What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-05-09 · 120 added, 233 removed, 292 unchanged (55% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended Nine Months Ended

2023 March 31,

2022 March 31,

2023 March 31,

Three Months Ended

September 30,

2023 September 30,

Revenue $ 197,659 $ 208,431

Cost of revenue 185,800 195,423

Gross profit (loss) 4,419 ( 1,763 ) 16,125 ( 2,064 )

Gross profit 11,859 13,008

Selling, general and administrative expenses 17,113 16,811

Goodwill impairment — 18,312 12,316 18,312

Restructuring costs — 1,287

3 unchanged sentences

Interest income 150 24

Other ( 116 ) 677 ( 706 ) 534

Loss before income tax expense (benefit) ( 13,049 ) ( 35,046 ) ( 52,388 ) ( 71,792 )

Provision (benefit) for federal, state and foreign income taxes ( 363 ) ( 147 ) ( 363 ) 5,564

Other (Note 3) 2,262 ( 1,074 )

Loss before income tax expense ( 3,167 ) ( 6,512 )

Provision for federal, state and foreign income taxes — —

Net loss $ ( 3,167 ) $ ( 6,512 )

8 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

2023 March 31,

2022 March 31,

2023 March 31,

Three Months Ended

September 30,

2023 September 30,

Net loss $ ( 3,167 ) $ ( 6,512 )

Other comprehensive loss, net of tax:

Foreign currency translation loss (net of tax expense (benefit) of $0 for the three and nine months ended March 31, 2023 and ($16) and $30 for the three and nine months ended March 31, 2022, respectively) ( 234 ) ( 32 ) ( 722 ) ( 728 )

Foreign currency translation loss ( 538 ) ( 1,753 )

Comprehensive loss $ ( 3,705 ) $ ( 8,265 )

3 unchanged sentences

(In thousands)

September 30,

2023 June 30,

1 unchanged sentence

Cash and cash equivalents $ 27,359 $ 54,812

Accounts receivable, less allowances (March 31, 2023—$1,100 and June 30, 2022—$1,320) 163,426 153,879

Accounts receivable, less allowances (September 30, 2023—$402 and June 30, 2023—$1,061) 152,300 145,764

Costs and estimated earnings in excess of billings on uncompleted contracts 42,369 44,888

15 unchanged sentences

(In thousands, except share data)

September 30,

2023 June 30,

15 unchanged sentences

Stockholders’ equity:

Matrix Service Company stockholders' equity:

Common stock—$.01 par value;

60,000,000 shares authorized;

27,888,217 shares issued as of March 31, 2023 and June 30, 2022;

27,037,556 and 26,790,514 shares outstanding as of March 31, 2023 and June 30, 2022, respectively 279 279

27,888,217 shares issued as of September 30, 2023 and June 30, 2023;

27,209,838 and 27,047,318 shares outstanding as of September 30, 2023 and June 30, 2023, respectively 279 279

Additional paid-in capital 139,773 140,810

2 unchanged sentences

186,495 191,237

Treasury stock, at cost — 850,661 shares as of March 31, 2023, and 1,097,703 shares as of June 30, 2022 ( 9,889 ) ( 15,530 )

Treasury stock, at cost — 678,379 shares as of September 30, 2023, and 840,899 shares as of June 30, 2023 ( 7,372 ) ( 9,753 )

Total stockholders' equity 179,123 181,484

4 unchanged sentences

(In thousands)

Nine Months Ended

2023 March 31,

Three Months Ended

September 30,

2023 September 30,

Operating activities:

Net loss $ ( 3,167 ) $ ( 6,512 )

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

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

Depreciation and amortization 2,911 3,642

Goodwill impairment 12,316 18,312

Stock-based compensation expense 1,755 2,055

Deferred income tax — 5,323

Gain on sale of property, plant and equipment ( 21 ) ( 674 )

Provision for uncollectible accounts ( 63 ) 52

Accelerated amortization of deferred debt amendment fees — 1,518

Loss (gain) on sale of property, plant and equipment (Note 3) ( 2,366 ) 65

Other 72 ( 25 )

7 unchanged sentences

Accrued expenses ( 195 ) ( 4,248 )

Net cash provided (used) by operating activities 2,403 ( 22,517 )

Net cash used by operating activities ( 28,875 ) ( 35,229 )

Investing activities:

Capital expenditures ( 478 ) ( 1,578 )

Proceeds from asset sales 110 1,250

Net cash used by investing activities $ ( 6,102 ) $ ( 85 )

Proceeds from asset sales (Note 3) 2,618 4

Net cash provided (used) by investing activities 2,140 ( 1,574 )

See accompanying notes.

2 unchanged sentences

(In thousands)

Nine Months Ended

2023 March 31,

Three Months Ended

September 30,

2023 September 30,

Financing activities:

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

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

Payment of debt amendment fees — ( 1,054 )

Issuances of common stock — 199

Proceeds from issuance of common stock under employee stock purchase plan $ 45 $ 65

Repurchase of common stock for payment of statutory taxes due on equity-based compensation ( 456 ) ( 310 )

Other — ( 354 )

Net cash used by financing activities ( 411 ) ( 245 )

6 unchanged sentences

Income taxes $ ( 27 ) $ —

Interest, including payment of debt amendment fees $ 1,675 $ 2,509

Interest $ 389 $ 421

Non-cash investing and financing activities:

9 unchanged sentences

Loss Treasury

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

Net loss — — ( 12,686 ) — — ( 12,686 )

Other comprehensive loss — — — ( 234 ) — ( 234 )

Treasury shares sold to Employee Stock Purchase Plan (10,233 shares) — ( 139 ) — — 203 64

Stock-based compensation expense — 1,407 — — — 1,407

Balances, March 31, 2023 $ 279 $ 139,257 $ 59,253 $ ( 8,897 ) $ ( 9,889 ) $ 180,003

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

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

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

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

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

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

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Loss Treasury

Balances, June 30, 2023 $ 279 $ 140,810 $ 58,917 $ ( 8,769 ) $ ( 9,753 ) $ 181,484

1 unchanged sentence

Other comprehensive loss — — — ( 538 ) — ( 538 )

Issuance of deferred shares (259,529 shares) — ( 5,149 ) — — 5,149 —

Issuance of restricted stock (210,243 shares) — ( 2,738 ) — — 2,738 —

Treasury shares sold to Employee Stock Purchase Plan (7,601 shares) — ( 54 ) — — 99 45

1 unchanged sentence

Stock-based compensation expense — 1,755 — — — 1,755

Balances, March 31, 2023 $ 279 $ 139,257 $ 59,253 $ ( 8,897 ) $ ( 9,889 ) $ 180,003

Balances, September 30, 2023 $ 279 $ 139,773 $ 55,750 $ ( 9,307 ) $ ( 7,372 ) $ 179,123

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

1 unchanged sentence

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

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

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

Issuance of restricted stock (204,827 shares) — ( 4,064 ) — — 4,064 —

Treasury shares sold to Employee Stock Purchase Plan (13,033 shares) — ( 194 ) — — 259 65

1 unchanged sentence

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

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

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

Matrix Service Company

8 unchanged sentences

The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2023, included in our Annual Report on Form 10-K for the year then ended.

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

The results of operations for the three month period ended September 30, 2023 may not necessarily be indicative of the results of operations for the full year ending June 30, 2024.

Significant Accounting Policies

2 unchanged sentences

Remaining Performance Obligations

We had $ 542.7 million of remaining performance obligations yet to be satisfied as of March 31, 2023.

We had $ 376.5 million of remaining performance obligations yet to be satisfied as of September 30, 2023.

We expect to recognize $ 293.1 million of our remaining performance obligations as revenue within the next twelve months.

8 unchanged sentences

The following table provides information about CIE and BIE:

September 30,

2023 June 30,

4 unchanged sentences

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

The amount of revenue recognized during the nine months ended March 31, 2023 that was included in the June 30, 2022 BIE balance was $ 57.0 million.

The amount of revenue recognized during the three months ended September 30, 2023 that was included in the June 30, 2023 BIE balance was $ 62.9 million.

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

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Progress billings in accounts receivable at March 31, 2023 and June 30, 2022 included retentions to be collected within one year of $ 18.9 million and $ 16.1 million, respectively.

Contract retentions collectible beyond one year are included in other assets, non-current in the Condensed Consolidated Balance Sheets and totaled $ 7.8 million as of March 31, 2023 and $ 4.0 million as of June 30, 2022.

Progress billings in accounts receivable at September 30, 2023 and June 30, 2023 included retentions to be collected within one year of $ 15.2 million and $ 16.3 million, respectively.

Contract retentions collectible beyond one year are included in other assets, non-current in the Condensed Consolidated Balance Sheets and totaled $ 13.4 million as of September 30, 2023 and $ 10.0 million as of June 30, 2023.

Unpriced Change Orders and Claims

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $ 10.1 million at September 30, 2023 and $ 9.7 million at June 30, 2023.

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

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

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

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

Disaggregated Revenue

2 unchanged sentences

Geographic Disaggregation:

Three Months Ended Nine Months Ended

2023 March 31,

2022 March 31,

2023 March 31,

Three Months Ended

September 30,

2023 September 30,

(In thousands)

4 unchanged sentences

Contract Type Disaggregation:

Three Months Ended Nine Months Ended

2023 March 31,

2022 March 31,

2023 March 31,

Three Months Ended

September 30,

2023 September 30,

(In thousands)

2 unchanged sentences

Total Revenue $ 197,659 $ 208,431

Typically, we assume more risk with fixed-price contracts since increases in costs 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 the third quarter of fiscal 2023, unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete certain midstream gas processing capital projects in the Process and Industrial Facilities segment resulted in the projects reducing gross profit by $ 3.3 million.

Together with prior unfavorable changes in the estimated recovery of change orders and increased costs, the projects reduced gross profit by $ 12.7 million during the nine months ended March 31, 2023.

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 work on the project according to forecast and for the impact that global supply chain issues and inflation had on the projects.

We have accrued the full expected loss for these projects, which we expect to be mechanically complete in July 2023.

During the three and nine months ended March 31, 2022, our results of operations were materially impacted by an increase in the forecasted costs to complete a midstream gas processing project in the Process and Industrial Facilities segment, which resulted in a decrease in gross profit of $ 4.8 million.

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

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

During fiscal 2022, our results of operations were materially impacted by changes in the forecasted costs to complete a large capital project in the Utility and Power Infrastructure segment.

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

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

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

The project was completed in fiscal 2022.

During fiscal 2022, our results of operations were materially impacted by an increase in the costs required to complete a thermal energy storage tank repair and maintenance project in the Storage and Terminal Solutions segment, which resulted in a decrease in gross profit of $ 5.5 million in the first half of fiscal 2022.

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

We completed these repairs in the first quarter of fiscal 2023.

Note 3 – Property, Plant and Equipment

The following table presents the components of our property, plant and equipment - net at March 31, 2023 and June 30, 2022:

2023 June 30,

(In thousands)

Property, plant and equipment - at cost:

Land and buildings $ 36,458 $ 34,788

Construction equipment 90,308 93,036

Transportation equipment 47,863 48,999

Office equipment and software 38,456 43,823

Construction in progress 3,155 1,646

Total property, plant and equipment - at cost 216,240 222,292

Accumulated depreciation ( 165,699 ) ( 168,423 )

Property, plant and equipment - net $ 50,541 $ 53,869

Note 4 – Goodwill and Other Intangible Assets

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

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal Solutions Total

(In thousands)

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

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

Translation adjustment (1)

( 36 ) — ( 71 ) ( 107 )

Net balance at March 31, 2023 $ 4,227 $ 6,111 $ 19,374 $ 29,712

(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.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

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

The fiscal 2022 test indicated that four reporting units with a combined total of $ 33.8 million of goodwill as of June 30, 2022 were at higher risk of future impairment.

Operating results during the second quarter of fiscal 2023 of one of our reporting units at higher risk of impairment indicated that it was more likely than not that its goodwill was impaired.

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

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

The impairment was recognized in operating loss during the second quarter of fiscal 2023.

Based on the totality of both positive and negative factors, no impairment indicators related to the other reporting units existed at March 31, 2023.

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

During the three and nine months ended March 31, 2022, we concluded that goodwill impairment indicators existed based on the decline in the price of our stock and operating results that had underperformed during the year.

As such, we performed an interim impairment test and concluded $ 18.3 million of goodwill was impaired.

Other Intangible Assets

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

At March 31, 2023

Useful Life Gross Carrying

Amount Accumulated

Amortization Net Carrying

(Years) (In thousands)

Intellectual property 10 to 15 $ 2,483 $ ( 2,328 ) $ 155

Customer-based (1)

6 to 15 13,144 ( 9,800 ) 3,344

Total amortizing intangible assets $ 15,627 $ ( 12,128 ) $ 3,499

(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

Useful Life Gross Carrying

Amount Accumulated

Amortization Net Carrying

(Years) (In thousands)

Intellectual property 10 to 15 $ 2,558 $ ( 2,276 ) $ 282

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

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

Amortization expense totaled $ 0.4 million and $ 1.3 million during the three and nine months ended March 31, 2023 and $ 0.4 million and $ 1.4 million during the three and nine months ended March 31, 2022, respectively.

We estimate that the remaining amortization expense related to March 31, 2023 amortizing intangible assets will be as follows (in thousands):

Period ending:

Remainder of Fiscal 2023 $ 432

Fiscal 2024 1,416

Fiscal 2025 1,096

Fiscal 2026 555

Total estimated remaining amortization expense at March 31, 2023 $ 3,499

Burlington Office Disposal

During the first quarter of fiscal 2024, we sold a previously utilized facility in Burlington, Ontario for $ 2.7 million in net proceeds, which resulted in a gain of $ 2.5 million.

The gain was included in Other income in the Condensed Consolidated Statements of Income.

We closed this previously utilized facility during the second quarter of fiscal 2023 because it was no longer strategic to the future of the business.

Matrix Service Company

11 unchanged sentences

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

At March 31, 2023, our borrowing base was $ 78.5 million, we had $ 15.0 million of outstanding borrowings, and we had $ 19.3 million in letters of credit outstanding, which resulted in availability of $ 44.2 million under the ABL Facility.

At September 30, 2023, our borrowing base was $ 72.9 million, we had $ 10.0 million of outstanding borrowings, and we had $ 10.0 million in letters of credit outstanding, which resulted in availability of $ 52.9 million under the ABL Facility.

We repaid all outstanding borrowings in November 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.

11 unchanged sentences

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

The interest rate in effect for borrowings outstanding at March 31, 2023, including applicable margin, was approximately 7.17 %.

The interest rate in effect for borrowings outstanding at September 30, 2023, including applicable margin, was approximately 7.68 %.

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

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

We were in compliance with all covenants of the ABL Facility as of March 31, 2023.

We were in compliance with all covenants of the ABL Facility as of September 30, 2023.

Note 5 – Income Taxes

Effective Tax Rate

Our effective tax rates were 2.8 % and 0.7 % for the three and nine months ended March 31, 2023, compared to 0.4 % and ( 7.8 %) during the three and nine months ended March 31, 2022, respectively.

The effective tax rates during fiscal 2023 were impacted by valuation allowances of $ 3.6 million and $ 13.3 million placed on deferred tax assets during the three and nine months ended March 31, 2023, respectively.

Our effective tax rates were zero for each of the three months ended September 30, 2023 and 2022, respectively.

The effective tax rates during both periods were impacted by valuation allowances of $ 0.2 million and $ 1.4 million, respectively, placed on deferred tax assets generated during the quarters.

Valuation Allowance

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.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Net Operating Loss Carryback Refund

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

During the third quarter of fiscal 2023, we received a $ 13.3 million tax refund in connection with this carryback, which was included in income taxes receivable in the Condensed Consolidated Balance Sheet as of June 30, 2022.

Deferred Payroll Taxes

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

payroll taxes we deferred through provisions of the CARES Act.

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

Note 6 – Commitments and Contingencies

8 unchanged sentences

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

Unpriced Change Orders and Claims

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $ 14.7 million at March 31, 2023 and $ 8.9 million at June 30, 2022.

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

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

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

However, since customers may not pay these amounts until final resolution of related claims, collection of these amounts 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 account receivable balance at March 31, 2023 was $ 17.0 million.

Litigation is unpredictable;

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

We are participants in various legal actions.

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 September 30, 2023 was $ 16.8 million.

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

In September 2023, a jury returned a verdict in our favor and awarded us the full contract balance.

We received payment in October 2023.

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, net of BIE, which total $ 5.4 million as of September 30, 2023.

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.

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.

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.

3 unchanged sentences

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

Diluted earnings per share (“Diluted EPS”) includes the dilutive effect of stock options and nonvested deferred shares.

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

Diluted earnings per share (“Diluted EPS”) includes the dilutive effect of nonvested restricted stock shares.

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

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

Three Months Ended Nine Months Ended

2023 March 31,

2022 March 31,

2023 March 31,

Three Months Ended

September 30,

2023 September 30,

(In thousands, except per share data)

5 unchanged sentences

Diluted loss per share $ ( 0.12 ) $ ( 0.24 )

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

Three Months Ended Nine Months Ended

2023 March 31,

2022 March 31,

2023 March 31,

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

Three Months Ended

September 30,

2023 September 30,

(In thousands)

Nonvested deferred shares 133 34 81 110

Nonvested restricted stock shares 231 95

Matrix Service Company

2 unchanged sentences

We report our results of operations through three reportable segments:

Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions.

Storage and Terminal Solutions, Utility and Power Infrastructure, and Process and Industrial Facilities.

• 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.

We also perform 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 provide 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 crude oil and refined product 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 as 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.

We also perform 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.

2 unchanged sentences

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

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

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

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

3 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

2023 March 31,

2022 March 31,

2023 March 31,

Three Months Ended

September 30,

2023 September 30,

Gross revenue

Storage and Terminal Solutions $ 90,979 $ 77,290

Utility and Power Infrastructure 32,395 44,870

Process and Industrial Facilities 75,138 86,745

Storage and Terminal Solutions 53,871 49,254 194,291 175,174

Total gross revenue $ 198,512 $ 208,905

Inter-segment revenue

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

Process and Industrial Facilities — 815 109 3,841

Storage and Terminal Solutions $ 835 $ 357

Process and Industrial Facilities 18 117

Total inter-segment revenue $ 853 $ 474

Consolidated revenue

Storage and Terminal Solutions $ 90,144 $ 76,933

Utility and Power Infrastructure 32,395 44,870

Process and Industrial Facilities 75,120 86,628

Storage and Terminal Solutions 52,165 48,691 191,614 172,571

Total consolidated revenue $ 197,659 $ 208,431

Gross profit (loss)

Storage and Terminal Solutions $ 4,953 $ 7,564

Utility and Power Infrastructure 3,697 1,714

Process and Industrial Facilities 5,078 4,330

Storage and Terminal Solutions ( 810 ) ( 458 ) 8,403 ( 216 )

Corporate ( 1,869 ) ( 600 )

Total gross profit (loss) $ 4,419 $ ( 1,763 ) $ 16,125 $ ( 2,064 )

Total gross profit $ 11,859 $ 13,008

Selling, general and administrative expenses

Storage and Terminal Solutions $ 4,629 $ 4,158

Utility and Power Infrastructure 1,548 1,738

Process and Industrial Facilities 3,087 4,070

Storage and Terminal Solutions 5,735 4,063 15,342 12,850

Corporate 7,849 6,845

Total selling, general and administrative expenses $ 17,113 $ 16,811

Goodwill impairment and restructuring costs

Restructuring costs

Storage and Terminal Solutions $ — $ 522

Utility and Power Infrastructure — 37

Process and Industrial Facilities — 315

Storage and Terminal Solutions 79 7,219 984 7,293

Corporate — 413

Total goodwill impairment and restructuring costs $ 316 $ 16,734 $ 15,197 $ 18,034

Total restructuring costs $ — $ 1,287

Operating income (loss)

Storage and Terminal Solutions $ 324 $ 2,884

Utility and Power Infrastructure 2,149 ( 61 )

Process and Industrial Facilities 1,991 ( 55 )

Storage and Terminal Solutions ( 6,624 ) ( 11,740 ) ( 7,923 ) ( 20,359 )

Corporate ( 9,718 ) ( 7,858 )

3 unchanged sentences

Total assets by segment were as follows (in thousands):

September 30,

2023 June 30,

Storage and Terminal Solutions $ 148,791 $ 139,333

Utility and Power Infrastructure 52,143 67,630

Process and Industrial Facilities 99,673 90,514

Storage and Terminal Solutions 141,263 141,084

Corporate 81,671 103,027

3 unchanged sentences

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

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

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

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

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

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

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

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

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

March 31, 2023 March 31, 2022 March 31, 2023 March 31, 2022

(In thousands)

Restructuring Costs by Type:

Severance and other personnel-related costs $ 251 $ — $ 2,563 $ 136 $ 17,477

Facility costs 50 12 179 29 4,709

Other intangible asset impairments — — — — 1,525

Other costs 15 ( 1,590 ) 139 ( 443 ) 582

Total restructuring costs $ 316 $ ( 1,578 ) $ 2,881 $ ( 278 ) $ 24,293

During the three months ended September 30, 2022, we incurred $1.3 million which was primarily related to severance and other personnel-related costs in connection with the second phase of our plan.

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

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

What changed 10-Q

Item 1. Financial Statements