What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-09-12 compared with 2022-10-11 · 230 added, 273 removed, 962 unchanged (34% of the section changed)

35 unchanged sentences

President and Chief Executive Officer Vice President and Chief Financial Officer

October 11, 2022

September 12, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

4 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023 based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

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

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2023, of the Company and our report dated September 12, 2023, expressed an unqualified opinion on those financial statements.

Basis for Opinion

16 unchanged sentences

Tulsa, Oklahoma

October 11, 2022

September 12, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

3 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

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

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 12, 2023 expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

19 unchanged sentences

For the fiscal year ended June 30, 2023, revenue totaled $795.0 million, of which $419.4 million related to fixed-price contracts.

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

How the Critical Audit Matter Was Addressed in the Audit

8 unchanged sentences

▪ Comparing management’s estimates to documents such as management’s work plans, customer purchase orders, third-party invoices from suppliers, and subcontractor agreements.

▪ Developing independent estimates of total costs to completion and compared our estimates to management’s estimates.

▪ Developing independent estimates of total costs at completion and compared our estimates to management’s estimates.

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

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

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

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

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of management’s estimate of the fair value of each reporting unit to its carrying value.

1 unchanged sentence

Significant judgments and assumptions including the revenue growth rate, forecasted gross margins, and discount rate are inherent in the fair value estimates.

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

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

Four reporting units with a combined total of $33.8 million of goodwill as of June 30, 2022 were at higher risk of future impairment than others and their estimated fair values exceed their carrying values by 4% to 23%.

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

The Company performed an interim goodwill impairment test as of December 31, 2022, which resulted in $12.3 million of total impairment to goodwill in the second quarter of fiscal year 2023, and an annual goodwill impairment test as of May 31, 2023, which resulted in no impairment of goodwill in the fourth quarter of fiscal year 2023.

Three reporting units with a combined total of $20.9 million of goodwill as of June 30, 2023 were at higher risk of future impairment than others and their estimated fair values exceed their carrying values by 11% to 28%.

The Company’s total goodwill was $29.1 million as of June 30, 2023.

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

We identified goodwill for three identified reporting units with a combined total of $20.9 million of goodwill as a critical audit matter because of the significant judgments made by management to estimate the fair values of these reporting units.

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

11 unchanged sentences

Tulsa, Oklahoma

October 11, 2022

September 12, 2023

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

9 unchanged sentences

Selling, general and administrative expenses 68,249 67,690 69,756

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

Goodwill impairment (Note 4) 12,316 18,312 —

Restructuring costs 3,142 646 6,756

21 unchanged sentences

Other comprehensive loss, net of tax:

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

Foreign currency translation gain (loss) (net of tax expense of $0, $71 and $223 for the fiscal years ended June 30, 2023, 2022 and 2021, respectively) ( 594 ) ( 1,426 ) 1,624

Comprehensive loss $ ( 52,955 ) $ ( 65,326 ) $ ( 29,600 )

11 unchanged sentences

Income taxes receivable 496 13,547

Prepaid expenses 5,741 4,024

Other current assets 3,118 8,865

5 unchanged sentences

Other intangible assets, net of accumulated amortization 3,066 4,796

Deferred income taxes — 5,295

Other assets, non-current 11,718 5,514

43 unchanged sentences

Depreciation and amortization 13,694 15,254 17,858

Goodwill and other intangible asset impairment (Note 4) 18,312 — 38,515

Goodwill impairment (Note 4) 12,316 18,312 —

Stock-based compensation expense 6,791 7,877 8,156

Operating lease, fixed asset, and other intangible asset impairments due to restructuring (Note 14) — 454 5,215

Operating lease, fixed asset, and other intangible asset impairments due to restructuring — — 454

Deferred income tax — 5,358 889

29 unchanged sentences

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

Open market purchase of treasury shares — — ( 17,045 )

Issuances of common stock — 199 349

24 unchanged sentences

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

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

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

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

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

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

Issuance of restricted stock (515,218 shares) — ( 9,083 ) — — 9,083 —

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

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

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

1 unchanged sentence

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

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

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

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

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

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

Issuance of restricted stock (268,403 shares) — ( 5,102 ) — — 5,102 —

Treasury shares repurchased to satisfy tax withholding obligations (76,703 shares) — — — — ( 853 ) ( 853 )

4 unchanged sentences

Treasury Shares Sold to Employee Stock Purchase Plan (50,139 shares) — ( 685 ) — — 937 252

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

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

Treasury shares repurchased to satisfy tax withholding obligations (76,703 shares) — — — — ( 853 ) ( 853 )

Issuance of restricted stock (259,529 shares) — ( 5,150 ) — — 5,150 —

Treasury shares purchased to satisfy tax withholding obligations (52,864 shares) — — — — ( 310 ) ( 310 )

Stock-based compensation expense — 6,791 — — — 6,791

73 unchanged sentences

Determine Contract Price paragraph above.

Unpriced change orders are more fully discussed in Note 7 - Commitments and Contingencies.

Unpriced change orders are more fully discussed in Note 2 - Revenue.

Sometimes we seek claims for amounts in excess of the contract price for delays, errors in specifications and designs, contract terminations, change orders in dispute or other causes of additional costs incurred by us.

3 unchanged sentences

Determine Contract Price paragraph above.

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

Claims are more fully discussed in Note 2 - Revenue.

Cash, Cash Equivalents and Restricted Cash

17 unchanged sentences

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

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

Accounts payable retentions are generally settled within one year.

Loss Contingencies

25 unchanged sentences

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

Until the assets are disposed of, an estimate of the fair value is redetermined when related events or circumstances change.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Goodwill represents the excess of the purchase price of acquisitions over the acquisition date fair value of the net identifiable tangible and intangible assets acquired.

25 unchanged sentences

Stock-Based Compensation

We have issued stock options, nonvested deferred share awards and cash-settled restricted share units under our long-term incentive compensation plans.

The fair value of these awards is calculated at grant date.

The fair value of time-based, nonvested deferred shares and cash-settled restricted share units is the value of our common stock at the grant date.

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

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

We have issued time-based and market-based restricted stock unit awards under our long-term incentive compensation plans.

We have issued time-based awards that are equity-settled and time-based awards that are cash-settled.

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

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

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

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

value until settlement.

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

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

30 unchanged sentences

Net contract liabilities $ ( 40,548 ) $ ( 20,354 ) $ ( 20,194 )

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

1 unchanged sentence

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Progress billings in accounts receivable at June 30, 2023 and June 30, 2022 included retentions to be collected within one year of $ 16.3 million and $ 16.1 million, respectively.

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

Contract retentions collectable beyond one year are included in Other assets, non-current in the Consolidated Balance Sheets and totaled $ 10.0 million as of June 30, 2023 and $ 4.0 million as of June 30, 2022.

Unpriced Change Orders and Claims

As of June 30, 2023 and June 30, 2022, costs and estimated earnings in excess of billings on uncompleted contracts included revenue for unpriced change orders and claims of $ 9.7 million and $ 8.9 million, respectively.

The amounts ultimately realized may be different than the recorded amounts resulting in adjustments to future earnings.

Generally we expect collection of amounts related to unpriced change orders and claims within twelve months.

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

Disaggregated Revenue

18 unchanged sentences

Total $ 795,020 $ 707,780 $ 673,398

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

However, these types of contracts typically offer higher profits than time and materials and other cost reimbursable contracts when completed at or below the costs originally estimated.

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

During fiscal 2023, unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete and closeout certain midstream gas processing capital work in the Process and Industrial Facilities segment resulted in a $ 12.6 million reduction of gross profit during the fiscal year.

These charges were primarily the result of the client not approving adequate compensation to us for the impact that excessive scope changes had on our ability to progress the work according to forecast and for the impacts of global supply chain issues and inflation.

We have accrued the full expected loss for the work, which is now mechanically complete.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

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

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

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

The increase in forecasted costs was primarily due to poor performance of a now terminated subcontractor, which required rework, as well as supply chain and cost escalation issues.

This project has since reached mechanical completion.

In 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 $ 6.3 million during the fiscal year.

We achieved substantial completion on this project in fiscal 2022.

During fiscal 2022, our results of operations were materially impacted by changes in the forecasted costs to complete two large capital projects in the Utility and Power Infrastructure segment and an unfavorable settlement of a claim with a customer in the same segment.

Increases in the forecasted costs to complete the first project resulted in the project reducing gross profit by $ 3.6 million during fiscal 2022.

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

We recognized $ 78.1 million of revenue on this project during fiscal 2022 at a near break-even margin as a result of the change in estimate.

Both projects reached substantial completion in fiscal 2023.

The unfavorable settlement of a claim with a customer reduced gross profit by $ 2.1 million.

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

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

This project reached substantial completion in fiscal 2023.

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

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

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

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

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

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

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

The increase in forecasted costs during the first half of the fiscal year was principally due to unexpected equipment repairs during commissioning that delayed the scheduled completion and increased the estimated costs to complete.

We achieved a critical performance milestone during the second quarter of fiscal 2022, which significantly reduced our financial exposure on the project.

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

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

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

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

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

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

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

Note 3— Property, Plant and Equipment

11 unchanged sentences

Property, plant and equipment - net $ 47,545 $ 53,869

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Geographical Disaggregation of Long-Lived Assets

7 unchanged sentences

$ 138,248 $ 153,381 $ 176,337

Industrial Cleaning Disposal

We sold our industrial cleaning business during the fourth quarter of fiscal 2023 for net proceeds of $ 6.3 million in cash and a $ 0.4 million receivable for amounts to be paid upon satisfactory transfer of title of certain vehicles and equipment sold.

The sale resulted in a $ 2.9 million gain, which was included in Other in the Consolidated Statements of Income.

The industrial cleaning business was included in our Process and Industrial Facilities segment and was disposed of because its operations were no longer core to our growth strategy.

Sale-leaseback Transaction

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

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

Even though we are fully committed to our operations in southern California, we took advantage of elevated real estate prices and sold our regional office and fabrication and warehouse facilities located in Orange, California during fiscal 2022 for net proceeds of $ 37.4 million in cash and recorded a gain of $ 32.4 million on the sale.

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

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

Burlington Office Disposal - Subsequent Event

During the first quarter of fiscal 2024, we sold a regional office facility in Burlington, Ontario for $ 2.9 million in cash, which resulted in a gain of approximately $ 2.7 million.

During the second quarter of fiscal 2023, we closed this underperforming office and ceased its associated operations .

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Note 4— Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by segment are as follows:

Utility and Power

Infrastructure Process and Industrial Facilities Storage and Terminal

Solutions Total

Storage and Terminal

Solutions Utility and Power

Infrastructure Process and Industrial Facilities Total

(In thousands)

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

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

Translation adjustment (1)

1 unchanged sentence

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

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

Translation adjustment (1)

2 unchanged sentences

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

Disposal of business (2)

— — ( 627 ) ( 627 )

Translation adjustment (1)

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(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.

(2) We sold our industrial cleaning business during the fourth quarter of fiscal 2023, which resulted in the allocation $0.6 million of goodwill to net assets sold in the transaction.

See Note 3 - Property, Plant and Equipment, Industrial Cleaning Disposal, for more information.

We performed our annual goodwill impairment test as of May 31, 2023, 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.

The fiscal 2023 test indicated that three reporting units with a combined total of $ 20.9 million of goodwill as of June 30, 2023 were at higher risk of future impairment.

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

Subsequent to the completion of the May 31, 2023 annual impairment test, additional information regarding new project awards became available which would significantly improve the cash flows and fair values of two of the higher risk reporting units, which comprised $ 15.4 million of our total goodwill as of June 30, 2023.

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

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

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

In the second quarter of fiscal 2023, we concluded that a goodwill impairment indicator existed in the Process and Industrial Facilities segment based on a material adverse change in gross profit on a project.

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.

In the third quarter of fiscal 2022, we concluded that goodwill impairment indicators existed based on the decline in the price of our stock and operating results that have underperformed our forecasts during the year.

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

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 recognized in operating income during the three and nine months ended March 31, 2022 as follows:

Matrix Service Company

3 unchanged sentences

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

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

Accordingly, we performed an interim impairment test as of December 31, 2019, reflecting updated revenue and gross margin assumptions, and concluded that the reporting unit's $24.9 million of goodwill was fully impaired.

Additionally, we concluded that a goodwill impairment indicator existed for a Process and Industrial Facilities segment reporting unit based on several second quarter events.

These events included the deterioration of our relationship with a significant customer in the iron and steel industry in the second quarter.

As a result, the customer canceled other previously awarded work and we received no subsequent business from this customer.

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

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

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

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

Other Intangible Assets

6 unchanged sentences

Intellectual property 10 to 15 $ 2,483 $ ( 2,371 ) $ 112

Customer based 6 to 15 17,331 ( 12,817 ) 4,514

Customer based (1)

6 to 15 13,144 ( 10,190 ) 2,954

Total other intangible assets $ 15,627 $ ( 12,561 ) $ 3,066

(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

7 unchanged sentences

Amortization expense totaled $ 1.7 million, $ 1.8 million, and $ 2.3 million in fiscal 2023, 2022, and 2021, respectively.

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

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

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

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

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

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

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

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

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

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

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

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

3 unchanged sentences

June 30, 2026 555

Total estimated amortization expense $ 3,066

ABL Credit Facility

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

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

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

The ABL Facility is guaranteed by substantially all of our remaining U.S.

and Canadian subsidiaries.

The ABL Facility available borrowings may be increased by an amount not to exceed $ 15.0 million, subject to certain conditions, including obtaining additional commitments.

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's 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 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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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.

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

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

At June 30, 2023, our borrowing base was $ 67.0 million, we had $ 10.0 million of outstanding borrowings, and we had $ 19.3 million in letters of credit outstanding, which resulted in availability of $ 37.7 million under the ABL Facility.

Our borrowing base has ranged from $ 67.0 million to $ 83.2 million during fiscal 2023.

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;

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

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

The interest rate in effect for borrowings outstanding at June 30, 2023, including applicable margin, was approximately 7.47 %.

The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that restrict our ability to sell assets, engage in mergers and acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay cash dividends, issue equity instruments, make distribution or redeem or repurchase capital stock.

In the event that our availability is less than the greater of (i) $ 15.0 million and (ii) 15.00 % of the lesser of (1) the current borrowing base and (2) the commitments under the ABL Facility then in effect, a consolidated Fixed Charge Coverage Ratio of at least 1.00 to 1.00 must be maintained.

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

Senior Secured Revolving Credit Facility

The ABL Facility replaced the Fifth Amended and Restated Credit Agreement (the "Prior Credit Agreement"), that was entered into on November 2, 2020, and subsequently amended on May 4, 2021, by and among us and certain foreign subsidiaries, as Borrowers, various subsidiaries of ours, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, Sole Lead Arranger and Sole Book Runner, and the other Lenders party thereto.

The Prior Credit Agreement provided for a three-year senior secured revolving credit facility of $ 200.0 million that expired November 2, 2023 .

We had no borrowings and $ 41.3 million of letters of credit outstanding under the Prior Credit Agreement as of June 30, 2021.

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

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 June 30, 2023.

Note 6— Income Taxes

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$ ( 400 ) $ 5,617 $ ( 12,039 )

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

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

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Impairment of non-deductible goodwill (1)

1,132 — 1,813

Charges without tax benefit 358 265 961

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

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

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

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

(2) Due to the existence of a cumulative loss over a three-year period, we recorded a full valuation allowance against our deferred tax assets in fiscal 2022 and recorded additional valuation allowances against newly generated deferred tax assets in fiscal 2023.

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

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

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

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

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

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

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Deferred tax assets:

Warranty reserve $ 206 $ 206

Accruals and reserves $ 504 $ 1,534

Bad debt reserve 273 340

Paid-time-off accrual 315 747

Insurance reserve 913 1,035

Legal reserve 79 146

Net operating loss benefit and credit carryforwards 26,888 23,717

Accrued compensation and pension 964 1,051

Prepaid insurance 16 27

Stock compensation expense on nonvested deferred shares 1,910 1,895

Accrued losses 1,089 64

Restructuring reserve 160 725

Stock compensation expense on nonvested restricted stock units 1,794 1,910

Book over tax amortization 7,218 5,449

Deferred FICA — 1,427

Research and development capitalization 6,592 —

Foreign currency translation and other 1,608 1,002

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Tax over book depreciation 5,472 7,842

Receivable holdbacks and other 1,034 596

Other 248 1,034

Total deferred tax liabilities 5,720 8,876

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

Net deferred tax liability $ ( 26 ) $ ( 26 )

As reported in the Consolidated Balance Sheets:

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Deferred income tax liabilities ( 26 ) ( 26 )

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

Net deferred tax liability $ ( 26 ) $ ( 26 )

Valuation Allowance

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

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

We placed a 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.

Operating Loss and Tax Credit Carryforwards

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

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

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

Refund of Overpayment of Estimated Taxes

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

We received a $ 13.3 million tax refund in connection with this carryback during fiscal 2023, which was included in income taxes receivable in the Consolidated Balance Sheets as of June 30, 2022.

Deferred Payroll Taxes

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

payroll taxes we deferred through provisions of the CARES Act.

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

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

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

payroll taxes we deferred through the provisions of the CARES Act.

The balance of deferred payroll taxes was included within accrued wages and benefits in the Consolidated Balance Sheets as of June 30, 2022.

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

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

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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.

Unpriced Change Orders and Claims

As of June 30, 2022 and June 30, 2021, costs and estimated earnings in excess of billings on uncompleted contracts included revenue for unpriced change orders and claims of $ 8.9 million and $ 14.6 million, respectively.

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

Generally we expect collection of amounts related to unpriced change orders and claims within twelve months.

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

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 June 30, 2022 was $ 17.0 million.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

During fiscal 2023, we completed cost reimbursable construction services for a customer at a mining and minerals facility.

In late fiscal 2023, after numerous attempts to collect outstanding receivables, we filed a notice of default for lack of payment of outstanding balances, and in early fiscal 2024, we filed a lien on the facility.

The customer responded by commencing litigation against us, alleging breach of contract and breach of express warranty.

We deny all claims and filed a countersuit against the customer for failure to pay outstanding amounts of accounts receivable and CIE, which total $ 5.6 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.

During fiscal 2022, we filed an arbitration demand in an effort to collect outstanding balances of $ 32.7 million from a customer for which we completed a crude oil storage terminal project.

The customer has filed counterclaims for liquidated damages and miscellaneous warranty items.

We deny all claims and believe we are entitled to collect the full amount owed under the contract.

Our hearing for this matter is currently scheduled for October 2024.

During fiscal 2020, we commenced litigation in an effort to collect an account receivable from an iron and steel customer on a reimbursable contract following the deterioration of the relationship.

The unpaid receivable balance at June 30, 2023 was $ 17.0 million.

In connection with our suit, the customer filed certain counterclaims against us.

We deny all claims and believe we are entitled to collect the full amount owed under the contract.

Our trial regarding this matter is scheduled for September 2023.

We believe we have set appropriate reserves for the matters described above based on our evaluation of the possible outcomes of the litigation.

We and our subsidiaries are participants in various other 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.

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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 June 30, 2022.

Real estate leases accounted for most of our right-of-use assets as of June 30, 2023.

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 a year to 13 years.

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Non-current operating lease liabilities $ 20,660

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

The following is a summary of the weighted average remaining operating lease and finance lease term and weighted average discount rate as of June 30, 2023:

Weighted-average remaining lease term (in years) 6.6 years

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We have 5.0 million shares of preferred stock authorized, none of which was issued or outstanding at June 30, 2023 or June 30, 2022.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Stock Repurchase Program

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We made no repurchases under the program in fiscal 2023 and have no current plans to repurchase stock.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

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

There were 1,349,037 shares available for repurchase under the November 2018 Program as of June 30, 2023.

Treasury Shares

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

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

We withheld 52,864 , 76,703 , and 170,629 shares of common stock during fiscal 2023, 2022, and 2021, respectively, to satisfy these obligations.

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Total stock-based compensation expense for the fiscal years ended June 30, 2023, June 30, 2022, and June 30, 2021 was $ 6.8 million, $ 7.9 million and $ 8.2 million, respectively.

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

Measured but unrecognized stock-based compensation expense at June 30, 2023 was $ 6.9 million, all of which related to nonvested restricted stock units which are expected to be recognized as expense over a weighted average period of 1.5 years.

We recognized excess tax expense of $ 1.2 million, $ 1.0 million, and $ 1.8 million related to stock-based compensation vesting for the fiscal years ended June 30, 2023, 2022, and 2021, respectively.

Plan Information

In November 2020, our stockholders approved the Matrix Service Company 2020 Stock and Incentive Compensation Plan (the "2020 Plan"), which provides stock-based and cash-based incentives for officers, directors and other key employees.

In December 2022, our stockholders approved the First Amendment to the Matrix Service Company 2020 Stock and Incentive Compensation Plan, which amended the Matrix Service Company 2020 Stock and Incentive Compensation Plan (the "2020 Plan") to increase the maximum authorized shares under the 2020 Plan by 625,000 shares, increasing the total authorized shares under the 2020 Plan from 1,725,000 to 2,350,000 shares.

In November 2020, our stockholders approved the 2020 Plan, which provides stock-based and cash-based incentives for officers, directors and other key employees.

Stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares and cash-based awards can be issued under this plan.

Upon approval of the 2020 Plan, the 2018 Stock and Incentive Compensation Plan ("2018 Plan") was frozen with the exception of normal vesting and other activity associated with awards previously granted under the 2018 Plan.

The 2018 Plan was preceded by the 2016 Stock Incentive Plan ("2016 Plan"), which was frozen upon approval of the 2018 Plan with the exception of normal vesting, forfeiture and other activity associated with awards previously granted under the 2016 Plan.

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

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

There were 1,392,706 shares available for grant under the 2020 Plan as of June 30, 2022.

Stock Options

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

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

There were no options outstanding at June 30, 2022.

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

No stock options were exercised in fiscal 2020.

Nonvested Deferred Shares

We have issued nonvested deferred shares under the following types of arrangements:

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

Awards totaling 2,350,000 shares have been authorized under the 2020 Plan, as amended.

There were 1,501,880 shares available for grant under the amended 2020 Plan as of June 30, 2023.

Equity-settled Restricted Stock Units

We have issued equity-settled restricted stock units under the following types of arrangements:

• Time-based awards—Employee awards generally vest in four equal annual installments beginning one year after the grant date.

Beginning in fiscal 2019, the award agreements contain a provision that accelerates the vesting for retirement eligible participants and participants that become retirement eligible during the vesting period and who elect to retire more than one year after the date of the award.

The award agreements contain a provision that accelerates the vesting for retirement eligible participants and participants that become retirement eligible during the vesting period and who elect to retire more than one year after the date of the award.

The award is forfeited if retirement occurs before the first anniversary of the award.

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The payout can range from zero to 200 % of the original award depending on the Company's relative total shareholder return during the performance period.

These awards are settled in stock.

As of June 30, 2023, there were approximately 329,000 , 377,000 , and 431,000 performance units that are scheduled to vest in fiscal 2024, fiscal 2025, and fiscal 2026, respectively, assuming target performance.

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The model also took into account the expected dividends over the performance period of those peer companies which pay cash dividends.

Nonvested deferred share activity for the fiscal year ended June 30, 2022 is as follows:

Equity-settled restricted stock unit activity for the fiscal year ended June 30, 2023 is as follows:

Shares Weighted Average Grant

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Nonvested shares at June 30, 2023 1,774,949 $ 10.66

There were 665,597 and 490,322 deferred shares granted in fiscal 2021 and 2020 with average grant date fair values of $ 10.60 and $ 21.79 per share, respectively.

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

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

No deferred shares were cancelled in fiscal 2020.

Cash-Settled Restricted Share Units

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

There were 696,227 and 665,597 restricted stock units granted in fiscal 2022 and 2021 with average grant date fair values of $ 14.13 and $ 10.60 per share, respectively.

There were 268,403 and 515,218 restricted stock units that vested and were released in fiscal 2022 and 2021 with weighted average fair values of $ 13.92 and $ 16.99 per share, respectively.

There were 242,743 and 119,904 restricted stock units cancelled in fiscal 2022 and 2021 with an average grant date fair value of $ 25.50 and $ 20.67 per share, respectively.

Cash-Settled Restricted Stock Units

We granted 251,575 , 231,219 , and 238,848 cash-settled restricted stock units during fiscal years 2023, 2022 and 2021, respectively;

with weighted average fair values of $ 1.5 million, $ 2.6 million, and $ 2.3 million respectively.

There were 106,637 and 53,333 shares vested and released in fiscal 2023 and 2022, respectively;

with weighted average fair values of $ 1.1 million and $ 0.5 million, respectively.

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

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

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

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

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

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

There were 13,621 and 25,355 shares cancelled in fiscal 2023 and 2022, respectively;

with weighted average fair values of $ 0.1 million and $ 0.3 million, respectively.

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

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

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The requisite service period is based on the vesting provisions of the awards which generally occur in four equal annual installments beginning one year after the grant date.

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

These awards contain the same retirement provisions described for time-based awards in the equity-settled restricted stock units section above.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

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

We recognized $ 1.3 million, $ 0.6 million, and $ 1.0 million of expense in fiscal years 2023, 2022, and 2021, respectively, for cash-settled restricted stock units, which was included in selling, general and administrative expenses and cost of revenue in the Consolidated Statements of Income.

As of June 30, 2023, the liability for cash-settled restricted stock units was $ 1.7 million and is included in accrued wages and benefits in the Consolidated Balance Sheets.

Note 11—Earnings per Common Share

Basic earnings per share (“EPS”) is calculated based on the weighted average shares outstanding during the period.

Diluted earnings per share includes the dilutive effect of employee and director stock options and nonvested deferred shares.

Stock options are considered dilutive whenever the exercise price is less than the average market price of the stock during the period and antidilutive whenever the exercise price exceeds the average market price of the common stock during the period.

Nonvested deferred shares are considered dilutive (antidilutive) whenever the average market value of the shares during the period exceeds (is less than) the sum of the related average unamortized compensation expense during the period plus the related hypothetical estimated excess tax benefit that will be realized when the shares vest.

Stock options and nonvested deferred shares are considered antidilutive in the event we report a net loss.

Diluted earnings per share includes the dilutive effect of employee and director nonvested restricted stock units.

Nonvested restricted stock units are considered dilutive (antidilutive) whenever the average market value of the shares during the period exceeds (is less than) the sum of the related average unamortized compensation expense during the period plus the related hypothetical estimated excess tax benefit that will be realized when the shares vest.

Nonvested restricted stock units are considered antidilutive in the event we report a net loss.

The computation of basic and diluted EPS is as follows:

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Diluted loss per share $ ( 1.94 ) $ ( 2.39 ) $ ( 1.18 )

The following securities are considered antidilutive and have been excluded from the calculation of Diluted EPS:

Fiscal Years Ended

2023 June 30,

2022 June 30,

(In thousands)

Nonvested restricted stock units 97 110 227

Note 12— Employee Benefit Plans

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Our matching contributions vest immediately.

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

Our matching contributions were $ 5.3 million in each of the fiscal years ended June 30, 2023 and 2022, and $ 5.4 million in the fiscal year ended June 30, 2021.

Matrix Service Company

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(In thousands)

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

Boilermaker-Blacksmith National Pension Trust 48-6168020/001 Red Yellow Implemented $ 5,284 $ 5,208 $ 4,003 Yes

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

Green NA 3,437 2,973 1,865 No

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

Described below (1)

Implemented 1,514 1,958 1,560 No

Joint Pension Fund of Local Union No 102 IBEW 22-1615726/001 Described below (1)

Pipefitters Local 460 Pension Plan 51-6108443/001 Described below (1)

Green NA 2,479 111 — No

Joint Pension Fund Local Union 164 IBEW 22-6031199/001 Green Green NA 1,724 1,514 1,958 No

IBEW Local 654 Pension Plan 23-6538183/001 Green Green NA 1,242 857 818 No

Local 351 IBEW Pension Plan

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

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

Red Implemented 498 442 1,523 Yes

Joint Pension Fund of Local Union No 102 IBEW 22-1615726/001 Green Green NA 1,143 906 1,341 No

IBEW Local 456 Pension Plan 22-6238995/001 Green Green NA 1,180 734 595 No

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

Red Implemented — — 3,042 Yes

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

Green NA — — 2,951 No

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

Green NA — — 2,504 No

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

Local 351 IBEW Pension Plan

22-3417366/001 Described below (1)

Green NA 1,033 395 479 No

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

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

Steamfitters Local Union No 420 Pension Plan 23-2004424/001 Red Yellow Implemented 656 498 442 Yes

Pipefitters Local 342 Pension Plan 94-3190386/001 Green Green NA 498 345 101 No

IBEW Local 98 Pension Plan 23-6583334/001 Yellow Red Implemented 484 143 318 No

Laborers Local 220 Pension Plan 43-6159056/001 Described below (1)

Green NA 427 24 — No

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

Contributions to other multiemployer plans 3,969 3,110 3,449

Total contributions made $ 23,556 $ 16,818 $ 15,369

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

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

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

(1) For the National Electrical Benefit Fund for Locals 71/126/488/1319, Pipefitters Local 460 Pension Plan, Local 351 IBEW Pension Plan, and Laborers Local 220 Pension Plan, we have not received a funding notification that covers our fiscal year 2023 during the preparation of this Form 10-K.

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

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In fiscal 2023, we operated 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.

We evaluate performance and allocate resources based on operating income.

1 unchanged sentence

therefore, no intercompany profit or loss is recognized.

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

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

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

3 unchanged sentences

(In thousands)

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal

Solutions Corporate Total

Storage and Terminal

Solutions Utility and Power Infrastructure Process and Industrial Facilities Corporate Total

Fiscal year ended June 30, 2023

5 unchanged sentences

Goodwill impairment and restructuring costs 969 37 13,288 1,164 15,458

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

Operating income (loss) ( 10,553 ) 3,617 ( 17,441 ) ( 28,510 ) ( 52,887 )

Segment assets 139,333 67,630 90,514 103,027 400,504

5 unchanged sentences

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

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

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

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

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

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

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

6 unchanged sentences

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

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

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

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

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

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

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

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

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

5 unchanged sentences

Significant Customers as a Percentage of Segment Revenue

Consolidated Utility and Power

Infrastructure Process and Industrial Facilities Storage and Terminal

Consolidated Storage and Terminal

Solutions Utility and Power

Infrastructure Process and Industrial Facilities

Fiscal Year ended June 30, 2023

2 unchanged sentences

Customer three 5.8 % — % — % 12.4 %

Customer four 4.0 % 12.3 % — % — %

Customer five 3.8 % — % 17.7 % — %

Customer six 3.6 % — % 16.7 % — %

Customer seven 2.9 % — % 13.5 % — %

Fiscal Year ended June 30, 2022

2 unchanged sentences

Customer three 4.7 % — % 15.1 % — %

Customer four 4.4 % — % — % 11.2 %

Fiscal Year ended June 30, 2021

3 unchanged sentences

Customer four 4.4 % 11.2 % — % — %

Customer five 2.0 % 10.5 % — % — %

Note 14— Restructuring Costs

4 unchanged sentences

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

Our restructuring efforts were substantially complete as of June 30, 2023.

Matrix Service Company

6 unchanged sentences

(in thousands)

Utility and Power Infrastructure

Severance and other personnel-related costs $ 45 $ 1,199 $ 1,340 $ 2,584

Facility costs — 113 235 348

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

Other costs 1 — — 1

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

Process and Industrial Facilities

Severance and other personnel-related costs $ ( 22 ) $ 2,951 $ 6,167 $ 9,096

Facility costs 17 431 2,757 3,205

Other intangible asset impairments — — 375 375

Other costs (1)

( 1,597 ) 426 — ( 1,171 )

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

Storage and Terminal Solutions

Severance and other personnel-related costs $ 69 $ 1,231 $ 347 $ 1,647

Facility costs — 159 720 879

Other costs 28 — — 28

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

Severance and other personnel-related costs $ 504 $ 164 $ 919 $ 1,587

Facility costs 16 82 — 98

Other costs 1,585 — — 1,585

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

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

Restructuring Costs by Type:

4 unchanged sentences

Total restructuring costs $ 3,142 $ 646 $ 6,756 $ 24,554

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

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

Matrix Service Company

13 unchanged sentences

Allowance for doubtful accounts $ 898 $ 738 $ — $ ( 316 ) (C) $ 1,320

Valuation reserve for deferred tax assets 7,763 2,797 — 544 (D) 11,104

Valuation reserve for deferred tax assets 11,104 17,943 — ( 432 ) (B) 28,615

Total $ 12,002 $ 18,681 $ — $ ( 748 ) $ 29,935

1 unchanged sentence

Deducted from asset accounts:

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

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

Allowance for doubtful accounts $ 905 $ 85 $ — $ ( 92 ) (D) $ 898

Valuation reserve for deferred tax assets 7,763 2,797 — 544 (E) 11,104

Total $ 8,668 $ 2,882 $ — $ 452 $ 12,002

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

(A) Relates to various write-offs and cash receipts of previously reserved accounts from prior periods.

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

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

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

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

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

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data