83,878

Cash used by operating activities (54,196)

Capital expenditures (3,345)

Proceeds from asset sales (1)

Net borrowings under ABL Facility 15,000

Remaining availability under ABL Facility 42,460

Cash restricted in support of ABL Facility (25,000)

Cash used by other financing activities (2,301)

Effect of exchange rate changes on cash (683)

Liquidity at June 30, 2022 $ 94,831

(1) Includes $37.4 million of proceeds from the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California during the fourth quarter of fiscal 2022.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.

The remaining asset sales comprised of equipment sold in the normal course of business.

There continues to be significant uncertainty regarding the near- and intermediate-term business impacts from supply chain disruptions, inflation, and the dislocation of certain energy and industrial markets following the onset of the COVID-19 Pandemic and the war between Ukraine and Russia.

During fiscal 2022, low revenue volume, a competitive bidding environment, and increased forecasted costs to complete certain projects led to a $54.2 million use of cash by operating activities, which negatively impacted our liquidity position.

However, we improved our liquidity position by entering into a sale-leaseback transaction during the fourth quarter of fiscal 2022, which resulted in $37.4 million in proceeds (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.) In addition, we added $32.5 million of liquidity as a result of entering into the ABL Facility during the first quarter of fiscal 2022.

We continue to maintain adequate liquidity to support our near- to intermediate-term needs.

We are taking the following actions:

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Cash flows used by operating activities for the fiscal year ended June 30, 2022 totaled $54.2 million.

Major components of cash flows used by operating activities for the year ending June 30, 2021 are as follows:

Major components of cash flows used by operating activities for the year ended June 30, 2022 are as follows:

Net Cash Used by Operating Activities

(In thousands)

Fiscal Year Ended

June 30, 2022

Net loss $ (63,900)

Non-cash expenses 25,352

Gain on sale of property, plant and equipment (1)

Goodwill impairment 18,312

Depreciation and amortization 15,254

Stock-based compensation expense 7,877

Deferred income tax 5,358

Other non-cash expenses 2,425

Cash effect of changes in operating assets and liabilities (6,408)

Net cash used by operating activities $ (54,196)

(1) Gain on sale of property, plant and equipment includes a $32.4 million gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.) The remaining gain on the sale of property, plant and equipment comprised of equipment sold in the normal course of business.

Cash effect of changes in operating assets and liabilities at June 30, 2022 in comparison to June 30, 2021 include the following:

• Accounts receivable, net of credit losses recognized during the period, decreased $11.1 million during fiscal 2021, which increased cash flows from operating activities.

The variance is primarily attributable to lower business volume and the timing of billing and collections.

• Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") decreased $28.8 million, which increased cash flows from operating activities.

Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") decreased $8.6 million, which decreased cash flows from operating activities.

• Accounts receivable, excluding credit losses recognized during the period, increased $6.6 million during fiscal 2022, which decreased cash flows from operating activities.

The variance is primarily attributable to higher business volume and the timing of billing and collections.

• Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") increased $14.0 million, which decreased cash flows from operating activities.

Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $11.3 million, which increased cash flows from operating activities.

CIE and BIE balances can experience significant fluctuations based on business volume and the timing of when job costs are incurred and the timing of customer billings and payments.

• Inventories, income taxes receivable, other current assets, operating right-of-use lease assets and other assets increased $21.8 million during fiscal 2021, which decreased cash flows from operating activities.

• Inventories, income taxes receivable, other current assets, operating right-of-use lease assets and other non-current assets increased $1.1 million during fiscal 2022, which decreased cash flows from operating activities.

These operating assets can fluctuate based on the timing of inventory builds and draw-downs, accrual and receipt of income taxes receivable, prepayments of certain expenses, leasing activity, business volume, and other timing differences.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities and other accrued expenses decreased by $11.7 million during fiscal 2021, which decreased cash flows from operating activities.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities and other accrued expenses increased by $12.2 million during fiscal 2022, which increased cash flows from operating activities.

These operating liabilities can fluctuate based on the timing of vendor payments, accruals, leasing activities, business volume, and other timing differences.

• Other liabilities increased by $3.6 million, which increased cash flows from operating activities.

This increase was primarily due to deferred payroll tax associated with the CARES Act.

• Other liabilities decreased by $7.4 million, which decreased cash flows from operating activities.

This decrease was primarily due to payment on the deferred payroll tax liability associated with the CARES Act.

See Part II., Item 8.

Financial Statements and Supplementary Data, Note 6 - Income Taxes for more information.

Cash Flows Used for Investing Activities

Investing activities used $2.3 million of cash in the fiscal year ended June 30, 2021 primarily due to $4.4 million of capital expenditures, partially offset by $2.1 million of proceeds from other asset sales.

Cash Flows Provided by Investing Activities

Investing activities provided $35.7 million of cash in the fiscal year ended June 30, 2022 primarily due to $39.0 million of asset sales, including $37.4 million in proceeds from the sale-leaseback of our regional office and fabrication and warehouse facilities located in Orange, California during the fourth quarter of fiscal 2022 (see Part II.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.) The asset sale proceeds were partially

offset by $3.3 million of capital expenditures.

Capital expenditures consisted of $1.5 million for facilities, office equipment and software, and $1.8 million for construction, fabrication, and transportation equipment.

Cash Flows Used by Financing Activities

Financing activities used $12.3 million of cash in the fiscal year ended June 30, 2021 primarily due to the net repayment of $9.8 million on our senior secured revolving credit facility, $1.6 million paid to repurchase our stock for payment of withholding taxes due on equity-based compensation, and $1.3 million paid in fees to amend our former credit agreement.

Cash Flows Provided by Financing Activities

Financing activities provided $12.7 million of cash in the fiscal year ended June 30, 2022 primarily due to the net borrowings of $15.0 million under our ABL Facility, partially offset by $1.3 million paid in fees to enter into the ABL Facility, and $0.9 million paid to repurchase our stock for payment of withholding taxes due on equity-based compensation.

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.

On October 5, 2022, we and our primary U.S.

and Canada operating subsidiaries entered into the First Amendment and Waiver to Credit Agreement (the “Amendment”), which amended our asset-backed credit agreement (the "ABL Facility"), dated as of September 9, 2021 with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer, and the lenders named therein.

The Amendment (i) waives an event of default resulting from our failure to deliver the Administrative Agent and the lenders our audited financial statements for the fiscal year ended June 30, 2022 by September 28, 2022 (the “Audited Financial Statements”), provided we deliver the Audited Financial Statements by October 14, 2022, (ii) reduces the maximum amount of loans under the ABL Facility to $90.0 million from $100.0 million and (iii) replaces the London interbank offered rate with the forward term rate based on the secured overnight financing rate (the “SOFR”) as the interest rate benchmark.

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 available borrowings may be increased 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.

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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 9, 2021, availability under the ABL Facility was $25.9 million and there were $43.5 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 of either a base rate (“Base 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;

At June 30, 2022, our borrowing base was $80.8 million, we had $15.0 million of outstanding borrowings, and $23.3 million in letters of credit outstanding, which resulted in availability of $42.5 million under the ABL Facility.

Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate of either a base rate (“Base Rate”), an Adjusted Term SOFR ("Adjusted Term SOFR"), or at the Canadian Prime Rate, plus an applicable margin.

The Adjusted Term SOFR is defined as (i) the SOFR plus (ii) 11.448 basis points for a one-month tenor and 26.161 basis points for a three-month tenor;

provided that the Adjusted Term SOFR cannot be below zero.

The Base Rate is defined as a fluctuating interest rate equal to the greater 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%, and (iii) LIBOR rate for one month period plus 1.00%.

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

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.

federal funds rate plus 0.50%;

(iii) Adjusted Term SOFR for one month period plus 1.00%;

or (iv) 1.00%.

Depending on the amount of average availability, the applicable margin is between 1.00% to 1.50% for Base Rate and Canadian Prime Rate borrowings, which includes either U.S.

or Canadian prime rate, and between 2.00% and 2.50% for Adjusted Term SOFR borrowings.

Interest is payable either (i) monthly for Base Rate or Canadian Prime Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility.

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

The interest rate in effect for borrowings outstanding at June 30, 2022, including applicable margin, was 6.00%.

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.

We are in compliance with all covenants of the ABL Facility as of June 30, 2022.

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 June 30, 2021.

We had $9.2 million of borrowings and $34.5 million of letters of credit outstanding under the Prior Credit Agreement as of June 30, 2020.

Each revolving borrowing under the Prior Credit Agreement bore interest at a rate per annum equal to a base rate, plus a margin of 1.00% to 3.50%.

The unused credit facility fee was between 0.35% and 0.50% based on the Leverage Ratio as defined in the Prior Credit Agreement.

The Prior Credit Agreement contained customary financial, negative and affirmative covenants and limited our borrowing availability based on our EBITDA, as it was defined in the Prior Credit Agreement.

The Prior Credit Agreement also limited our ability to make acquisitions, repurchase shares, make capital expenditures and dispose of assets.

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 fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees associated with the Prior Credit Agreement.

Dividend Policy

We have never paid cash dividends on our common stock and the terms of our Credit Agreement limit dividends to stock dividends only.

Any future dividend payments will depend on the terms of our Credit Agreement, our financial condition, capital requirements and earnings as well as other relevant factors.

Treasury Shares

The terms of our Credit Agreement limit share repurchases to $2.5 million per fiscal year provided that that we do not violate our Fixed Charge Coverage Ratio financial covenant.

We have never paid cash dividends on our common stock and the terms of our ABL Facility limit dividends to stock dividends only.

Any future dividend payments will depend on the terms of our ABL Facility, our financial condition, capital requirements and earnings as well as other relevant factors.

Stock Repurchase Program

We may repurchase common stock pursuant to the Stock Buyback Program, which was approved by the board of directors in November 2018.

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The program will continue unless and until it is modified or revoked by the Board of Directors.

We made no repurchases under the program in the fourth quarter of fiscal 2021 and have no current plans to repurchase stock in the near-term.

We made no repurchases under the program in fiscal 2022 and have no current plans to repurchase stock.

As of June 30, 2022, there were 1,349,037 shares available for repurchase under the Stock Buyback Program.

The terms of our ABL Facility limit share repurchases to $2.5 million per fiscal year provided that we meet certain availability thresholds and do not violate our Fixed Charge Coverage Ratio financial covenant.

Treasury Shares

We had 1,097,703 treasury shares as of June 30, 2022 and intend to utilize these treasury shares in connection with equity awards under the our stock incentive plans and for sales to the Employee Stock Purchase Plan.

Off-Balance Sheet Arrangements

As of June 30, 2021, the following off-balance sheet arrangements were in place to support our ordinary course obligations:

Expiration Period

Year 1–3 Years 3–5 Years More than 5

(In thousands)

Letters of credit (1)

$ 41,314 $ — $ — $ — $ 41,314

Surety bonds 96,268 536 20 — 96,824

Total $ 137,582 $ 536 $ 20 $ — $ 138,138

(1) All letters of credit issued under our senior secured revolving credit facility support our workers’ compensation insurance programs or certain construction contracts.

The letters of credit that support our workers’ compensation programs are expected to renew annually through the term of our credit facility.

The letters of credit that support construction contracts carry expiration dates into calendar year 2022.

Contractual Obligations

Contractual obligations at June 30, 2021 are summarized below:

Contractual Obligations by Expiration Period

Year 1-3 Years 3-5 Years More than 5

(In thousands)

Material Cash Requirements from Contractual and Other Obligations

As of June 30, 2022, our short-term and long-term material cash requirements for known contractual and other obligations were as follows:

• Operating Leases :

Purchase obligations 2,951 3,408 — — 6,359

Total contractual obligations $ 9,499 $ 11,692 $ 6,009 $ 11,224 $ 38,424

In the normal course of business, we lease real estate and equipment under various arrangements which are classified as operating leases.

Future payments for such leases, excluding leases with initial terms of one year or less, were $31.7 million at June 30, 2022, with $7.0 million payable within the next 12 months.

Refer to Part II.

Item 8, Financial Statements, Note 8 - Leases, for more information about our lease obligations and the timing of expected future payments.

• Outstanding Debt and Interest Payments :

As of June 30, 2022, the amount outstanding under our ABL Facility was $15.0 million.

Based on the outstanding balance and interest rates applicable as of June 30, 2022, if we carried the borrowings to the maturity of the facility, we would make total interest payments on the outstanding debt of $6.8 million, with $1.6 million payable within the next 12 months.

The outstanding borrowings are due on September 9, 2026 when the ABL Facility matures.

Future interest payments will be determined based on prevailing interest rates during that time.

Refer to Part II.

Item 8, Financial Statements, Note 5 - Debt, for more information about the terms of our ABL Facility.

• Deferred Payroll Taxes :

We have deferred $5.6 million of U.S.

payroll tax as of June 30, 2022 through provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

We must repay these deferred payroll taxes by December 31, 2022.

Refer to Part II.

Item 8, Financial Statements, Note 6 - Income Taxes, for more information about the deferred payroll taxes.

Off-Balance Sheet Arrangements and Other Commitments

The terms of our construction contracts frequently require that we obtain from surety companies, and provide to our customers, surety bonds as a condition to the award of such contracts.

These surety bonds are issued in return for premiums, which vary depending on the size and type of the bond, and secure our payment and performance obligations under such contracts.

We have agreed to indemnify the surety companies for amounts, if any, paid by them in respect of surety bonds issued on our behalf.

Surety bonds expire at various times ranging from final completion of a project to a period extending beyond contract completion in certain circumstances.

Such amounts can also fluctuate from period to period based upon the mix and level of our bonded operating activity.

As of June 30, 2022, there were $140.6 million of surety bonds in force, of which we expect $90.3 million to expire within the next 12 months.

We are not aware of any losses in connection with surety bonds that have been posted on our behalf, and we do not expect to incur significant losses in the foreseeable future.

We issue letters of credit under our ABL Facility in the normal course of business to support workers' compensation insurance programs or certain construction contracts.

As of June 30, 2022, we had $23.3 million of letters of credit outstanding, nearly all of which expire within the next 12 months.

The letters of credit that support our workers’ compensation programs are expected to renew annually through the term of our credit facility.

The letters of credit that support construction contracts carry expiration dates throughout fiscal 2023.

CRITICAL ACCOUNTING POLICIES

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We do not recognize revenue unless we have identified a contract with a customer.

A contract with a customer exists when it has approval and commitment from both parties, the rights and obligations of the parties are identified, payment terms are identified, the contract has commercial substance, and collectibility is probable.

We also evaluate whether a contract should be combined with other contracts and accounted for as a single contract.

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We performed our annual goodwill impairment test as of May 31, 2022, which resulted in no impairment.

The fiscal 2021 test indicated that four reporting units with a combined total of $37.7 million of goodwill as of June 30, 2021 were at higher risk of future impairment than others.

If our view of project opportunities or gross margins deteriorates, particularly for the higher risk reporting units, then we may be required to record a material impairment of goodwill.

The fiscal 2022 test indicated that four reporting units with a combined total of $33.8 million of goodwill as of June 30, 2022 were at higher risk of future impairment.

If our view of project opportunities or gross margins deteriorates, particularly for the higher risk reporting units, then we may be required to record an impairment of goodwill.

We considered the amount of headroom for each reporting unit when determining whether an impairment existed.

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Reporting Unit 4 $ 6,112 23% 18% 1% 17%

All other reporting units $ 22,977 64% to 114% 56% to 105% 10% to 75% 43% to 99%

Reporting Unit 5 $ 4,262 16% 9% -17% 6%

In the third quarter, we concluded that goodwill impairment indicators existed based on the decline in the price of our stock and operating results that have underperformed our forecasts during the year.

Accordingly, we performed an interim impairment test as of March 31, 2022 and concluded that there was $18.3 million of total impairment to goodwill, which was recorded as follows:

• $8.4 million in the Process and Industrial Facilities segment;

• $7.2 million in the Storage and Terminal Solutions segment;

• $2.7 million in the Utility and Power Infrastructure segment.

We use the asset and liability approach for financial accounting and reporting for income taxes.

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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 7. Management’s Discussion and Analysis