What changed in this filing

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Item 1. Financial Statements

2022-11-09 compared with 2022-05-10 · 133 added, 186 removed, 409 unchanged (44% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended Nine Months Ended

2022 March 31,

2021 March 31,

2022 March 31,

Three Months Ended

September 30,

2022 September 30,

Revenue $ 208,431 $ 168,093

2 unchanged sentences

Selling, general and administrative expenses 16,811 16,629

Goodwill impairment (Note 4) 18,312 — 18,312 —

Restructuring costs (Note 10) ( 1,578 ) 1,860 ( 278 ) 6,585

Restructuring costs 1,287 605

Operating loss ( 5,090 ) ( 20,742 )

Other income (expense):

Interest expense (Note 5) ( 204 ) ( 322 ) ( 2,705 ) ( 1,055 )

Interest expense ( 372 ) ( 1,999 )

Interest income 24 21

Other ( 1,074 ) ( 83 )

Loss before income tax expense (benefit) ( 35,046 ) ( 17,933 ) ( 71,792 ) ( 26,503 )

Provision (benefit) for federal, state and foreign income taxes ( 147 ) ( 5,060 ) 5,564 ( 6,002 )

Loss before income tax benefit ( 6,512 ) ( 22,803 )

Benefit for federal, state and foreign income taxes — ( 5,265 )

Net loss $ ( 6,512 ) $ ( 17,538 )

8 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

2022 March 31,

2021 March 31,

2022 March 31,

Three Months Ended

September 30,

2022 September 30,

Net loss $ ( 6,512 ) $ ( 17,538 )

Other comprehensive income (loss), net of tax:

Foreign currency translation gain (loss) (net of tax expense (benefit) of $(16) and $30 for the three and nine months ended March 31, 2022, respectively, and $(33) and $20 for the three and nine months ended March 31, 2021, respectively) ( 32 ) 68 ( 728 ) 1,291

Other comprehensive loss, net of tax:

Foreign currency translation loss (net of tax expense of $0 and $54 for the three months ended September 30, 2022 and 2021, respectively) ( 1,753 ) ( 795 )

Comprehensive loss $ ( 8,265 ) $ ( 18,333 )

3 unchanged sentences

(In thousands)

September 30,

2022 June 30,

1 unchanged sentence

Cash and cash equivalents (Note 1) $ 14,342 $ 52,371

Accounts receivable, less allowances (March 31, 2022—$634 and June 30, 2021—$898) 137,690 148,030

Accounts receivable, less allowances (September 30, 2022—$1,222 and June 30, 2022—$1,320) 149,345 153,879

Costs and estimated earnings in excess of billings on uncompleted contracts 59,609 44,752

1 unchanged sentence

Income taxes receivable 13,546 13,547

Prepaid expenses 9,833 4,024

Other current assets 5,550 8,865

Total current assets 260,604 287,412

Property, plant and equipment at cost:

Land and buildings 41,745 41,633

Construction equipment 93,862 94,453

Transportation equipment 49,532 50,510

Office equipment and software 43,447 42,706

Construction in progress 564 493

Total property, plant and equipment - at cost 229,150 229,795

Accumulated depreciation ( 168,672 ) ( 160,388 )

Property, plant and equipment - net 60,478 69,407

Restricted cash (Note 1) 25,000 25,000

Property, plant and equipment - net 51,659 53,869

Operating lease right-of-use assets 21,185 22,067

1 unchanged sentence

Other intangible assets, net of accumulated amortization 4,364 4,796

Deferred income taxes — 5,295

Other assets, non-current 6,184 5,514

4 unchanged sentences

(In thousands, except share data)

September 30,

2022 June 30,

10 unchanged sentences

Operating lease liabilities 19,698 19,904

Borrowings under asset-backed credit facility 15,000 15,000

Other liabilities, non-current 342 372

4 unchanged sentences

60,000,000 shares authorized;

27,888,217 shares issued as of March 31, 2022 and June 30, 2021;

26,783,265 and 26,549,438 shares outstanding as of March 31, 2022 and June 30, 2021, respectively 279 279

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

26,955,510 and 26,790,514 shares outstanding as of September 30, 2022 and June 30, 2022, respectively 279 279

Additional paid-in capital 137,651 139,854

2 unchanged sentences

232,768 243,236

Treasury stock, at cost — 1,104,952 shares as of March 31, 2022, and 1,338,779 shares as of June 30, 2021 ( 15,674 ) ( 20,744 )

Treasury stock, at cost — 932,707 shares as of September 30, 2022, and 1,097,703 shares as of June 30, 2022 ( 11,517 ) ( 15,530 )

Total stockholders' equity 221,251 227,706

4 unchanged sentences

(In thousands)

Nine Months Ended

2022 March 31,

Three Months Ended

September 30,

2022 September 30,

Operating activities:

2 unchanged sentences

Depreciation and amortization 3,642 4,052

Goodwill impairment 18,312 —

Stock-based compensation expense 2,055 1,869

Operating lease impairment due to restructuring — 454

Deferred income tax — ( 5,343 )

Gain on sale of property, plant and equipment ( 674 ) ( 1,123 )

Loss (gain) on sale of property, plant and equipment 65 ( 101 )

Provision for uncollectible accounts ( 88 ) 4

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

Other 103 317

Accelerated amortization of deferred debt amendment fees — 1,518

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

15 unchanged sentences

(In thousands)

Nine Months Ended

2022 March 31,

Three Months Ended

September 30,

2022 September 30,

Financing activities:

Advances under senior secured revolving credit facility $ — $ 1,125

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

Payment of debt amendment fees $ — $ ( 922 )

Issuances of common stock 199 92

Proceeds from issuance of common stock under employee stock purchase plan 65 76

7 unchanged sentences

Supplemental disclosure of cash flow information:

Cash paid (received) during the period for:

Income taxes $ ( 2,841 ) $ 200

Cash paid during the period for:

Interest, including payment of debt amendment fees $ 421 $ 1,603

7 unchanged sentences

Capital Retained

Earnings Treasury

Stock Accumulated

Comprehensive

Balances, December 31, 2021 $ 279 $ 135,913 $ 132,721 $ ( 15,858 ) $ ( 7,445 ) $ 245,610

Net loss — — ( 34,899 ) — — ( 34,899 )

Other comprehensive loss — — — — ( 32 ) ( 32 )

Treasury shares sold to Employee Stock Purchase Plan (9,290 shares) — ( 115 ) — 184 — 69

Stock-based compensation expense — 2,088 — — — 2,088

Balances, March 31, 2022 $ 279 $ 137,886 $ 97,822 $ ( 15,674 ) $ ( 7,477 ) $ 212,836

Balances, December 31, 2020 $ 279 $ 133,957 $ 198,774 $ ( 21,571 ) $ ( 7,150 ) $ 304,289

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

Other comprehensive income — — — — 68 68

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

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

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

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

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

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

Matrix Service Company

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share data)

Stock Additional

Capital Retained

Earnings Treasury

Stock Accumulated

Earnings Accumulated

Comprehensive

Loss Treasury

Balances, June 30, 2022 $ 279 $ 139,854 $ 111,278 $ ( 8,175 ) $ ( 15,530 ) $ 227,706

1 unchanged sentence

Other comprehensive loss — — — ( 1,753 ) — ( 1,753 )

Exercise of stock options (19,550 shares) — ( 189 ) — 388 — 199

Issuance of deferred shares (204,827 shares) — ( 4,064 ) — — 4,064 —

2 unchanged sentences

Stock-based compensation expense — 2,055 — — — 2,055

Balances, March 31, 2022 $ 279 $ 137,886 $ 97,822 $ ( 15,674 ) $ ( 7,477 ) $ 212,836

Balances, September 30, 2022 $ 279 $ 137,651 $ 104,766 $ ( 9,928 ) $ ( 11,517 ) $ 221,251

Balances, June 30, 2021 $ 279 $ 137,575 $ 175,178 $ ( 6,749 ) $ ( 20,744 ) $ 285,539

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

Other comprehensive income — — — — 1,291 1,291

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

Other comprehensive loss — — — ( 795 ) — ( 795 )

Issuance of deferred shares (217,084 shares) — ( 4,084 ) — — 4,084 —

2 unchanged sentences

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

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

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

Matrix Service Company

8 unchanged sentences

The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2022, included in our Annual Report on Form 10-K for the year then ended.

The results of operations for the three and nine months ended March 31, 2022 may not necessarily be indicative of the results of operations for the full year ending June 30, 2022.

The results of operations for the three months ended September 30, 2022 may not necessarily be indicative of the results of operations for the full year ending June 30, 2023.

Significant Accounting Policies

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

Our other significant accounting policies are detailed in “Note 1 - Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended June 30, 2021.

Cash, Cash Equivalents and Restricted Cash

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

Our asset-backed credit agreement (the "ABL Facility") requires us to maintain a minimum of $25.0 million of restricted cash at all times (See Note 6 - Debt for more information about the ABL Facility).

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

During the third quarter, restrictions were released on $ 2.6 million of cash that supported a prior purchase card program.

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

September 30,

2022 June 30,

2 unchanged sentences

Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows $ 39,342 $ 77,371

Our other significant accounting policies are detailed in “Note 1 - Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended June 30, 2022.

Note 2 – Revenue

Remaining Performance Obligations

We had $ 433.6 million of remaining performance obligations yet to be satisfied as of March 31, 2022 .

We had $ 438.6 million of remaining performance obligations yet to be satisfied as of September 30, 2022 .

We expect to recognize $ 367.2 million of our remaining performance obligations as revenue within the next twelve months.

10 unchanged sentences

The following table provides information about CIE and BIE:

September 30,

2022 June 30,

2 unchanged sentences

Billings on uncompleted contracts in excess of costs and estimated earnings ( 53,286 ) ( 65,106 ) 11,820

Net contract liabilities $ ( 27,475 ) $ ( 23,058 ) $ ( 4,417 )

Net contract assets (liabilities) $ 6,323 $ ( 20,354 ) $ 26,677

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

The amount of revenue recognized during the nine months ended March 31, 2022 that was included in the June 30, 2021 BIE balance was $ 48.2 million.

The amount of revenue recognized during the three months ended September 30, 2022 that was included in the June 30, 2022 BIE balance was $ 37.6 million.

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

Progress billings in accounts receivable at March 31, 2022 and June 30, 2021 included retentions to be collected within one year of $ 14.1 million and $ 19.9 million, respectively.

Contract retentions collectible beyond one year are included in other assets, non-current in the Condensed Consolidated Balance Sheet and totaled $ 2.8 million as of March 31, 2022 and $ 3.1 million as of June 30, 2021.

Progress billings in accounts receivable at September 30, 2022 and June 30, 2022 included retentions to be collected within one year of $ 19.1 million and $ 16.1 million, respectively.

Contract retentions collectible beyond one year are included in other assets, non-current in the Condensed Consolidated Balance Sheets and totaled $ 4.9 million as of September 30, 2022 and $ 4.0 million as of June 30, 2022.

Disaggregated Revenue

2 unchanged sentences

Geographic Disaggregation:

Three Months Ended Nine Months Ended

2022 March 31,

2021 March 31,

2022 March 31,

Three Months Ended

September 30,

2022 September 30,

(In thousands)

4 unchanged sentences

Contract Type Disaggregation:

Three Months Ended Nine Months Ended

2022 March 31,

2021 March 31,

2022 March 31,

Three Months Ended

September 30,

2022 September 30,

(In thousands)

7 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.

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, which resulted in a decrease in gross profit of $ 4.8 million in the three and nine months ended March 31, 2022.

The increase in forecasted costs was primarily due to performance of a, now terminated, subcontractor, which will require rework in order to meet our client's expectations.

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

Improved project execution resulted in an increase in gross profit of $ 0.8 million during the three months ended March 31, 2022.

However, increases in the forecasted costs to complete the project during the first half of fiscal 2022 resulted in the project reducing gross profit by $ 5.1 million during the nine months ended March 31, 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.

We expect to complete the project during the fourth quarter of fiscal 2022.

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 $ 5.5 million in the first half of fiscal 2022.

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

We expect to complete these repairs 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 September 30, 2022 and June 30, 2022:

September 30,

2022 June 30,

(In thousands)

Property, plant and equipment - at cost:

Land and buildings $ 34,290 $ 34,788

Construction equipment 91,546 93,036

Transportation equipment 49,516 48,999

Office equipment and software 41,387 43,823

Construction in progress 1,017 1,646

Total property, plant and equipment - at cost 217,756 222,292

Accumulated depreciation ( 166,097 ) ( 168,423 )

Property, plant and equipment - net $ 51,659 $ 53,869

Note 4 – Leases

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

Real estate leases accounted for approximately 96 % of all right-of-use assets as of March 31, 2022 .

Real estate leases accounted for approximately 98 % of all right-of-use assets as of September 30, 2022 .

Most real estate and information technology equipment leases generally have fixed payments that follow an agreed upon payment schedule and have remaining lease terms ranging from less than one year to 13 years.

1 unchanged sentence

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

Three Months Ended Nine Months Ended

March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021

Three Months Ended

September 30, 2022 September 30, 2021

Lease expense Location of Expense (in thousands)

7 unchanged sentences

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

March 31, 2022

September 30, 2022

Maturity Analysis:

11 unchanged sentences

Non-current operating lease liabilities $ 19,698

The following is a summary of the weighted average remaining operating lease term and weighted average discount rate as of March 31, 2022 :

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

Weighted-average remaining lease term (in years) 6.5 years

1 unchanged sentence

Supplemental cash flow information related to leases is as follows:

Nine Months Ended

March 31, 2022

Three Months Ended

September 30, 2022

(in thousands)

8 unchanged sentences

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

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

Translation adjustment (1)

( 74 ) — ( 145 ) ( 219 )

Net balance at March 31, 2022 $ 4,298 $ 18,427 $ 19,515 $ 42,240

Net balance at September 30, 2022 $ 4,189 $ 18,427 $ 19,300 $ 41,916

(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.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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.

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

The key assumptions used are described in Item 2.

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

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

We concluded, that based on the totality of both positive and negative factors, no impairment indicators existed at September 30, 2022.

However, if our view of project opportunities or gross margins deteriorates, particularly for the higher risk reporting units, then we may need to perform an interim goodwill impairment test, which could result in an impairment.

Other Intangible Assets

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

At March 31, 2022

At September 30, 2022

Useful Life Gross Carrying

3 unchanged sentences

Intellectual property 10 to 15 $ 2,558 $ ( 2,318 ) $ 240

Customer-based 6 to 15 17,274 ( 12,370 ) 4,904

Customer-based (1)

6 to 15 13,144 ( 9,020 ) 4,124

Total amortizing intangible assets $ 15,702 $ ( 11,338 ) $ 4,364

(1) Customer-based intangible assets have been adjusted in fiscal 2023 to remove $ 4.2 million of customer relationships that have been fully amortized.

At June 30, 2022

6 unchanged sentences

Total amortizing intangible assets $ 19,889 $ ( 15,093 ) $ 4,796

Amortization expense totaled $ 0.4 million and $ 1.4 million during the three and nine months ended March 31, 2022 , respectively;

and $ 0.6 million and $ 1.7 million during the three and nine months ended March 31, 2021, respectively.

We estimate that the remaining amortization expense related to March 31, 2022 amortizing intangible assets will be as follows (in thousands):

Amortization expense totaled $ 0.4 million and $ 0.5 million during the three months ended September 30, 2022 and 2021, respectively.

We estimate that the remaining amortization expense related to September 30, 2022 amortizing intangible assets will be as follows (in thousands):

Period ending:

3 unchanged sentences

Fiscal 2026 555

Total estimated remaining amortization expense at March 31, 2022 $ 5,228

Total estimated remaining amortization expense at September 30, 2022 $ 4,364

Matrix Service Company

1 unchanged sentence

Note 6 – Debt

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 , 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) waived 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) reduced the maximum amount of loans under the ABL Facility to $ 90.0 million from $ 100.0 million and (iii) replaced the London interbank offered rate with the forward term rate based on the secured overnight financing rate (the “SOFR”) as the interest rate benchmark.

We subsequently delivered the Audited Financial Statements on October 11, 2022.

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.

3 unchanged sentences

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

At March 31, 2022 , our borrowing base was $ 76.4 million and we had $ 23.7 million in letters of credit outstanding issued by Bank of Montreal, which resulted in availability of $ 52.7 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 equal to any of a base rate (“Base Rate”), Canadian prime rate, CDOR rate or a LIBOR rate, plus an applicable margin.

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

At September 30, 2022, our borrowing base was $ 79.0 million, we had $ 15.0 million of outstanding borrowings, and $ 21.7 million in letters of credit outstanding, which resulted in availability of $ 42.3 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 %;

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

and (iv) 1.00 %.

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

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

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

(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 September 30, 2022, including applicable margin, was 7.50 %.

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 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 March 31, 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, 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 was set to expire 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 nine months ended March 31, 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees associated with the Prior Credit Agreement.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

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.

Except for the covenant to deliver Audited Financial Statements by September 28, 2022, which was waived in the Amendment, we were in compliance with all covenants of the ABL Facility as of September 30, 2022.

Note 7 – Income Taxes

Effective Tax Rate

Our effective tax rates were 0.4 % and ( 7.8 )% for the three and nine months ended March 31, 2022 , compared to 28.2 % and 22.6 % during the three and nine months ended March 31, 2021, respectively.

The effective tax rates during fiscal 2022 were impacted by a $ 14.2 million valuation allowance placed on our deferred tax assets during the second quarter.

The tax benefit resulting from additional losses during the three months ended March 31, 2022 was offset by additional valuation allowances of $ 7.7 million.

The income tax benefit recorded for the three months ended March 31, 2022 was the result of a change in estimate of our uncertain tax positions.

The effective tax rates were negatively impacted by $ 1.9 million of valuation allowances on certain deferred tax assets in the third quarter of fiscal 2021, and $ 1.2 million of other deferred tax adjustments in the first half of fiscal 2021.

In determining the need for a valuation allowance on deferred tax assets, the accounting standards provide that the existence of a cumulative loss over a three-year period generally precludes the use of management’s projections of future taxable income.

Consequently, we have recorded a full valuation allowance against the deferred tax assets in the U.S.

taxable jurisdiction in the amount of $ 21.9 million during fiscal 2022.

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 the Company generates 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.

Our effective tax rates were 0.0 % and 23.1 % for the three months ended September 30, 2022 and 2021, respectively.

The effective tax rate during the first quarter of fiscal 2023 was impacted by a $ 1.4 million valuation allowance placed on deferred tax assets generated during the quarter.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Full Valuation Allowance

We placed a full valuation allowance on our deferred tax assets in the second quarter of fiscal 2022 due to the existence of a cumulative loss over a three-year period.

We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided 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.

Net Operating Loss Carryback Refund

Through provisions in 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.

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 Condensed 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 March 31, 2022, we have a balance of $ 5.6 million remaining on U.S.

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

payroll taxes we deferred through provisions of 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.

We must repay this balance by December 31, 2022.

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

9 unchanged sentences

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

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Unpriced Change Orders and Claims

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $ 9.3 million at March 31, 2022 and $ 14.6 million at June 30, 2021.

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $ 13.7 million at September 30, 2022 and $ 8.9 million at June 30, 2022.

The amounts ultimately realized may be significantly different than the recorded amounts resulting in a material adjustment to future earnings.

The determination of our legal basis for a claim requires significant judgment.

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

1 unchanged sentence

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

The unpaid receivable balance at March 31, 2022 was $ 17.0 million.

The unpaid account receivable balance at September 30, 2022 was $ 17.0 million.

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

We and our subsidiaries are participants in various legal actions.

We are participants in various legal actions.

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.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Note 9 – Earnings per Common Share

3 unchanged sentences

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

Three Months Ended Nine Months Ended

2022 March 31,

2021 March 31,

2022 March 31,

Three Months Ended

September 30,

2022 September 30,

(In thousands, except per share data)

2 unchanged sentences

Basic loss per share $ ( 0.24 ) $ ( 0.66 )

Diluted weighted average shares 26,783 26,515 26,714 26,422

Net loss ( 6,512 ) ( 17,538 )

Diluted weighted average shares outstanding 26,862 26,611

Diluted loss per share $ ( 0.24 ) $ ( 0.66 )

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Note 10 – Segment Information

22 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

2022 March 31,

2021 March 31,

2022 March 31,

Three Months Ended

September 30,

2022 September 30,

Gross revenue

24 unchanged sentences

Total selling, general and administrative expenses $ 16,811 $ 16,629

Goodwill impairment and restructuring costs

Restructuring costs

Utility and Power Infrastructure $ 37 $ 9

2 unchanged sentences

Corporate 413 622

Total goodwill impairment and restructuring costs $ 16,734 $ 1,860 $ 18,034 $ 6,585

Total restructuring costs $ 1,287 $ 605

Operating income (loss)

7 unchanged sentences

Total assets by segment were as follows:

September 30,

2022 June 30,

9 unchanged sentences

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.

We expect to complete these restructuring efforts in fiscal 2023 or early fiscal 2024.

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

2 unchanged sentences

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

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

March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021

Three Months Ended Since Inception of Business Improvement Plan

September 30, 2022 September 30, 2021

(In thousands)

10 unchanged sentences

Other costs — 2 ( 1,171 )

( 1,601 ) 202 ( 1,597 ) 461 ( 1,171 )

Total Process and Industrial Facilities $ 315 $ 7 $ 11,820

14 unchanged sentences

Total restructuring costs $ 1,287 $ 605 $ 22,699

(1) Other costs in the Process and Industrial Facilities segment consisted of a $1.6 million credit in the three and nine months ended March 31, 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.

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

What changed 10-Q

Item 1. Financial Statements