What changed in this filing

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Item 1. Financial Statements

2024-02-08 compared with 2023-11-09 · 136 added, 76 removed, 336 unchanged (39% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended

September 30,

2023 September 30,

Three Months Ended Six Months Ended

2023 December 31,

2022 December 31,

2023 December 31,

Revenue $ 175,042 $ 193,840 $ 372,701 $ 402,271

Cost of revenue 164,453 195,142 350,253 390,565

Gross profit 11,859 13,008

Gross profit (loss) 10,589 ( 1,302 ) 22,448 11,706

Selling, general and administrative expenses 15,731 17,545 32,844 34,356

Goodwill impairment — 12,316 — 12,316

Restructuring costs — 1,278 — 2,565

16 unchanged sentences

(In thousands)

Three Months Ended

September 30,

2023 September 30,

Three Months Ended Six Months Ended

2023 December 31,

2022 December 31,

2023 December 31,

Net loss $ ( 2,851 ) $ ( 32,827 ) $ ( 6,018 ) $ ( 39,339 )

Other comprehensive loss, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation loss 562 1,265 24 ( 488 )

4 unchanged sentences

(In thousands)

September 30,

2023 June 30,

1 unchanged sentence

Cash and cash equivalents $ 47,160 $ 54,812

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

Accounts receivable, less allowances (December 31, 2023—$ 408 and June 30, 2023—$ 1,061 )

158,182 145,764

Costs and estimated earnings in excess of billings on uncompleted contracts 40,426 44,888

15 unchanged sentences

(In thousands, except share data)

September 30,

2023 June 30,

18 unchanged sentences

60,000,000 shares authorized;

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

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

27,300,485 and 27,047,318 shares outstanding as of December 31, 2023 and June 30, 2023, respectively

Additional paid-in capital 140,668 140,810

2 unchanged sentences

185,101 191,237

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 )

Treasury stock, at cost — 587,732 shares as of December 31, 2023, and 840,899 shares as of June 30, 2023

( 6,191 ) ( 9,753 )

Total stockholders' equity 178,910 181,484

4 unchanged sentences

(In thousands)

Three Months Ended

September 30,

2023 September 30,

Six Months Ended

2023 December 31,

Operating activities:

2 unchanged sentences

Depreciation and amortization 5,692 7,177

Goodwill impairment — 12,316

Stock-based compensation expense 3,785 3,747

Loss (gain) on sale of property, plant and equipment (Note 3) ( 4,589 ) 42

Other 72 ( 25 )

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

6 unchanged sentences

Accrued expenses 2,257 ( 8,381 )

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

Net cash provided (used) by operating activities 729 ( 17,585 )

Investing activities:

6 unchanged sentences

(In thousands)

Three Months Ended

September 30,

2023 September 30,

Six Months Ended

2023 December 31,

Financing activities:

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

Repayments of advances under asset-backed credit facility ( 20,000 ) ( 10,000 )

Proceeds from issuance of common stock under employee stock purchase plan $ 91 $ 136

20 unchanged sentences

Loss Treasury

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

Net loss — — ( 2,851 ) — — ( 2,851 )

Other comprehensive income — — — 562 — 562

Issuance of restricted stock ( 86,783 shares)

— ( 1,131 ) — — 1,131 —

Treasury shares sold to Employee Stock Purchase Plan ( 3,864 shares)

— ( 4 ) — — 50 46

Stock-based compensation expense — 2,030 — — — 2,030

Balances, December 31, 2023 $ 279 $ 140,668 $ 52,899 $ ( 8,745 ) $ ( 6,191 ) $ 178,910

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

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

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

Issuance of restricted stock ( 54,702 shares)

— ( 1,085 ) — — 1,085 —

Treasury shares sold to Employee Stock Purchase Plan ( 17,111 shares)

— ( 269 ) — — 340 71

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

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

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Loss Treasury

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

Net loss — — ( 6,018 ) — — ( 6,018 )

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

Other comprehensive income — — — 24 — 24

Issuance of restricted stock ( 297,026 shares)

— ( 3,868 ) — — 3,868 —

Treasury shares sold to Employee Stock Purchase Plan ( 11,465 shares)

— ( 59 ) — — 150 91

Treasury shares purchased to satisfy tax withholding obligations ( 55,324 shares)

— — — — ( 456 ) ( 456 )

Stock-based compensation expense — 3,785 — — — 3,785

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

Balances, December 31, 2023 $ 279 $ 140,668 $ 52,899 $ ( 8,745 ) $ ( 6,191 ) $ 178,910

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

2 unchanged sentences

Issuance of restricted stock ( 259,529 shares)

— ( 5,149 ) — — 5,149 —

Treasury shares sold to Employee Stock Purchase Plan ( 30,144 shares)

— ( 463 ) — — 599 136

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

— — — — ( 310 ) ( 310 )

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

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

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

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

The results of operations for the three and six month periods ended December 31, 2023 may not necessarily be indicative of the results of operations for the full year ending June 30, 2024.

Significant Accounting Policies

Our significant accounting policies are detailed in “Note 1 - Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended June 30, 2023.

Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources.

The update will be effective for annual periods beginning after December 15, 2023 (fiscal 2025).

We are assessing the effect of this update on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S.

and foreign jurisdictions.

The update will be effective for annual periods beginning after December 15, 2024 (fiscal 2026).

We are assessing the effect of this update on our consolidated financial statements and related disclosures.

Other accounting pronouncements issued but not effective until after December 31, 2023 are not expected to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

Note 2 – Revenue

Remaining Performance Obligations

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

We had $ 749.4 million of remaining performance obligations yet to be satisfied as of December 31, 2023.

We expect to recognize $ 437.1 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,

Table of Conten t s

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 three months ended September 30, 2023 that was included in the June 30, 2023 BIE balance was $ 62.9 million.

The amount of revenue recognized during the six months ended December 31, 2023 that was included in the June 30, 2023 BIE balance was $ 78.3 million.

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

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

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.

Progress billings in accounts receivable at December 31, 2023 and June 30, 2023 included retentions to be collected within one year of $ 14.7 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 $ 17.6 million as of December 31, 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.

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $ 11.8 million at December 31, 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.

6 unchanged sentences

Geographic Disaggregation:

Three Months Ended

September 30,

2023 September 30,

Three Months Ended Six Months Ended

2023 December 31,

2022 December 31,

2023 December 31,

(In thousands)

4 unchanged sentences

Contract Type Disaggregation:

Three Months Ended

September 30,

2023 September 30,

Three Months Ended Six Months Ended

2023 December 31,

2022 December 31,

2023 December 31,

(In thousands)

2 unchanged sentences

Total Revenue $ 175,042 $ 193,840 $ 372,701 $ 402,271

Table of Conten t s

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 construction work in the Process and Industrial Facilities segment resulted in a reduction of gross profit of $ 9.6 million and $ 9.4 million during the three and six months ended December 31, 2022, respectively.

This was 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.

Note 3 – Property, Plant and Equipment

Burlington Office Disposal

Building Disposals

During the second quarter of fiscal 2024, we sold a facility in Catoosa, Oklahoma for $ 2.7 million in net proceeds, which resulted in a gain of $ 2.0 million.

Proceeds were received in January 2024.

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

The facility was previously utilized for our industrial cleaning business, which was sold during the fourth quarter of fiscal 2023.

The Catoosa, Oklahoma facility was closed as it was no longer strategic to the future of the business.

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.

1 unchanged sentence

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

Notes to Condensed Consolidated Financial Statements

Note 4 – Goodwill

During the second quarter of fiscal 2023,we had indicators of a potential impairment and performed an interim impairment test within the Process and Industrial Facilities segment.

We concluded that its $ 12.3 million of goodwill was fully impaired and recognized the impairment in operating income during the three and six months ended December 31, 2022.

We did no t record any impairments during the three and six months ended December 31, 2023.

Note 5 – Debt

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.

and Canada operating subsidiaries entered into an asset-based credit agreement, which was amended on October 5, 2022 and December 29, 2023 (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.

3 unchanged sentences

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

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

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.

We are required to maintain a minimum of $ 25.0 million of restricted cash at all times, but such amounts are also included in the borrowing base.

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

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.

The borrowing base is recalculated on a monthly basis and at December 31, 2023, our borrowing base was $ 69.1 million.

During the quarter ended December 31, 2023, the Company repaid all outstanding borrowings under the ABL Facility.

The Company had $ 10.0 million in letters of credit outstanding as of December 31, 2023, which resulted in availability of $ 59.1 million under the ABL Facility.

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

9 unchanged sentences

or Canadian prime rate, and between 2.00 % and 2.50 % for Adjusted Term SOFR borrowings.

Interest is payable either (i) monthly for Base Rate or Canadian Prime Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility.

Interest is payable either (i) monthly for Base Rate or

Table of Conten t s

Canadian Prime Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility.

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

The interest rate in effect for borrowings outstanding at September 30, 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 September 30, 2023.

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

Note 6 – Income Taxes

Effective Tax Rate

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.

Our effective tax rates were zero for each of the three and six months ended December 31, 2023 and 2022.

The effective tax rates during fiscal 2024 were impacted by valuation allowances of $ 1.2 million and $ 1.4 million placed on deferred tax assets during the three and six months ended December 31, 2023, respectively.

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

Valuation Allowance

1 unchanged sentence

We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided to the extent we generate taxable income in the future.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Note 7 – Commitments and Contingencies

9 unchanged sentences

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.

We received full payment of $ 16.8 million in October 2023.

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

1 unchanged sentence

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.

We deny all claims and filed a countersuit against the customer for failure to pay outstanding amounts of accounts receivable, which totaled $ 5.6 million as of December 31, 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.

Table of Conten t s

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.

5 unchanged sentences

It is the opinion of management that none of the other known legal actions will have a material impact on our financial position, results of operations or liquidity.

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Note 8 – Earnings per Common Share

3 unchanged sentences

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

Three Months Ended

September 30,

2023 September 30,

Three Months Ended Six Months Ended

2023 December 31,

2022 December 31,

2023 December 31,

(In thousands, except per share data)

6 unchanged sentences

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,

Three Months Ended Six Months Ended

2023 December 31,

2022 December 31,

2023 December 31,

(In thousands)

Nonvested restricted stock shares 949 34 757 65

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Table of Conten t s

Note 9 – Segment Information

20 unchanged sentences

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.

Table of Conten t s

Matrix Service Company

2 unchanged sentences

(In thousands)

Three Months Ended

September 30,

2023 September 30,

Three Months Ended Six Months Ended

2023 December 31,

2022 December 31,

2023 December 31,

Gross revenue

2 unchanged sentences

Process and Industrial Facilities 71,526 80,789 146,664 167,526

Corporate 1,233 — 1,233 —

Total gross revenue $ 175,977 $ 194,508 $ 374,489 $ 403,405

1 unchanged sentence

Storage and Terminal Solutions $ 714 $ 614 $ 1,549 $ 971

Utility and Power Infrastructure — 54 — 54

Process and Industrial Facilities 221 — 239 109

Corporate — — — —

Total inter-segment revenue $ 935 $ 668 $ 1,788 $ 1,134

3 unchanged sentences

Process and Industrial Facilities 71,305 80,789 146,425 167,417

Corporate 1,233 — 1,233 —

Total consolidated revenue $ 175,042 $ 193,840 $ 372,701 $ 402,271

11 unchanged sentences

Total selling, general and administrative expenses $ 15,731 $ 17,545 $ 32,844 $ 34,356

Restructuring costs

Goodwill impairment & restructuring costs

Storage and Terminal Solutions $ — $ 383 $ — $ 906

2 unchanged sentences

Corporate — 513 — 926

Total restructuring costs $ — $ 1,287

Total goodwill impairment & restructuring costs $ — $ 13,594 $ — $ 14,881

Operating income (loss)

4 unchanged sentences

Total operating loss $ ( 5,142 ) $ ( 32,441 ) $ ( 10,396 ) $ ( 37,531 )

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

Table of Conten t s

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

September 30,

2023 June 30,

4 unchanged sentences

Total segment assets $ 404,834 $ 400,504

Table of Conten t s

Note 10 – Restructuring Costs

3 unchanged sentences

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

During the 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.

During the three and six months ended December 31, 2022, we incurred restructuring costs of $ 1.3 million and $ 2.6 million, respectively.

The restructuring costs were primarily related to severance and other personnel-related costs in connection with the second phase of our plan as well as the closure of an underperforming operating location.

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