What changed in this filing

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Item 1. Financial Statements

2023-02-09 compared with 2022-11-09 · 138 added, 111 removed, 431 unchanged (37% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended

September 30,

2022 September 30,

Three Months Ended Six Months Ended

2022 December 31,

2021 December 31,

2022 December 31,

Revenue $ 193,840 $ 161,965 $ 402,271 $ 330,058

2 unchanged sentences

Selling, general and administrative expenses 17,545 15,922 34,356 32,551

Goodwill impairment 12,316 — 12,316 —

Restructuring costs 1,278 695 2,565 1,300

4 unchanged sentences

Other 484 ( 60 ) ( 590 ) ( 143 )

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

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

Loss before income tax expense ( 32,827 ) ( 13,943 ) ( 39,339 ) ( 36,746 )

Provision for federal, state and foreign income taxes — 10,976 — 5,711

Net loss $ ( 32,827 ) $ ( 24,919 ) $ ( 39,339 ) $ ( 42,457 )

8 unchanged sentences

(In thousands)

Three Months Ended

September 30,

2022 September 30,

Three Months Ended Six Months Ended

2022 December 31,

2021 December 31,

2022 December 31,

Net loss $ ( 32,827 ) $ ( 24,919 ) $ ( 39,339 ) $ ( 42,457 )

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 )

Foreign currency translation gain (loss) (net of tax expense (benefit) of $0 for the three and six months ended December 31, 2022 and $(8) and $46 for the three and six months ended December 31, 2021, respectively) 1,265 99 ( 488 ) ( 696 )

Comprehensive loss $ ( 31,562 ) $ ( 24,820 ) $ ( 39,827 ) $ ( 43,153 )

3 unchanged sentences

(In thousands)

September 30,

2022 June 30,

Current assets:

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

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

Cash and cash equivalents $ 31,464 $ 52,371

Accounts receivable, less allowances (December 31, 2022—$1,112 and June 30, 2022—$1,320) 182,054 153,879

Costs and estimated earnings in excess of billings on uncompleted contracts 46,588 44,752

4 unchanged sentences

Total current assets 294,482 287,412

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

Restricted cash 25,000 25,000

Property, plant and equipment - net 50,684 53,869

8 unchanged sentences

(In thousands, except share data)

September 30,

2022 June 30,

17 unchanged sentences

60,000,000 shares authorized;

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

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

27,027,323 and 26,790,514 shares outstanding as of December 31, 2022 and June 30, 2022, respectively 279 279

Additional paid-in capital 137,989 139,854

2 unchanged sentences

201,544 243,236

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 )

Treasury stock, at cost — 860,894 shares as of December 31, 2022, and 1,097,703 shares as of June 30, 2022 ( 10,092 ) ( 15,530 )

Total stockholders' equity 191,452 227,706

4 unchanged sentences

(In thousands)

Three Months Ended

September 30,

2022 September 30,

Six Months Ended

2022 December 31,

Operating activities:

Net loss $ ( 39,339 ) $ ( 42,457 )

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

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

Depreciation and amortization 7,177 7,841

Goodwill impairment 12,316 —

Stock-based compensation expense 3,747 3,735

11 unchanged sentences

Accrued expenses ( 8,381 ) ( 10,657 )

Net cash used by operating activities ( 35,229 ) ( 19,153 )

Net cash provided (used) by operating activities ( 17,585 ) 11,385

Investing activities:

6 unchanged sentences

(In thousands)

Three Months Ended

September 30,

2022 September 30,

Six Months Ended

2022 December 31,

Financing activities:

Advances under asset-backed credit facility $ 10,000 $ —

Repayments of advances under asset-backed credit facility ( 10,000 ) —

Payment of debt amendment fees — ( 1,010 )

Issuances of common stock — 199

Proceeds from issuance of common stock under employee stock purchase plan 136 143

Repurchase of common stock for payment of statutory taxes due on equity-based compensation ( 310 ) ( 853 )

Other — ( 118 )

Other Treasury Share Purchases — ( 236 )

Net cash used by financing activities ( 174 ) ( 1,757 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 336 ) ( 405 )

Decrease in cash, cash equivalents and restricted cash ( 38,029 ) ( 21,600 )

Cash, cash equivalents and restricted cash, beginning of period (Note 1) 77,371 83,878

Cash, cash equivalents and restricted cash, end of period (Note 1) $ 39,342 $ 62,278

Net increase (decrease) in cash, cash equivalents and restricted cash ( 20,907 ) 8,762

Cash, cash equivalents and restricted cash, beginning of period 77,371 83,878

Cash, cash equivalents and restricted cash, end of period $ 56,464 $ 92,640

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Cash paid (received) during the period for:

Income taxes $ — $ ( 341 )

Interest, including payment of debt amendment fees $ 1,056 $ 1,798

10 unchanged sentences

Loss Treasury

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

Net loss — — ( 32,827 ) — — ( 32,827 )

Other comprehensive income — — — 1,265 — 1,265

Issuance of deferred shares (54,702 shares) — ( 1,085 ) — — 1,085 —

Treasury shares sold to Employee Stock Purchase Plan (17,111 shares) — ( 269 ) — — 340 71

Stock-based compensation expense — 1,692 — — — 1,692

Balances, December 31, 2022 $ 279 $ 137,989 $ 71,939 $ ( 8,663 ) $ ( 10,092 ) $ 191,452

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

Net loss — — ( 24,919 ) — — ( 24,919 )

Other comprehensive income — — — 99 — 99

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

Issuance of deferred shares (51,319 shares) — ( 1,018 ) — — 1,018 —

Treasury shares sold to Employee Stock Purchase Plan (6,078 shares) — ( 54 ) — — 121 67

Stock-based compensation expense — 1,866 — — — 1,866

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

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Loss Treasury

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

5 unchanged sentences

Stock-based compensation expense — 3,747 — — — 3,747

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

Balances, December 31, 2022 $ 279 $ 137,989 $ 71,939 $ ( 8,663 ) $ ( 10,092 ) $ 191,452

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

Net loss — — ( 42,457 ) — — ( 42,457 )

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

Other comprehensive income loss — — — ( 696 ) — ( 696 )

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

Issuance of deferred shares (268,403 shares) — ( 5,102 ) — — 5,102 —

2 unchanged sentences

Stock-based compensation expense — 3,735 — — — 3,735

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

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

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

The results of operations for the three and six month periods ended December 31, 2022 may not necessarily be indicative of the results of operations for the full year ending June 30, 2023.

Significant Accounting Policies

Cash, Cash Equivalents and Restricted Cash

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.

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,

Cash and cash equivalents $ 14,342 $ 52,371

Restricted cash 25,000 25,000

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.

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

We had $ 574.6 million of remaining performance obligations yet to be satisfied as of December 31, 2022 .

We expect to recognize $ 432.8 million of our remaining performance obligations as revenue within the next twelve months.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Contract Balances

7 unchanged sentences

The following table provides information about CIE and BIE:

September 30,

2022 June 30,

2 unchanged sentences

Billings on uncompleted contracts in excess of costs and estimated earnings ( 99,762 ) ( 65,106 ) ( 34,656 )

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

Net contract liabilities $ ( 53,174 ) $ ( 20,354 ) $ ( 32,820 )

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

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

The amount of revenue recognized during the six months ended December 31, 2022 that was included in the June 30, 2022 BIE balance was $ 52.3 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 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.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Progress billings in accounts receivable at December 31, 2022 and June 30, 2022 included retentions to be collected within one year of $ 19.7 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 $ 9.0 million as of December 31, 2022 and $ 4.0 million as of June 30, 2022.

Disaggregated Revenue

2 unchanged sentences

Geographic Disaggregation:

Three Months Ended

September 30,

2022 September 30,

Three Months Ended Six Months Ended

2022 December 31,

2021 December 31,

2022 December 31,

(In thousands)

4 unchanged sentences

Contract Type Disaggregation:

Three Months Ended

September 30,

2022 September 30,

Three Months Ended Six Months Ended

2022 December 31,

2021 December 31,

2022 December 31,

(In thousands)

2 unchanged sentences

Total Revenue $ 193,840 $ 161,965 $ 402,271 $ 330,058

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Typically, we assume more risk with fixed-price contracts since increases in costs to perform the work may not be recoverable.

1 unchanged sentence

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

Subsequent to the end of the second quarter of fiscal 2023, we received notice from a client that they would not approve adequate compensation to us for the impact that excessive scope changes had on our ability to progress work on a midstream gas processing project according to forecast, as well as for the impact that global supply chain issues and inflation had on the project.

The project is included in the Process and Industrial Facilities segment and reduced gross profit by $9.6 million and $9.4 million during the three and six months ended December 31, 2022, respectively.

We have accrued the full expected loss for the project, which we expect to be mechanically complete in the fourth quarter of fiscal 2023.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

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,

The following table presents the components of our property, plant and equipment - net at December 31, 2022 and June 30, 2022:

2022 June 30,

11 unchanged sentences

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 98 % of all right-of-use assets as of September 30, 2022 .

Real estate leases accounted for approximately 98 % of all right-of-use assets as of December 31, 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

September 30, 2022 September 30, 2021

Three Months Ended Six Months Ended

December 31, 2022 December 31, 2021 December 31, 2022 December 31, 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:

September 30, 2022

December 31, 2022

Maturity Analysis:

11 unchanged sentences

Non-current operating lease liabilities $ 22,713

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

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

Weighted-average remaining lease term (in years) 6.8 years

1 unchanged sentence

Supplemental cash flow information related to leases is as follows:

Three Months Ended

September 30, 2022

Six Months Ended

December 31, 2022

(in thousands)

8 unchanged sentences

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

Goodwill impairment — ( 12,316 ) — ( 12,316 )

Translation adjustment (1)

( 29 ) — ( 57 ) ( 86 )

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

Net balance at December 31, 2022 $ 4,234 $ 6,111 $ 19,388 $ 29,733

(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.

3 unchanged sentences

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.

Recent negative operating results of one of our reporting units at higher risk of impairment indicated that it was more likely than not that its goodwill was impaired.

This reporting unit is in the Process and Industrial Facilities segment and includes the midstream gas processing project referenced in Note 2 - Revenue, Revisions in Estimates, which experienced a material adverse change in gross profit during the second quarter of fiscal 2023.

Based on the indicated outcome of this project and our near-term outlook for the reporting unit, we performed an interim impairment test for the unit and concluded that its $12.3 million of goodwill was fully impaired.

The impairment was recognized in operating income during the three and six months ended December 31, 2022.

Based on the totality of both positive and negative factors, no impairment indicators related to the other reporting units existed at December 31, 2022.

However, if our view of project opportunities or gross margins deteriorates, particularly for the remaining 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 September 30, 2022

At December 31, 2022

Useful Life Gross Carrying

15 unchanged sentences

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

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):

Amortization expense totaled $ 0.4 million and $ 0.9 million during the three and six months ended December 31, 2022 and $ 0.4 million and $ 1.0 million during the three and six months ended December 31, 2021, respectively.

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

Period ending:

3 unchanged sentences

Fiscal 2026 555

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

Total estimated remaining amortization expense at December 31, 2022 $ 3,931

Matrix Service Company

1 unchanged sentence

Note 6 – Debt

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.

On September 9, 2021 , the Company and our primary U.S.

and Canada operating subsidiaries entered into an asset-based credit agreement, which was amended on October 5, 2022 (as amended, the "ABL Facility"), with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer, and the lenders named therein.

The maximum amount of loans under the ABL Facility is limited to $ 90.0 million.

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.

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

Our obligations under the ABL Facility are guaranteed by us and substantially all of our U.S.

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

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

1 unchanged sentence

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

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.

At December 31, 2022, our borrowing base was $ 83.2 million, we had $ 15.0 million of outstanding borrowings, and we had $ 19.2 million in letters of credit outstanding, which resulted in availability of $ 49.0 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 Secured Overnight Financing Rate ("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;

10 unchanged sentences

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 interest rate in effect for borrowings outstanding at December 31, 2022, including applicable margin, was 8.75 %.

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.

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.

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 were in compliance with all covenants of the ABL Facility as of December 31, 2022.

Note 7 – Income Taxes

Effective Tax Rate

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

Our effective tax rates were zero percent for the three and six months ended December 31, 2022 , compared to ( 78.7 )% and ( 15.5 )% during the three and six months ended December 31, 2021, respectively.

The effective tax rates during fiscal 2023 were impacted by valuation allowances of $ 8.4 million and $ 9.8 million placed on deferred tax assets during the three and six months ended December 31, 2022, respectively.

Full Valuation Allowance

1 unchanged sentence

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.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Net Operating Loss Carryback Refund

2 unchanged sentences

Deferred Payroll Taxes

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 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.

During the second quarter of fiscal 2023, we repaid the remaining $ 5.6 million of U.S.

payroll taxes we deferred through provisions of the CARES Act.

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

Note 8 – Commitments and Contingencies

9 unchanged sentences

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 $ 13.7 million at September 30, 2022 and $ 8.9 million at June 30, 2022.

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $ 18.2 million at December 31, 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.

3 unchanged sentences

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

The unpaid account receivable balance at December 31, 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.

1 unchanged sentence

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

2 unchanged sentences

In the event we report a loss, stock options and nonvested deferred shares are not included since they are anti-dilutive.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

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

Three Months Ended

September 30,

2022 September 30,

Three Months Ended Six Months Ended

2022 December 31,

2021 December 31,

2022 December 31,

(In thousands, except per share data)

24 unchanged sentences

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.

In fiscal year 2022, we commenced a project to centralize and standardize certain support functions including accounting, human resources and project support.

These centralized support functions are now included in corporate selling, general and administrative expense, but were previously included in our operating segment selling, general and administrative expense.

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

3 unchanged sentences

(In thousands)

Three Months Ended

September 30,

2022 September 30,

Three Months Ended Six Months Ended

2022 December 31,

2021 December 31,

2022 December 31,

Gross revenue

4 unchanged sentences

Inter-segment revenue

Utility and Power Infrastructure $ 54 $ — $ 54 $ —

Process and Industrial Facilities — 1,721 109 3,026

18 unchanged sentences

Total selling, general and administrative expenses $ 17,545 $ 15,922 $ 34,356 $ 32,551

Restructuring costs

Goodwill impairment and restructuring costs

Utility and Power Infrastructure $ — $ 37 $ 37 $ 46

2 unchanged sentences

Corporate 513 575 926 1,197

Total restructuring costs $ 1,287 $ 605

Total goodwill impairment and restructuring costs $ 13,594 $ 695 $ 14,881 $ 1,300

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.

During the second quarter of fiscal 2023, we closed an underperforming office and ceased its associated operations, which resulted in $ 0.7 million of restructuring costs.

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

3 unchanged sentences

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

Three Months Ended Since Inception of Business Improvement Plan

September 30, 2022 September 30, 2021

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

December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021

(In thousands)

27 unchanged sentences

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