What changed in this filing

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Item 1. Business

2023-09-12 compared with 2022-10-11 · 41 added, 76 removed, 145 unchanged (45% of the section changed)

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

• our ability to generate sufficient cash from operations, access our credit facility, or raise cash in order to meet our short and long-term capital requirements;

• our ability to generate sufficient cash from operations, access our credit facility, obtain letters of credit, or raise cash in order to meet our short and long-term capital requirements;

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

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

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

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

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

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

• the impact to our business from disruptions to supply chains, inflation and availability of materials and labor;

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

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

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

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

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

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

We are licensed to operate in all 50 states, in four Canadian provinces and in other international locations.

We operate in all 50 states, in four Canadian provinces and in other international locations.

Our principal executive offices are located at 15 E.

Skelly Drive, Suite 500, Tulsa, Oklahoma 74135.

5th Street, Suite 1100, Tulsa, Oklahoma 74103.

Our telephone number is (918) 838-8822.

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We believe we have an obligation to better the world in which we live and work – to do today’s work in a manner that advances and protects tomorrow’s world for future generations.

Across the ideals of environmental stewardship, social responsibility, governance, diversity, inclusiveness and equity, we are committed to ensuring our business strategies, policies, and practices align with sustainability goals where we can have the greatest impact globally and in our own local communities.

Across the ideals of environmental stewardship, social responsibility, governance, diversity, equity and inclusiveness, we are committed to ensuring our business strategies, policies, and practices align with such ideals so we can have the greatest impact globally and in our own local communities.

We are committed to fulfilling our purpose today by safely engineering, constructing, and maintaining essential infrastructure that provides a better, brighter future for tomorrow.

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Our public website is matrixservicecompany.com .

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

We make available free of charge through the "Investor Relations" section of our website our annual reports to stockholders, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including exhibits, and amendments to those reports, as soon as reasonably practicable after we file or furnish to the SEC.

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

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

OPERATING SEGMENTS

REPORTABLE SEGMENTS

We operate our business through three reportable segments:

• Storage and Terminal Solutions :

primarily consists of engineering, procurement, fabrication, and construction services related to cryogenic and other specialty tanks and terminals for LNG, NGLs, hydrogen, ammonia, propane, butane, liquid nitrogen/liquid oxygen, and liquid petroleum.

Also includes work related to traditional aboveground crude oil and refined product storage tanks and terminals.

This segment also includes terminal balance of plant work, truck and rail loading/offloading facilities, and marine structures as well as storage tank and terminal maintenance and repair.

Finally, we manufacture and sell precision engineered specialty tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

• 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.

primarily consists of engineering, procurement, fabrication, and construction services to support growing demand for LNG utility peak shaving facilities.

We also perform traditional electrical work for public and private utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, and upgrades and maintenance including live wire work.

Work may also include emergency and storm restoration services.

We also provide construction services to a variety of power generation facilities, including natural gas fired facilities in simple or combined cycle configurations.

• 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.

primarily consists of plant maintenance, repair, and turnarounds in the downstream and midstream markets for energy clients including refining and processing of crude oil, fractionating, and marketing of natural gas and natural gas liquids.

Also includes engineering, procurement, fabrication, and construction for refinery upgrades and retrofits for renewable fuels.

We also construct thermal vacuum test chambers for aerospace and defense industries and other infrastructure for industries including petrochemical, sulfur, mining and minerals primarily in the extraction of non-ferrous metals, cement, agriculture, wastewater treatment facilities and other industrial customers.

OTHER BUSINESS MATTERS

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One customer accounted for $84.8 million or 10.7% of our consolidated revenue in fiscal 2023, which was primarily included in the Process and Industrial Facilities segment.

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

No other customers individually accounted for more than 10% of our consolidated revenue in fiscal 2023.

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

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

Competitors vary with the markets we serve.

Few competitors compete in all of the markets we serve or provide all of the services we provide.

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

We define backlog as the total dollar amount of revenue that we expect to recognize as a result of performing work that has been awarded to us through a signed contract, limited notice to proceed ("LNTP") or other type of assurance that we consider firm.

The following arrangements are considered firm:

• fixed-price awards;

• minimum customer commitments on cost plus arrangements;

• certain time and material arrangements in which the estimated value is firm or can be estimated with a reasonable amount of certainty in both timing and amounts.

For long-term maintenance contracts with no minimum commitments and other established customer agreements, we include only the amounts that we expect to recognize as revenue over the next 12 months.

For arrangements in which we have received a LNTP, we include the entire scope of work in our backlog if we conclude that the likelihood of the full project proceeding as high.

For all other arrangements, we calculate backlog as the estimated contract amount less revenue recognized as of the reporting date.

The following table provides a summary of changes in our backlog in fiscal 2022:

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal

Solutions Total

(In thousands)

Backlog as of June 30, 2021 $ 170,043 $ 134,777 $ 157,741 $ 462,561

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

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

Backlog as of June 30, 2022 $ 102,059 $ 292,287 $ 195,114 $ 589,460

Book-to-bill ratio (1)

0.7 1.6 1.2 1.2

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It is common for awards to shift from one period to another as the timing of awards is dependent upon a number of factors including changes in market conditions, permitting, off take agreements, project financing and other factors.

Backlog volatility may increase for some segments from time to time when individual project awards are less frequent, but more significant.

We expect to recognize approximately 83% of our total backlog reported as of June 30, 2022 as revenue within fiscal 2023.

Seasonality and Other Factors

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Material Sources and Availability

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

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

However, rising prices and the potential for materials shortages have created additional risk into bidding and executing work profitably.

The timing of normalization of the global supply chains is uncertain and will depend on several factors, including the speed of recovery from the pandemic, producer capacity, the level of imports, worldwide demand, tariffs on imported goods and other market conditions.

Beginning in fiscal 2022, increased demand for certain materials and disruptions to global supply chains have led to higher prices for some of the materials we need to run our business, including, but not limited to, structural steel, steel piping, rebar, valves, copper, electrical components, fabricated products and equipment, and delivery freight.

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

continue to have the materials we need available.

Rising prices and the potential for materials shortages have created additional risk in bidding and executing work profitably.

We maintain insurance coverage for various aspects of our operations.

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We generally require our subcontractors to indemnify us and our customers and name us as an additional insured for activities arising out of the subcontractors’ work.

We also require certain subcontractors to provide additional insurance policies, including surety bonds in favor of us, to secure the subcontractors’ work.

We also require certain subcontractors to provide additional security, including surety bonds in favor of us, to secure the subcontractors’ work.

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.

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

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

Our people are our greatest resource, which makes our certification in fiscal 2023 as a Great Place To Work® — for the seventh consecutive year — both a point of pride and an invaluable tool for continuous improvement supporting our objective of remaining an employer of choice.

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

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2,353 located in the United States, 159 in Canada, and 33 across other international locations.

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

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

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

At the end of fiscal 2023, worldwide, women in management represented 1.5% and 17.6% of our field and office teams, respectively.

The percentage of minorities in management (U.S.

only) for field and office represented 9.8% and 18.6%, respectively.

Recognizing our commitment to Diversity, Equity and Inclusion (DEI) begins at the top.

In fiscal 2023, 43% of our Independent Board Members were diverse, with 29% female and 14% ethnically diverse.

The percentage of our employees represented by trade unions as of June 30, 2023, was approximately 35%.

Operating under collective bargaining agreements with various unions, our union employees are provided with benefits including health and welfare, pension, training programs and competitive compensation plans.

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Ensuring the safety of our employees and those around us is integral to who we are, and paramount to our success and sustainability.

The journey to achieving and maintaining a zero-incident safety performance requires robust training along with comprehensive policies, processes, and systems to plan, perform, report, measure, review, and improve our performance.

The journey to achieving and maintaining a zero-incident safety performance requires a strong culture of safety and hands-on leadership, combined with robust training along with comprehensive policies, processes, and systems to plan, perform, report, measure, and review, and to continuously improve our performance.

We have incorporated safety as a key performance metric in our incentive compensation plan by measuring our annual Total Recordable Incident Rate (‘‘TRIR’’), which is calculated by multiplying the number of recordable incidents by 200,000 and dividing that number by the total hours worked each year.

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Diversity, Equity, and Inclusion (DEI)

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

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

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

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

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

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

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

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

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

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

Total Rewards Package

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

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

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

Training and Employee Development Programs

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Employee Engagement

We also empower our employees to donate time, talent, and resources through Company-led initiatives, employee matching, and paid volunteer time off.

We also empower our employees to donate time, talent, and resources through Company-led initiatives, matching for employee charitable contributions, and paid volunteer time off.

Each year, our employees collectively log thousands of hours participating in individual community service projects in addition to hours they invest serving on boards and participating in Company-sponsored charitable events.

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

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

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

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

What changed 10-K

Item 1. Business