What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-10-11 compared with 2021-09-13 · 284 added, 364 removed, 951 unchanged (41% of the section changed)

2 unchanged sentences

Management’s Report on Internal Control Over Financial Reporting

Reports of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID 34 )

Consolidated Statements of Income for the Fiscal Years Ended June 30, 2022, June 30, 2021, and June 30, 2020

4 unchanged sentences

Notes to Consolidated Financial Statements

Quarterly Financial Data (Unaudited)

Schedule II—Valuation and Qualifying Accounts

Financial Statement Schedules

The financial statement schedule is filed as a part of this report under Schedule II – Valuation and Qualifying Accounts for the three fiscal years ended June 30, 2021, June 30, 2020 and June 30, 2019 immediately following Quarterly Financial Data (Unaudited).

The financial statement schedule is filed as a part of this report under Schedule II – Valuation and Qualifying Accounts for the three fiscal years ended June 30, 2022, June 30, 2021 and June 30, 2020 immediately following Notes to Consolidated Financial Statements.

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements, or notes thereto, included herein.

21 unchanged sentences

President and Chief Executive Officer Vice President and Chief Financial Officer

September 13, 2021

October 11, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

4 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022 based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2021, of the Company and our report dated September 13, 2021, expressed an unqualified opinion on those financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2022, of the Company and our report dated October 11, 2022, expressed an unqualified opinion on those financial statements.

Basis for Opinion

16 unchanged sentences

Tulsa, Oklahoma

September 13, 2021

October 11, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of

Matrix Service Company

To the stockholders and the Board of Directors of Matrix Service Company

Opinion on the Financial Statements

1 unchanged sentence

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 13, 2021 expressed an unqualified opinion on the Company's internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 11, 2022 expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

19 unchanged sentences

For the fiscal year ended June 30, 2022, revenue totaled $707.8 million, of which $421.2 million related to fixed-price contracts.

Given the significant judgment necessary to estimate total costs at completion for fixed price contracts, auditing these estimates required extensive audit effort due to the volume and complexity of the fixed price contracts and a high degree of auditor judgment when evaluating the results of audit procedures, including the involvement of our capital projects specialists for one selected fixed price contract.

How the Critical Audit Matter Was Addressed in the Audit

10 unchanged sentences

Our independent estimates were based on information such as management’s work plans, customer purchase orders, third-party invoices from suppliers, subcontractor agreements, and similar historical project experience.

• For one selected fixed price contract, we used our capital projects specialists to assist us in evaluating (1) management’s ability to estimate total costs at completion and (2) management’s estimates of total costs at completion.

◦ For two selected fixed price contracts, we used our capital projects specialists to assist us in evaluating (1) management’s ability to estimate total costs at completion and (2) management’s estimates of total costs at completion.

Goodwill – Certain Reporting Units – Refer to Notes 1 and 4 to the financial statements

4 unchanged sentences

The use of alternate judgments and/or assumptions could result in a fair value that differs from management’s estimate and could result in the recognition of additional impairment charges in the financial statements.

The Company performed its annual goodwill impairment test as of May 31, 2021, 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 because their estimated fair values exceed their carrying values by 6% to 40%.

The Company performed goodwill impairment tests as of March 31, 2022 and May 31, 2022, which resulted in $18.3 million of total impairment to goodwill in the third quarter of fiscal year 2022 and no impairment of goodwill in the fourth quarter of fiscal year 2022, respectively.

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 than others and their estimated fair values exceed their carrying values by 4% to 23%.

The Company’s total goodwill was $42.1 million as of June 30, 2022.

We identified goodwill for three of the four identified reporting units with a combined total of $35.0 million of goodwill as a critical audit matter because of the significant judgments made by management to estimate the fair values of these reporting units.

We identified goodwill for four identified reporting units with a combined total of $33.8 million of goodwill as a critical audit matter because of the significant judgments made by management to estimate the fair values of these reporting units.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the revenue growth rate, forecasted gross margins, and discount rate.

1 unchanged sentence

Our audit procedures related to the revenue growth rate, forecasted gross margins, and the discount rate used by management to estimate the fair value of the three identified reporting units included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the three identified reporting units, such as controls related to management’s selection of the revenue growth rate and discount rate and forecasts of gross margins.

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the four identified reporting units, such as controls related to management’s selection of the revenue growth rate and discount rate and forecasts of gross margins.

• We evaluated management’s ability to accurately forecast the revenue growth rate and future gross margins by comparing actual results to management’s historical forecasts.

7 unchanged sentences

Tulsa, Oklahoma

September 13, 2021

October 11, 2022

We have served as the Company's auditor since 2006.

7 unchanged sentences

Cost of revenue 708,986 640,633 998,762

Gross profit 32,765 102,176 131,951

Gross profit (loss) ( 1,206 ) 32,765 102,176

Selling, general and administrative expenses 67,690 69,756 86,276

1 unchanged sentence

Restructuring costs 646 6,756 14,010

Operating income (loss) ( 43,747 ) ( 36,625 ) 37,930

Operating loss ( 87,854 ) ( 43,747 ) ( 36,625 )

Other income (expense):

1 unchanged sentence

Interest income 90 126 1,270

Other 1,917 308 611

Income (loss) before income tax expense ( 43,263 ) ( 36,644 ) 38,412

Other (Note 3) 32,432 1,917 308

Loss before income tax expense (benefit) ( 58,283 ) ( 43,263 ) ( 36,644 )

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

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

Basic earnings (loss) per common share $ ( 1.18 ) $ ( 1.24 ) $ 1.04

Diluted earnings (loss) per common share $ ( 1.18 ) $ ( 1.24 ) $ 1.01

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

Basic loss per common share $ ( 2.39 ) $ ( 1.18 ) $ ( 1.24 )

Diluted loss per common share $ ( 2.39 ) $ ( 1.18 ) $ ( 1.24 )

Weighted average common shares outstanding:

8 unchanged sentences

2021 June 30,

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

Other comprehensive income (loss), net of tax:

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

Other comprehensive loss, net of tax:

Foreign currency translation gain (loss) (net of tax expense (benefit) of $71, $223 and $(88) for the fiscal years ended June 30, 2022, 2021 and 2020, respectively) ( 1,426 ) 1,624 ( 622 )

Comprehensive income (loss) $ ( 29,600 ) $ ( 33,696 ) $ 27,642

Comprehensive loss $ ( 65,326 ) $ ( 29,600 ) $ ( 33,696 )

See accompanying notes

12 unchanged sentences

Total current assets 287,412 291,219

Property, plant and equipment, at cost:

Land and buildings 41,633 42,695

Construction equipment 94,453 94,154

Transportation equipment 50,510 55,864

Office equipment and software 42,706 39,356

Construction in progress 493 4,427

Total property, plant and equipment - at cost 229,795 236,496

Accumulated depreciation ( 160,388 ) ( 155,748 )

Restricted cash 25,000 —

Property, plant and equipment - net 53,869 69,407

1 unchanged sentence

Goodwill 42,135 60,636

Other intangible assets 6,614 8,837

Other intangible assets, net of accumulated amortization 4,796 6,614

Deferred income taxes — 5,295

Other assets 11,973 4,833

Other assets, non-current 5,514 11,973

Total assets $ 440,793 $ 467,556

15 unchanged sentences

Operating lease liabilities 19,904 20,771

Borrowings under senior secured revolving credit facility — 9,208

Other liabilities 7,810 4,208

Borrowings under asset-backed credit facility 15,000 —

Other liabilities, non-current 372 7,810

Total liabilities 213,087 182,017

4 unchanged sentences

27,888,217 shares issued as of June 30, 2022 and June 30, 2021;

26,549,438 and 26,141,528 shares outstanding as of June 30, 2021 and June 30, 2020 279 279

26,790,514 and 26,549,438 shares outstanding as of June 30, 2022 and June 30, 2021, respectively 279 279

Additional paid-in capital 139,854 137,575

2 unchanged sentences

243,236 306,283

Less treasury stock, at cost — 1,338,779 and 1,746,689 shares as of June 30, 2021 and June 30, 2020 ( 20,744 ) ( 29,385 )

Treasury stock, at cost — 1,097,703 and 1,338,779 shares as of June 30, 2022 and June 30, 2021, respectively ( 15,530 ) ( 20,744 )

Total stockholders' equity 227,706 285,539

8 unchanged sentences

Operating activities:

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

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

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

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

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

3 unchanged sentences

Deferred income tax 5,358 889 ( 3,630 )

Gain on disposal of business (Note 3) — — ( 427 )

Gain on sale of property, plant and equipment ( 1,201 ) ( 767 ) ( 854 )

Provision for uncollectible accounts 85 1,158 5

Gain on sale of property, plant and equipment (Note 3) ( 33,114 ) ( 1,201 ) ( 767 )

Provision for uncollectable accounts 738 85 1,158

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

Other 169 460 ( 7 )

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

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

Accounts receivable ( 6,587 ) 11,109 56,603

8 unchanged sentences

Capital expenditures ( 3,345 ) ( 4,354 ) ( 18,539 )

Proceeds from disposal of business (Note 3) — — 3,885

Proceeds from asset sales 2,090 1,423 1,225

Net cash used by investing activities $ ( 2,264 ) $ ( 17,116 ) $ ( 14,448 )

Proceeds from asset sales (Note 3) 39,018 2,090 1,423

Net cash provided (used) by investing activities $ 35,673 $ ( 2,264 ) $ ( 17,116 )

See accompanying notes

8 unchanged sentences

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

Advances under asset-backed credit facility 20,000 — —

Repayments of advances under asset-backed credit facility ( 5,000 ) — —

Payment of debt amendment fees ( 1,263 ) ( 1,275 ) —

3 unchanged sentences

Repurchase of common stock for payment of statutory taxes due on equity-based compensation ( 853 ) ( 1,554 ) ( 3,524 )

Repayment of principal portion of long-term liability ( 355 ) — —

Net cash used by financing activities ( 12,324 ) ( 16,039 ) ( 1,107 )

Other ( 654 ) ( 355 ) —

Net cash provided (used) by financing activities 12,699 ( 12,324 ) ( 16,039 )

Effect of exchange rate changes on cash ( 683 ) 1,401 ( 609 )

Net increase (decrease) in cash and cash equivalents ( 6,507 ) ( 16,158 ) 10,321

Cash and cash equivalents, beginning of period 100,036 89,715 64,057

Cash and cash equivalents, end of period $ 83,878 $ 100,036 $ 89,715

Cash, cash equivalents, and restricted cash, beginning of period (Note 1) 83,878 100,036 89,715

Cash, cash equivalents, and restricted cash, end of period (Note 1) $ 77,371 $ 83,878 $ 100,036

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Cash paid (received) during the period for:

Income taxes $ ( 2,864 ) $ 451 $ 6,394

8 unchanged sentences

Paid-In Capital Retained

Earnings Treasury

Stock Accumulated

Earnings Accumulated

Comprehensive

Balances, July 1, 2018 $ 279 $ 132,198 $ 211,494 $ ( 17,717 ) $ ( 7,411 ) $ 318,843

Net income — — 27,982 — — 27,982

Loss Treasury

Balances, June 30, 2019 $ 279 $ 137,712 $ 239,476 $ ( 7,751 ) $ ( 17,759 ) $ 351,957

Net loss — — ( 33,074 ) — — ( 33,074 )

Other comprehensive loss — — — ( 622 ) — ( 622 )

Treasury Shares sold to Employee Stock Purchase Plan (20,733 shares) — ( 19 ) — — 339 320

Exercise of stock options (12,500 shares) — ( 126 ) — 254 — 128

Issuance of deferred shares (542,279 shares) — ( 8,604 ) — — 8,604 —

4 unchanged sentences

Net loss — — ( 31,224 ) — — ( 31,224 )

Other comprehensive loss — — — — ( 622 ) ( 622 )

Other comprehensive income — — — 1,624 — 1,624

Treasury Shares sold to Employee Stock Purchase Plan (29,171 shares) — ( 207 ) — — 506 299

Exercise of stock options (34,150 shares) — ( 257 ) — — 606 349

Issuance of deferred shares (515,218 shares) — ( 9,083 ) — — 9,083 —

Treasury shares repurchased to satisfy tax withholding obligations (170,629 shares) — — — — ( 1,554 ) ( 1,554 )

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

Stock-based compensation expense — 8,156 — — — 8,156

1 unchanged sentence

Net loss — — ( 63,900 ) — — ( 63,900 )

Other comprehensive income — — — — 1,624 1,624

Other comprehensive loss — — — ( 1,426 ) — ( 1,426 )

Treasury Shares Sold to Employee Stock Purchase Plan (29,826 shares) — ( 307 ) — — 577 270

15 unchanged sentences

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

We believe the most significant estimates and judgments are associated with revenue recognition, the recoverability tests that must be periodically performed with respect to our goodwill and other intangible assets, valuation reserves on our accounts receivable and deferred tax assets, and the estimation of loss contingencies, including liabilities associated with litigation and with the self-insured retentions on our insurance programs.

We believe the most significant estimates and judgments are associated with revenue recognition, the recoverability tests that must be periodically performed with respect to our goodwill and other intangible assets, deferred tax assets, and the estimation of loss contingencies, including liabilities associated with litigation and with the self-insured retentions on our insurance programs.

Actual results could materially differ from those estimates.

Credit Losses

Adoption of Credit Losses Standard

On June 16, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, which changed how we account for our allowance for uncollectible accounts.

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

The Consolidated Statements of Income reflect any increases or decreases of expected credit losses that have taken place during the period.

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

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

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

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

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

We adopted the standard on July 1, 2020 with no material impact to our estimate of the allowance for uncollectible accounts.

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:

• 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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

• Process and Industrial Facilities :

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

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

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

• Storage and Terminal Solutions :

consists of work related to aboveground storage tanks and terminals.

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

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

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

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.

Revenue Recognition

6 unchanged sentences

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.

56 unchanged sentences

Claims are more fully discussed in Note 7 - Commitments and Contingencies.

Cash and Cash Equivalents

Cash, Cash Equivalents and Restricted Cash

We include as cash equivalents all investments with original maturities of three months or less which are readily convertible into cash.

1 unchanged sentence

The United States Dollar equivalent of Canadian, South Korean and Australian deposits totaled $ 5.7 million as of June 30, 2022.

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

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

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

Accounts Receivable

Accounts receivable are carried on a gross basis, less the allowance for credit losses.

We estimate the allowance for credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

Our customers consist primarily of major integrated oil companies, independent refiners and marketers, power companies, petrochemical companies, pipeline companies, mining companies, contractors and engineering firms.

2 unchanged sentences

In addition, in most cases we can place liens against the property, plant or equipment constructed or terminate the contract if a material contract default occurs.

We estimate the allowance for credit losses based on existing economic conditions, the financial condition of our customers and the amount and age of past due accounts.

Accounts are written off against the allowance for credit losses only after all reasonable collection attempts have been exhausted.

Contract retentions collectible beyond one year are included in Other assets in the Consolidated Balance Sheets.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Contract retentions collectable beyond one year are included in Other assets in the Consolidated Balance Sheets.

Accounts payable retentions are generally settled within one year.

6 unchanged sentences

However, the results of litigation are inherently unpredictable, and the possibility exists that the ultimate resolution of one or more of these matters could result in a material effect on our financial position, results of operations or liquidity.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Inventories consist primarily of steel plate and pipe and aluminum coil and extrusions.

18 unchanged sentences

If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and, to the extent the carrying value exceeds the fair value of the assets, recording a loss provision.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

For assets identified to be disposed of in the future, the carrying value of the assets are compared to the estimated fair value less the cost of disposal to determine if an impairment has occurred.

7 unchanged sentences

If the fair value of a reporting unit is less than its carrying value, then goodwill is impaired to the extent of the difference, but the impairment may not exceed the balance of goodwill assigned to that reporting unit.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

We utilize a discounted cash flow analysis, referred to as an income approach, and market multiples, referred to as a market approach, to determine the estimated fair value of our reporting units.

22 unchanged sentences

The fair value of market-based nonvested deferred shares is based on several factors, including the probability that the market condition specified in the grant will be achieved, which is calculated using a Monte Carlo model.

The fair value of stock options is determined based on the Black-Scholes option pricing model.

Cash-settled restricted share units must be settled in cash and are accounted for as liability-type awards and are remeasured at the end of each reporting period at fair value until settlement.

Cash-settled restricted share units must be settled in cash and are accounted for as liability-type awards and are remeasured at the end of each reporting period at fair

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

value until settlement.

For all awards, expense is recognized over the requisite service period with forfeitures recorded as they occur.

2 unchanged sentences

Valuation allowances based on our judgments and estimates are established when necessary to reduce deferred tax assets to the amount expected to be realized in future operating results.

We believe that realization of deferred tax assets in excess of the valuation allowance is more likely than not.

Our estimates are based on facts and circumstances in existence as well as interpretations of existing tax regulations and laws applied to the facts and circumstances, with the help of professional tax advisors.

Therefore, we estimate and provide for amounts of additional income taxes that may be assessed by the various taxing authorities.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Foreign Currency

25 unchanged sentences

Net contract liabilities $ ( 20,354 ) $ ( 23,058 ) $ 2,704

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

2 unchanged sentences

Progress billings in accounts receivable at June 30, 2022 and June 30, 2021 included retentions to be collected within one year of $ 16.1 million and $ 19.9 million, respectively.

Contract retentions collectible beyond one year are included in other assets in the Consolidated Balance Sheets and totaled $ 3.1 million as of June 30, 2021 and $ 1.6 million as of June 30, 2020.

Contract retentions collectable beyond one year are included in other assets in the Consolidated Balance Sheets and totaled $ 4.0 million as of June 30, 2022 and $ 3.1 million as of June 30, 2021.

Disaggregated Revenue

21 unchanged sentences

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

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

The 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.

During the fourth quarter of fiscal 2021, we reached a settlement on a contract dispute over the construction of a crude oil terminal.

The project's financial impact for the fiscal year ended June 30, 2021 was a $ 2.9 million reduction to gross profit in the Storage and Terminal Solutions segment.

The settlement resulted in a cash receipt of $ 8.9 million in the first quarter of fiscal 2022, which enabled us to avoid future legal costs and litigation risk.

During the third quarter of fiscal 2021, we achieved mechanical completion of a large crude oil terminal project, demobilized from the project site and completed its assessment of additional recovery of unpriced change orders.

The project's financial impact for the fiscal year ended June 30, 2021 was a $ 3.8 million reduction to gross profit in the Storage and Terminal Solutions segment.

Revisions in Estimates

Our results of operations were materially impacted by an increase in the forecasted costs to complete a midstream gas processing project in the Process and Industrial Facilities segment.

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.

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Note 3— Disposals

Sale of Process Heating Business

In August 2018, we sold non-core assets associated with a business that marketed process heating equipment for $ 3.9 million in cash, including $ 0.2 million of customary final post-closing adjustments paid in October 2018.

We recognized a gain of $ 0.4 million on the sale, which was included in Other in the Consolidated Statements of Income.

The revenue and operating results of the business, which were included in the Process and Industrial Facilities segment, were not material.

Our results of operations were materially impacted by changes in the forecasted costs to complete two large capital projects in the Utility and Power Infrastructure segment.

Improved project 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 fiscal 2022.

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.

Our results of operations were materially impacted by an increase in the costs required to complete a thermal energy storage tank repair and maintenance project in the Storage and Terminal Solutions segment, which resulted in a decrease in gross profit of $ 6.3 million in fiscal 2022.

The increase in costs was primarily due to changes in repair scope, expanded client weld testing and associated schedule delays.

We achieved substantial completion on this project in the fourth quarter of fiscal 2022.

Note 3— Property, Plant and Equipment

The following table presents the components of our property, plant and equipment - net at June 30, 2022 and 2021:

2022 June 30,

(In thousands)

Property, plant and equipment - at cost:

Land and buildings $ 34,788 $ 41,633

Construction equipment 93,036 94,453

Transportation equipment 48,999 50,510

Office equipment and software 43,823 42,706

Construction in progress 1,646 493

Total property, plant and equipment - at cost 222,292 229,795

Accumulated depreciation ( 168,423 ) ( 160,388 )

Property, plant and equipment - net $ 53,869 $ 69,407

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Geographical Disaggregation of Long-Lived Assets

Long-Lived Assets

2022 June 30,

2021 June 30,

(In thousands)

United States $ 137,682 $ 157,442 $ 164,056

Canada 3,436 6,523 5,659

Other international 12,263 12,372 12,435

$ 153,381 $ 176,337 $ 182,150

Sale-leaseback Transaction

We sold our regional office and fabrication and warehouse facilities located in Orange, California during the fourth quarter of fiscal 2022 for net proceeds of $ 37.4 million in cash.

We recorded a gain of $ 32.4 million on the sale, which is included in other income in the Consolidated Statements of Income.

In connection with the sale, we also entered into a leaseback agreement for a period up to 24 months while we locate replacement facilities.

We are still fully committed to our operations in Southern California - we decided to enter into the sale and leaseback transaction to take advantage of the elevated real estate market valuations in Southern California.

Note 4— Goodwill and Other Intangible Assets

5 unchanged sentences

Net balance at June 30, 2019 $ 31,840 $ 34,842 $ 26,686 $ 93,368

Disposal of business (1)

— ( 2,775 ) — ( 2,775 )

Goodwill impairment ( 24,900 ) ( 7,981 ) — ( 32,881 )

Translation adjustment (1)

1 unchanged sentence

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

Goodwill impairment ( 24,900 ) ( 7,981 ) — ( 32,881 )

Translation adjustment (1)

1 unchanged sentence

Net balance at June 30, 2021 6,984 26,878 26,774 60,636

Goodwill impairment ( 2,659 ) ( 8,445 ) ( 7,208 ) ( 18,312 )

Translation adjustment (1)

1 unchanged sentence

Net balance at June 30, 2022 $ 4,263 $ 18,427 $ 19,445 $ 42,135

(1) In August 2018, we disposed of a business that marketed process heating equipment.

See Note 3 - Acquisitions and Disposals for more information about the disposal.

The business disposed of constituted its own reporting unit and the amount of goodwill written off was all of the goodwill assigned to that reporting unit.

None of the goodwill was considered impaired since we recorded a gain on the disposal.

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

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 an impairment.

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.

In the third quarter of fiscal 2022, 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:

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

• $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.

In the second quarter of fiscal 2020, we concluded that a goodwill impairment indicator existed in the Utility and Power Infrastructure segment based on the recent history of depressed gross margins and the second quarter’s downward acceleration of revenue and gross margin.

4 unchanged sentences

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

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

The key assumptions used are described in Note 1 - Summary of Significant Accounting Policies.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

The estimated fair value of each segment was derived by utilizing a discounted cash flow analysis and market multiples of projected EBITDA.

The key assumptions used are described in Note 1 - Summary of Significant Accounting Policies, and Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Policies, Goodwill.

Other Intangible Assets

In the fourth quarter of fiscal 2020, we fully impaired a customer relationship intangible asset with a net book value of $ 1.2 million.

The customer relationship primarily related to services which were impacted by our performance improvement plan (see Note 14 - Restructuring Costs).

As a result, the customer relationship intangible asset was no longer recoverable.

As of June 30, 2020, this intangible asset had a remaining useful life of approximately 2 years, a gross carrying amount of $ 6.3 million and accumulated amortization of $ 5.1 million.

The impairment is included in restructuring costs in the Consolidated Statements of Income.

Also in the fourth quarter of fiscal 2020, we fully impaired a customer relationship intangible asset with a net book value of $ 0.4 million in connection with the closure of an underperforming operating unit.

The closure was part of our performance improvement plan (see Note 14 - Restructuring Costs).

As of June 30, 2020, this intangible asset had a remaining useful life of approximately 4 years, a gross carrying amount of $ 0.9 million and accumulated amortization of $ 0.5 million.

The impairment is included in the restructuring costs caption in the Consolidated Statements of Income.

In the second quarter of fiscal 2020, in connection with the factors disclosed for the Process and Industrial Facilities segment goodwill impairment above, we fully impaired a customer relationship with a net book value of $ 5.6 million.

As of December 31, 2019, this intangible asset had a remaining useful life of 9 years, a gross carrying amount of $ 9.4 million and accumulated amortization of $ 3.8 million.

The impairment is included within the goodwill and other intangible asset impairment caption in the Consolidated Statements of Income.

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

16 unchanged sentences

Amortization expense totaled $ 1.8 million, $ 2.3 million, and $ 3.4 million in fiscal 2022, 2021, and 2020, respectively.

In the fourth quarter of fiscal 2020, we fully impaired a customer relationship intangible asset with a net book value of $ 1.2 million.

The customer relationship primarily related to services in the Utility and Power Infrastructure segment which were impacted by our performance improvement plan (see Note 14 - Restructuring Costs).

As a result, the customer relationship intangible asset was no longer recoverable.

As of June 30, 2020, this intangible asset had a remaining useful life of approximately 2 years, a gross carrying amount of $ 6.3 million and accumulated amortization of $ 5.1 million.

The impairment is included in restructuring costs in the Consolidated Statements of Income.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

The closure was part of our performance improvement plan (see Note 14 - Restructuring Costs).

As of June 30, 2020, this intangible asset had a remaining useful life of approximately 4 years, a gross carrying amount of $ 0.9 million and accumulated amortization of $ 0.5 million.

The impairment is included in the restructuring costs caption in the Consolidated Statements of Income.

As of December 31, 2019, this intangible asset had a remaining useful life of 9 years, a gross carrying amount of $ 9.4 million and accumulated amortization of $ 3.8 million.

The impairment is included within the goodwill and other intangible asset impairment caption in the Consolidated Statements of Income.

We estimate that future amortization of other intangible assets will be as follows (in thousands):

4 unchanged sentences

June 30, 2026 555

Total estimated amortization expense $ 4,796

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.

2 unchanged sentences

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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

Senior Secured Revolving Credit Facility

2 unchanged sentences

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.

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

Note 6— Income Taxes

Coronavirus Aid, Relief, and Economic Security Act

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

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

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

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

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

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

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

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

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.

We estimate that we will receive a $ 13.0 million tax refund in connection with the carryback of the fiscal 2021 net operating loss, which is included in income taxes receivable in the Consolidated Balance Sheets.

We have deferred $ 11.1 million of U.S.

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

The deferred payroll taxes are included within other accrued expenses and other liabilities in the Consolidated Balance Sheets.

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Sources of Pretax Income (Loss)

6 unchanged sentences

Total $ ( 58,283 ) $ ( 43,263 ) $ ( 36,644 )

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Components of the Provision for Income Tax Expense (Benefit)

12 unchanged sentences

$ 5,617 $ ( 12,039 ) $ ( 3,570 )

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Reconciliation Between the Expected Income Tax Provision Applying the Domestic Federal Statutory Tax Rate and the Reported Income Tax Provision

3 unchanged sentences

(In thousands)

Expected provision (benefit) for federal income taxes at the statutory rate $ ( 9,085 ) $ ( 7,695 ) $ 8,067

Expected benefit for federal income taxes at the statutory rate $ ( 12,239 ) $ ( 9,085 ) $ ( 7,695 )

State income taxes, net of federal benefit ( 1,971 ) ( 1,240 ) ( 768 )

Impairment of non-deductible goodwill (1)

1,132 — 1,813

Charges without tax benefit 265 961 1,707

1 unchanged sentence

17,943 2,797 3,062

Reversal of branch liability (2)

— — ( 3,546 )

Excess tax expense (benefit) on stock-based compensation 1,019 1,826 230

7 unchanged sentences

(1) In fiscal 2022, we impaired $18.3 million of goodwill, which included $ 5.4 million of non-deductible goodwill.

In fiscal 2020, we impaired $32.9 million of goodwill, which included $ 8.6 million of non-deductible goodwill.

See Note 4 - Goodwill and Other Intangible Assets for more information about the impairments.

(2) In fiscal 2022, due to the existence of a cumulative loss over a three-year period, we recorded a full valuation allowance of $17.9 million against our deferred tax assets.

These assets are primarily comprised of federal net operating losses, which have an indefinite carryforward, federal tax credits and state net operating losses.

To the extent we generate taxable income in the future, or cumulative losses are no longer present and our future projections for growth or tax planning strategies are demonstrated, we will realize the benefit associated with the net operating losses for which the valuation allowance has been provided.

In fiscal 2021, we placed $2.8 million of valuation allowances, including $ 1.5 million on certain state net operating loss carryforwards due to a recent history of cumulative losses for a subsidiary.

In fiscal 2020, we placed $3.1 million of valuation allowances on net operating loss carryforwards and foreign tax credits primarily related to Canada.

In fiscal 2019, we placed $4.5 million of valuation allowances on net operating loss carryforwards and foreign tax credits generated by branch operations in Canada, which will likely not be utilized prior to their expiration.

These valuation allowances were largely offset by the reversal $3.5 million of branch liabilities associated with the Canadian net operating loss carryforwards and foreign tax credits.

(3) Relates to fiscal 2021 net operating losses carried back under provisions of the CARES Act to fiscal years 2016 and 2017 which had a 35% federal tax rate.

11 unchanged sentences

Net operating loss benefit and credit carryforwards 23,717 14,966

Valuation allowance ( 11,104 ) ( 7,763 )

Accrued compensation and pension 736 690

6 unchanged sentences

Foreign currency translation and other 1,002 665

Valuation allowance ( 28,615 ) ( 11,104 )

Total deferred tax assets 8,850 16,172

1 unchanged sentence

Tax over book depreciation 7,842 10,315

Branch future liability — 74

Receivable holdbacks and other 1,034 596

Total deferred tax liabilities 8,876 10,911

Net deferred tax asset $ 5,261 $ 5,927

Net deferred tax asset (liability) $ ( 26 ) $ 5,261

As reported in the Consolidated Balance Sheets:

3 unchanged sentences

Deferred income tax liabilities ( 26 ) ( 34 )

Net deferred tax asset 5,261 $ 5,927

Net deferred tax asset (liability) ( 26 ) $ 5,261

Valuation Allowance

In fiscal 2022, due to the existence of a cumulative loss over a three-year period, we recorded a full valuation allowance of $17.9 million against our deferred tax assets.

These assets are primarily comprised of federal net operating losses, which have an indefinite carryforward, federal tax credits and state net operating losses.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Operating Loss and Tax Credit Carryforwards

We have state net operating loss carryforwards, state tax credit carryforwards, federal foreign tax credit carryforwards, foreign net operating loss carryforwards and foreign tax credit carryforwards.

We have net operating loss carryforwards and tax credit carryforwards in federal, state and foreign jurisdictions.

The valuation allowance at June 30, 2022 and June 30, 2021 reduces the recognized tax benefit of these carryforwards to an amount that is more likely than not to be realized.

These carryforwards will generally expire as shown below:

Operating Loss Carryforwards Expiration Period Amount (in thousands)

The gross carryforwards will generally expire as shown below for each jurisdiction:

Operating Loss and Tax Credit Carryforwards Expiration Period Amount (in thousands)

Federal net operating loss Indefinite $ 27,207

Federal tax credits June 2041 to June 2042 $ 1,700

Federal foreign tax credits June 2023 to June 2025 $ 655

State net operating losses June 2025 to indefinite $ 73,889

Foreign net operating losses June 2029 to June 2041 $ 33,242

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Tax Credit Carryforwards Expiration Period Amount (in thousands)

State tax credits June 2033 to indefinite $ 912

Federal tax credits June 2041 $ 1,087

Federal foreign tax credits June 2023 to June 2025 $ 655

Foreign net operating losses June 2029 to June 2042 $ 37,379

Foreign tax credits June 2035 to June 2042 $ 676

Net Operating Loss Carryback Refund

Through provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the "CARES Act"), we had an income tax benefit from the ability to carryback the fiscal 2021 federal net operating loss to a period with a higher statutory federal income tax rate.

We estimate that we will receive a $ 12.6 million tax refund in connection with this carryback, which is included in income taxes receivable in the Consolidated Balance Sheets.

Refund of Overpayment of Estimated Taxes

In January 2022, we received a $ 2.4 million tax refund in connection with overpayments of estimated taxes from prior years.

Deferred Payroll Taxes

As of June 30, 2022, we have a balance of $ 5.6 million remaining on U.S.

payroll taxes we deferred through provisions of the CARES Act.

We paid half of the original deferred payroll tax balance during the second quarter of fiscal 2022 and must repay the remaining balance by December 31, 2022.

The remaining balance of deferred payroll taxes is included within accrued wages and benefits in the Consolidated Balance Sheets.

In general, it is our practice and intention to reinvest the earnings of our foreign subsidiaries in our foreign operations.

10 unchanged sentences

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

9 unchanged sentences

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

During the fourth quarter of fiscal 2021, we settled a contract dispute over the construction of a crude oil terminal, which resulted in a reduction of gross profit of $ 2.9 million.

The settlement resulted in a cash receipt of $ 8.9 million in the first quarter of fiscal 2022, which enabled us to avoid future legal costs and litigation risk.

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

1 unchanged sentence

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

We and our subsidiaries are participants in various legal actions.

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

It is the opinion of management that none of the other known legal actions will have a material impact on our financial position, results of operations or liquidity.

Note 8— Leases

3 unchanged sentences

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

We recorded $ 0.5 million of impairments to right-of-use assets related to leased office space that was closed in connection with our restructuring activities, see Note 14 – Restructuring Costs for additional information.

In fiscal 2021 we recorded $ 0.5 million of impairments to right-of-use assets related to leased office space that was closed in connection with our restructuring activities, see Note 14 – Restructuring Costs for additional information.

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

Fiscal Years Ended

June 30, 2021 June 30, 2020

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

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

4 unchanged sentences

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

13 unchanged sentences

Non-current operating lease liabilities $ 19,904

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

The following is a summary of the weighted average remaining operating lease term and weighted average discount rate as of June 30, 2022:

12 unchanged sentences

We have 5.0 million shares of preferred stock authorized, none of which was issued or outstanding at June 30, 2022 or June 30, 2021.

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 (see Note 5 - Debt for more information about our Credit Agreement).

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.

2 unchanged sentences

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 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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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.

There were 1,349,037 shares available for repurchase under the November 2018 Program as of June 30, 2022.

Treasury Shares

In addition to the stock buyback program, we may withhold shares of common stock to satisfy the tax withholding obligations upon vesting of an employee’s deferred shares.

5 unchanged sentences

Measured but unrecognized stock-based compensation expense at June 30, 2022 was $ 9.0 million, all of which related to nonvested deferred shares which are expected to be recognized as expense over a weighted average period of 1.7 years.

We recognized excess tax expense of $ 1.8 million and $ 0.2 million related to stock-based compensation vesting for the fiscal years ended June 30, 2021 and 2020, respectively.

We recognized excess tax benefits of $0.3 million for the fiscal year ended June 30, 2019 related to stock-based compensation vesting.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

We recognized excess tax expense of $ 1.0 million, $ 1.8 million, and $ 0.2 million related to stock-based compensation vesting for the fiscal years ended June 30, 2022, 2021, and 2020, respectively.

Plan Information

4 unchanged sentences

Shares awarded under either the 2018 Plan or 2016 Plan that are subsequently forfeited or net settled for tax withholding purposes are returned to the treasury share pool and become available for grant under the 2020 Plan.

The 2016 Plan was preceded by the 2012 Stock Incentive Plan ("2012 Plan") and the 2004 Stock Incentive Plan ("2004 Plan"), which were frozen upon approval of the 2016 Plan and 2012 Plan, respectively, with the exception of normal vesting, forfeiture and other activity associated with awards previously granted under the 2012 Plan and 2004 Plan.

There are no outstanding awards under the 2012 Plan, but there were stock option awards outstanding under the 2004 Plan as of June 30, 2021 - see Stock Options section below.

Awards totaling 1,725,000 shares have been authorized under the 2020 Plan.

1 unchanged sentence

Stock Options

Stock options are granted at the market value of our common stock on the grant date and expire after 10 years.

Our policy is to issue shares upon the exercise of stock options from its treasury shares, if available.

We did not award any new stock options in fiscal years 2022, 2021, or 2020.

The options outstanding as of June 30, 2021 expire on November 17, 2021.

Stock option activity and related information for the fiscal year ended June 30, 2021 is as follows:

Options Weighted-Average

Contractual Life Weighted-Average

Exercise Price Aggregate

Intrinsic Value

(Years) (In thousands)

Outstanding at June 30, 2020 53,700 1.4 $ 10.19 $ —

Granted — — —

Exercised ( 34,150 ) $ 10.19 82

Canceled — — —

Outstanding at June 30, 2021 19,550 0.4 $ 10.19 $ 6

Vested at June 30, 2021 19,550 0.4 $ 10.19 $ 6

Exercisable at June 30, 2021 19,550 0.4 $ 10.19 $ 6

The total intrinsic value of stock options exercised was $ 0.1 million during fiscal year 2021 and fiscal 2019.

The 19,550 options outstanding as of June 30, 2021 were exercised in the second quarter of fiscal 2022 at a weighted average exercise price of $ 10.19 per share.

There were no options outstanding at June 30, 2022.

The total intrinsic value of stock options exercised were less than $ 0.1 million during fiscal 2022 and $ 0.1 million during fiscal 2021.

No stock options were exercised in fiscal 2020.

11 unchanged sentences

These awards are settled in stock.

As of June 30, 2021, there are approximately 147,000 , 174,000 , and 369,000 performance units that are scheduled to vest in fiscal 2022, fiscal 2023, and fiscal 2024, respectively, assuming target performance.

As of June 30, 2022, there were approximately 163,000 , 340,000 , and 389,000 performance units that are scheduled to vest in fiscal 2023, fiscal 2024, and fiscal 2025, respectively, assuming target performance.

All awards under the 2020 Plan vest upon the death or disability of the participant or upon a change of control of the Company, provided that the successor company fails to assume or replace the awards in connection with that change of control event.

2 unchanged sentences

The grant date fair value of the time-based awards is determined by the market value of our common stock on the grant date.

The grant date fair value of stock options is determined based on the Black-Scholes option pricing model.

The grant date fair value of the market-based awards is calculated using a Monte Carlo model.

6 unchanged sentences

Shares granted 696,227 $ 14.13

Performance shares earned in excess of target 15,314 $ —

Shares vested and released ( 268,403 ) $ 13.92

3 unchanged sentences

There were 515,218 and 542,279 deferred shares that vested and were released in fiscal 2021 and 2020 with weighted average fair values of $ 16.99 and $ 19.43 per share, respectively.

There were 119,904 deferred shares cancelled in fiscal 2021 with an average grant date fair value of $ 20.67 .

No deferred shares were cancelled in fiscal 2020.

Cash-Settled Restricted Share Units

In fiscal 2021, we granted 238,848 cash-settled restricted share units with a grant date fair value of $ 2.3 million.

No cash-settled restricted share units were granted in fiscal years 2020 and 2019 and no settlements have occurred.

We granted 231,219 and 238,848 cash-settled restricted share units during fiscal years 2022 and 2021, respectively;

with weighted average fair values of $ 2.6 million and $ 2.3 million, respectively.

No cash-settled restricted share units were granted in fiscal year 2020.

There were 53,333 shares vested and released in fiscal 2022 with a weighted average fair value of $ 0.5 million.

There were no cash-settled restricted shares vested or released in fiscal 2021 or 2020.

There were 25,355 shares cancelled in fiscal 2022 with a weighted average fair value of $ 0.3 million.

There were no cash-settled restricted shares cancelled in fiscal 2021 or 2020.

The grant date fair value of these awards is based on the price of our common stock and the number of shares awarded on the date of grant.

3 unchanged sentences

These awards contain the same retirement provisions described for time-based awards in the nonvested deferred shares section above.

We recognized $ 1.0 million of expense in fiscal 2021 for cash-settled restricted share units, which was included in selling, general and administrative expenses and cost of revenue in the Consolidated Statements of Income.

As of June 30, 2021, the liability for cash-settled restricted share units was $ 1.0 million and is included in accrued wages and benefits in the Consolidated Balance Sheets.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

We recognized $ 0.6 million and $ 1.0 million of expense in fiscal years 2022 and 2021, respectively, for cash-settled restricted share units, which was included in selling, general and administrative expenses and cost of revenue in the Consolidated Statements of Income.

As of June 30, 2022, the liability for cash-settled restricted share units was $ 0.9 million and is included in accrued wages and benefits in the Consolidated Balance Sheets.

Note 11— Earnings per Common Share

9 unchanged sentences

(In thousands, except per share data)

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

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

Weighted average shares outstanding 26,733 26,451 26,621

Basic earnings (loss) per share $ ( 1.18 ) $ ( 1.24 ) $ 1.04

Basic loss per share $ ( 2.39 ) $ ( 1.18 ) $ ( 1.24 )

Weighted average shares outstanding—basic 26,733 26,451 26,621

Dilutive stock options — — 28

Dilutive nonvested deferred shares — — 668

Diluted weighted average shares 26,733 26,451 26,621

Diluted earnings (loss) per share $ ( 1.18 ) $ ( 1.24 ) $ 1.01

The following securities are considered antidilutive and have been excluded from the calculation of diluted earnings (loss) per share:

Fiscal Years Ended

2021 June 30,

2020 June 30,

(In thousands of shares)

Stock options 3 19 —

Nonvested deferred shares 399 662 160

Total antidilutive securities 402 681 160

Diluted loss per share $ ( 2.39 ) $ ( 1.18 ) $ ( 1.24 )

Note 12— Employee Benefit Plans

4 unchanged sentences

Our matching contributions vest immediately.

Our matching contributions were $ 5.4 million in the fiscal year ended June 30, 2021, and $ 6.2 million in each of the fiscal years ended June 30, 2020 and June 30, 2019.

Our matching contributions were $ 5.3 million, $ 5.4 million, and $ 6.2 million in the fiscal years ended June 30, 2022, 2021, and 2020, respectively.

Matrix Service Company

30 unchanged sentences

Boilermaker-Blacksmith National Pension Trust 48-6168020/001 Yellow Yellow Implemented $ 5,208 $ 4,003 $ 6,634 No

National Electrical Benefit Fund, IBEW locals 71, 126, 488, and 1319 53-0181657/001 Described below (1)

Green NA 2,973 1,865 2,674 No

Joint Pension Fund Local Union 164 IBEW 22-6031199/001 Described below (1)

5 unchanged sentences

Local 351 IBEW Pension Plan

22-3417366/001 Described below (1)

Green NA 479 1,709 2,025 No

22-3417366/001 Green Green NA 395 479 1,709 No

Steamfitters Local Union No 420 Pension Plan 23-2004424/001 Described below (1)

Red Implemented 498 442 1,523 Yes

IBEW Local Union 98 Pension Plan 23-1990722/001 Red Red Implemented 195 352 828 Yes

Indiana Laborers Pension Fund 35-6027150/001 Described below (1)

Green NA 20 1,604 3,349 No

Iron Workers Mid-America Pension Plan, Local 395 36-6488227/001 Described below (1)

Green NA — 840 2,596 No

Pipefitters Retirement Fund, Local 597 62-6105084/001 Green Green NA — 835 3,469 No

Iron Workers Pension Plan of Western Pennsylvania, Local 3 25-1283169/001 Described below (1)

Described below (1)

Implemented — 500 2,317 No

IBEW Local 654 Pension Plan 23-6538183/001 Green Green NA 857 818 1,021 No

Ohio Carpenters' Pension Fund, Locals 1090 and 351 34-6574360/001 Described below (1)

Red Implemented — — 3,042 Yes

Iron Workers Pension Plan, Local 55 34-6682351/001 Described below (1)

Green NA — — 2,951 No

National Electrical Benefit Fund, IBEW locals 71, 126, 488, and 1319 53-0181657/001 Described below (1)

Green NA 1,865 2,674 5,893 No

Connecticut Plumbers and Pipefitters Pension Fund, Local 777 06-6050353/001 Green Green NA — — 3,307 No

Northwestern Ohio Plumbers and Pipefitters Pension, Local 50 34-6502487/001 Described below (1)

Green NA — — 2,504 No

Ohio Carpenters' Pension Fund, Locals 1090 and 351 34-6574360/001 Described below (1)

Red Implemented — 3,042 2,962 Yes

IBEW Local 654 Pension Plan 23-6538183/001 Described below (1)

Indiana Laborers Pension Fund 35-6027150/001 Described below (1)

Green NA — 20 1,604 No

Iron Workers Mid-America Pension Plan, Local 395 36-6488227/001 Green Green NA — — 840 No

Pipefitters Retirement Fund, Local 597 62-6105084/001 Described below (1)

Green NA 4 — 835 No

Iron Workers Pension Plan of Western Pennsylvania, Local 3 25-1283169/001 Green Green NA — — 500 No

Contributions to other multiemployer plans 3,729 3,848 8,352

Total contributions made $ 16,818 $ 15,369 $ 37,403

(1) For the Local 164 IBEW Pension Plan, Local IBEW 102 IBEW Pension Plan, Local 351 IBEW Pension Plan, Steamfitters Local Union No.

420 Pension Plan, Indiana Laborers Pension Fund, Local 395 Iron Workers Mid-America Pension Plan, Local 3 Iron Workers Pension Plan of Western Pennsylvania, Iron Workers Pension Plan Local 55, National Electrical Benefit Fund for Locals 71/126/488/1319, Local 777 Connecticut Plumbers and Pipefitters Pension Fund, Local 50 Northwestern Ohio Plumbers and Pipefitters Pension, and Local 654 IBEW Pension Plan, we have not received a funding notification that covers our fiscal year 2021 during the preparation of this Form 10-K.

For Local 164 IBEW Pension Plan and Local 3 Iron Workers Pension Plan of Western Pennsylvania, we have not received a funding notification that covers our fiscal year 2020 either.

(1) For the National Electrical Benefit Fund for Locals 71/126/488/1319, Local 164 IBEW Pension Plan, Local IBEW 102 IBEW Pension Plan, Steamfitters Local Union No.

420 Pension Plan, Locals 1090 and 351 of the Ohio Carpenters' Pension Fund, Iron Workers Pension Plan Local 55, Northwestern Ohio Plumbers and Pipefitters Pension Local 50, Indiana Laborers Pension Fund, and Pipefitters Retirement Fund Local 597, we have not received a funding notification that covers our fiscal year 2022 during the preparation of this Form 10-K.

For Local 164 IBEW Pension Plan, we have not received a funding notification that covers our fiscal year 2021 either.

Under Federal pension law, if a multiemployer pension plan is determined to be in critical or endangered status, the plan must provide notice of this status to participants, beneficiaries, the bargaining parties, the Pension Benefit Guaranty Corporation, and the Department of Labor.

1 unchanged sentence

The Critical or Endangered Status Notices can be accessed at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/public-disclosure/2022-funding-status-notices#2020-c-and-d.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Employee Stock Purchase Plan

8 unchanged sentences

There were 29,826 shares issued in fiscal 2022, 29,171 shares in fiscal 2021, and 20,733 shares in fiscal 2020.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Note 13— Segment Information

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

In fiscal 2022, we operated 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 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 :

7 unchanged sentences

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.

We evaluate performance and allocate resources based on operating income.

We record intersegment sales and transfers at cost;

We eliminate intersegment sales;

therefore, no intercompany profit or loss is recognized.

Corporate selling, general and administrative expenses are excluded from our three reportable segments in order to better align controllable costs with the responsibility of segment management, and to be consistent with how our chief operating decision-maker assesses segment performance and allocates resources.

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

9 unchanged sentences

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

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

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

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 )

1 unchanged sentence

Capital expenditures 29 254 338 2,724 3,345

Depreciation and amortization expense 4,127 6,018 7,456 257 17,858

Depreciation and amortization 3,812 5,659 5,540 243 15,254

Fiscal year ended June 30, 2021

2 unchanged sentences

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 9,882 14,756 18,644 26,474 69,756

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 )

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

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

Segment assets 81,717 106,619 160,782 118,438 467,556

Capital expenditures 1,183 834 1,136 1,201 4,354

Depreciation and amortization expense 3,054 8,014 7,743 313 19,124

Depreciation and amortization 4,127 6,018 7,456 257 17,858

Fiscal year ended June 30, 2020

4 unchanged sentences

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 )

1 unchanged sentence

Capital expenditures 3,285 7,523 4,921 2,810 18,539

Depreciation and amortization expense 2,567 8,232 7,132 293 18,224

Depreciation and amortization 3,054 8,014 7,743 313 19,124

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Geographical information is as follows:

Long-Lived Assets

2021 June 30,

2020 June 30,

(In thousands)

United States $ 157,442 $ 164,056 $ 193,472

Canada 6,523 5,659 10,110

Other international 12,372 12,435 12,502

$ 176,337 $ 182,150 $ 216,084

Information about Significant Customers:

6 unchanged sentences

Customer three 4.7 % 15.1 % — % — %

Customer four 4.4 % — % — % 11.2 %

Fiscal Year ended June 30, 2021

3 unchanged sentences

Customer four 4.4 % — % — % 11.2 %

Customer five 2.0 % 10.5 % — % — %

Fiscal Year ended June 30, 2020

4 unchanged sentences

Customer five 2.0 % 10.5 % — % — %

Customer six 5.0 % — % — % 13.8 %

Customer seven 4.6 % 0.2 % 1.5 % 10.8 %

Customer eight 3.4 % 19.5 % — % — %

Customer nine 2.1 % 11.7 % — % — %

Customer ten 2.0 % 11.3 % — % — %

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Note 14— Restructuring Costs

During the third quarter of fiscal 2020, we initiated a business improvement plan to increase profitability and reduce our cost structure related to:

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

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

• the decline in revenue caused by the ongoing effects of the COVID-19 pandemic and related market disruptions.

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

We incurred $14.0 million of restructuring costs during fiscal 2020 and $6.8 million during fiscal 2021.

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

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.

In fiscal 2020, we initiated a business improvement plan to increase profitability and reduce our cost structure in order to help us become more competitive and deliver higher quality service.

As a result of specific events, including the effects of the COVID-19 pandemic and related market disruptions, the Company expanded its business improvement plan.

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

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

The restructuring costs consist primarily of severance costs, facility closure costs, consulting fees and other liabilities.

Matrix Service Company

2 unchanged sentences

Fiscal Year Ended

June 30, 2022 Fiscal Year Ended

June 30, 2021 Fiscal Year Ended

June 30, 2020 Since Inception of Business Improvement Plan

4 unchanged sentences

Other intangible asset impairments — — 1,150 1,150

Other costs 1 — — 1

Total Utility and Power Infrastructure $ 46 $ 1,312 $ 2,725 $ 4,083

4 unchanged sentences

Other costs (1)

( 1,597 ) 426 — ( 1,171 )

Total Process and Industrial Facilities $ ( 1,602 ) $ 3,808 $ 9,299 $ 11,505

2 unchanged sentences

Facility costs — 159 720 879

Other costs 28 — — 28

Total Storage and Terminal Solutions $ 97 $ 1,390 $ 1,067 $ 2,554

1 unchanged sentence

Facility costs 16 82 — 98

Other intangible asset impairments — —

Other costs 1,585 — — 1,585

Total Corporate $ 2,105 $ 246 $ 919 $ 3,270

6 unchanged sentences

Total restructuring costs $ 646 $ 6,756 $ 14,010 $ 21,412

The restructuring reserve is included in other accrued expenses and other liabilities in the Consolidated Balance Sheets.

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

Balance as of June 30, 2020 $ 2,403

Restructuring costs incurred 4,026

Cash payments ( 3,484 )

Adjustment to liability ( 510 )

Balance as of June 30, 2021 $ 2,435

Matrix Service Company

Quarterly Financial Data (Unaudited)

Fiscal Years Ended June 30, 2021 and June 30, 2020

Quarter Second

Quarter Third

Quarter Fourth

(In thousands, except per share amounts)

Fiscal Year 2021

Revenue $ 182,771 $ 167,468 $ 148,260 $ 174,899

Gross profit 14,350 15,313 1,560 1,542

Restructuring costs ( 320 ) 5,045 1,860 171

Operating loss ( 3,458 ) ( 6,456 ) ( 17,479 ) ( 16,354 )

Net loss ( 3,037 ) ( 4,591 ) ( 12,873 ) ( 10,723 )

Loss per common share:

Basic ( 0.12 ) ( 0.17 ) ( 0.49 ) ( 0.40 )

Diluted ( 0.12 ) ( 0.17 ) ( 0.49 ) ( 0.40 )

Fiscal Year 2020

Revenue $ 338,097 $ 318,677 $ 248,327 $ 195,837

Gross profit 32,465 30,001 20,477 19,233

Intangible asset impairments and restructuring costs — 38,515 6,559 7,451

Operating income (loss) 8,774 ( 31,679 ) ( 5,800 ) ( 7,920 )

Net income (loss) 6,151 ( 28,008 ) ( 5,495 ) ( 5,722 )

Earnings (loss) per common share:

Basic 0.23 ( 1.04 ) ( 0.21 ) ( 0.22 )

Diluted 0.22 ( 1.04 ) ( 0.21 ) ( 0.22 )

The sum of earnings per share for the four quarters may not equal the total earnings per share for the year due to changes in the average number of common shares outstanding and rounding.

(1) Other costs in the Process and Industrial Facilities segment consisted of a $1.6 million credit in the third quarter of fiscal 2022.

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.

Matrix Service Company

18 unchanged sentences

Allowance for doubtful accounts 923 1,158 — ( 1,176 ) (E) 905

Valuation reserve for deferred tax assets 1,638 4,594 — ( 1,273 ) (F) 4,959

Valuation reserve for deferred tax assets 4,959 3,062 — ( 258 ) (B) 7,763

Total 5,882 4,220 — ( 1,434 ) 8,668

(A) Primarily relates to a $0.1 million reserve that was recognized as a credit loss and ultimately written off within fiscal 2021.

(B) Relates to $ 1.1 million of foreign currency translation for the portion of the valuation allowance on net operating loss and tax credit carryforwards in foreign jurisdictions, partially offset by $ 0.6 million of fully reserved tax credits that expired in fiscal 2021.

(C) Primarily relates to a $ 0.6 million reserve that was recognized as a credit loss and ultimately settled and written off within fiscal 2020 and $ 0.3 million of payments received on a balance that was fully reserved.

(D) Relates to foreign currency translation for the portion of the valuation allowance on net operating loss and tax credit carryforwards in foreign jurisdictions.

(E) Primarily relates to a $ 5.2 million reversal of a previous reserved account receivable balance that was fully settled with an agreement with the customer.

(F) Relates to the deferred tax asset of $ 0.8 million created by a stock-based compensation award with a market condition that was fully reserved in fiscal 2018.

In fiscal 2019, upon the final determination that the award would not vest, we wrote off the deferred tax asset against the reserve.

The remaining balance relates to $ 0.5 million of fully reserved tax credits that expired in fiscal 2019.

(A) Relates to the write off of a $0.3 million account receivable that was fully reserved in a prior period.

(B) Relates to foreign currency translation for the portion of the valuation allowance on net operating loss and tax credit carryforwards in foreign jurisdictions.

(C) Primarily relates to a $0.1 million reserve that was recognized as a credit loss and ultimately written off within fiscal 2021.

(D) Relates to $ 1.1 million of foreign currency translation for the portion of the valuation allowance on net operating loss and tax credit carryforwards in foreign jurisdictions, partially offset by $ 0.6 million of fully reserved tax credits that expired in fiscal 2021.

(E) Primarily relates to a $ 0.6 million reserve that was recognized as a credit loss and ultimately settled and written off within fiscal 2020 and $ 0.3 million of payments received on a balance that was fully reserved.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data