MATRIX SERVICE CO 10-Q

Item 1. Financial Statements Matrix Service Company Condensed Consolidated Statements of Income (In thousands, except per share data) (unaudited) Three Months Ended Nine Months Ended March 31, 2024 March 31, 2023 March 31, 2024 March 31, 2023 Revenue $ 166,013 $ 186,895 $ 538,714 $ 589,166 Cost of revenue 160,435 182,476 510,688 573,041 Gross profit 5,578 4,419 28,026 16,125 Selling, general and administrative expenses 19,948 16,862 52,792 51,218 Goodwill impairment — — — 12,316 Restructuring costs — 316 — 2,881 Operating loss ( 14,370 ) ( 12,759 ) ( 24,766 ) ( 50,290 ) Other income (expense): Interest expense ( 143 ) ( 268 ) ( 787 ) ( 1,556 ) Interest income 165 94 477 164 Other (Note 3) ( 235 ) ( 116 ) 4,481 ( 706 ) Loss before income tax expense ( 14,583 ) ( 13,049 ) ( 20,595 ) ( 52,388 ) Provision for federal, state and foreign income taxes ( 2 ) ( 363 ) 4 ( 363 ) Net loss $ ( 14,581 ) $ ( 12,686 ) $ ( 20,599 ) $ ( 52,025 ) Basic loss per common share $ ( 0.53 ) $ ( 0.47 ) $ ( 0.75 ) $ ( 1.93 ) Diluted loss per common share $ ( 0.53 ) $ ( 0.47 ) $ ( 0.75 ) $ ( 1.93 ) Weighted average common shares outstanding: Basic 27,443 27,038 27,357 26,969 Diluted 27,443 27,038 27,357 26,969 See accompanying notes. -1- Table of Contents Matrix Service Company Condensed Consolidated Statements of Comprehensive Income (In thousands) (unaudited) Three Months Ended Nine Months Ended March 31, 2024 March 31, 2023 March 31, 2024 March 31, 2023 Net loss $ ( 14,581 ) $ ( 12,686 ) $ ( 20,599 ) $ ( 52,025 ) Other comprehensive income (loss), net of tax: Foreign currency translation loss ( 548 ) ( 234 ) ( 524 ) ( 722 ) Comprehensive loss $ ( 15,129 ) $ ( 12,920 ) $ ( 21,123 ) $ ( 52,747 ) See accompanying notes. -2- Table of Contents Matrix Service Company Condensed Consolidated Balance Sheets (In thousands) (unaudited) March 31, 2024 June 30, 2023 Assets Current assets: Cash and cash equivalents $ 69,658 $ 54,812 Accounts receivable, less allowances (March 31, 2024—$ 428 and June 30, 2023—$ 1,061 ) 172,924 145,764 Costs and estimated earnings in excess of billings on uncompleted contracts 34,600 44,888 Inventories 9,057 7,437 Income taxes receivable 325 496 Prepaid expenses 6,606 5,741 Other current assets — 3,118 Total current assets 293,170 262,256 Restricted cash 25,000 25,000 Property, plant and equipment - net 44,711 47,545 Operating lease right-of-use assets 17,911 21,799 Goodwill 29,061 29,120 Other intangible assets, net of accumulated amortization 1,925 3,066 Other assets, non-current (Note 2) 28,227 11,718 Total assets $ 440,005 $ 400,504 See accompanying notes. -3- Table of Contents Matrix Service Company Condensed Consolidated Balance Sheets (In thousands, except share data) (unaudited) March 31, 2024 June 30, 2023 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 55,192 $ 76,365 Billings on uncompleted contracts in excess of costs and estimated earnings 167,657 85,436 Accrued wages and benefits 18,068 13,679 Accrued insurance 5,699 5,579 Operating lease liabilities 3,624 4,661 Other accrued expenses 2,009 1,815 Total current liabilities 252,249 187,535 Deferred income taxes 25 26 Operating lease liabilities 17,947 20,660 Borrowings under asset-backed credit facility — 10,000 Other liabilities, non-current 3,982 799 Total liabilities 274,203 219,020 Commitments and contingencies Stockholders’ equity: Matrix Service Company stockholders' equity: Common stock—$ 0.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of March 31, 2024 and June 30, 2023; 27,304,734 and 27,047,318 shares outstanding as of March 31, 2024 and June 30, 2023, respectively 279 279 Additional paid-in capital 142,634 140,810 Retained earnings 38,318 58,917 Accumulated other comprehensive loss ( 9,293 ) ( 8,769 ) Treasury stock, at cost — 583,483 shares as of March 31, 2024, and 840,899 shares as of June 30, 2023 ( 6,136 ) ( 9,753 ) Total stockholders' equity 165,802 181,484 Total liabilities and stockholders’ equity $ 440,005 $ 400,504 See accompanying notes. -4- Table of Contents Matrix Service Company Condensed Consolidated Statements of Cash Flows (In thousands) (unaudited) Nine Months Ended March 31, 2024 March 31, 2023 Operating activities: Net loss $ ( 20,599 ) $ ( 52,025 ) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 8,337 10,499 Goodwill impairment — 12,316 Stock-based compensation expense 5,765 5,154 Gain on sale of property, plant and equipment (Note 3) ( 4,530 ) ( 21 ) Provision for uncollectible accounts ( 33 ) ( 63 ) Other 202 189 Changes in operating assets and liabilities increasing (decreasing) cash: Accounts receivable, net of allowance for credit losses ( 43,080 ) ( 9,484 ) Costs and estimated earnings in excess of billings on uncompleted contracts 10,288 ( 8,646 ) Inventories ( 1,620 ) 1,947 Other assets and liabilities 1,653 10,401 Accounts payable ( 20,923 ) ( 9,344 ) Billings on uncompleted contracts in excess of costs and estimated earnings 82,221 49,623 Accrued expenses 7,886 ( 8,143 ) Net cash provided by operating activities 25,567 2,403 Investing activities: Capital expenditures ( 5,689 ) ( 6,212 ) Proceeds from asset sales (Note 3) 5,535 110 Net cash used by investing activities ( 154 ) ( 6,102 ) 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 132 200 Repurchase of common stock for payment of statutory taxes due on equity-based compensation ( 456 ) ( 310 ) Net cash used by financing activities ( 10,324 ) ( 110 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 243 ) ( 358 ) Net increase (decrease) in cash, cash equivalents and restricted cash 14,846 ( 4,167 ) Cash, cash equivalents and restricted cash, beginning of period 79,812 77,371 Cash, cash equivalents and restricted cash, end of period $ 94,658 $ 73,204 Supplemental disclosure of cash flow information: Cash paid (received) during the period for: Income taxes $ ( 148 ) $ ( 13,286 ) Interest $ 776 $ 1,675 Non-cash investing and financing activities: Purchases of property, plant and equipment on account $ 39 $ 30 See accompanying notes. -5- Table of Contents Matrix Service Company Condensed Consolidated Statements of Changes in Stockholders’ Equity (In thousands, except share data) (unaudited) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balances, December 31, 2023 $ 279 $ 140,668 $ 52,899 $ ( 8,745 ) $ ( 6,191 ) $ 178,910 Net loss — — ( 14,581 ) — — ( 14,581 ) Other comprehensive income — — — ( 548 ) — ( 548 ) Treasury shares sold to Employee Stock Purchase Plan ( 4,249 shares) — ( 14 ) — — 55 41 Stock-based compensation expense — 1,980 — — — 1,980 Balances, March 31, 2024 $ 279 $ 142,634 $ 38,318 $ ( 9,293 ) $ ( 6,136 ) $ 165,802 Balances, December 31, 2022 $ 279 $ 137,989 $ 71,939 $ ( 8,663 ) $ ( 10,092 ) $ 191,452 Net loss — — ( 12,686 ) — — ( 12,686 ) Other comprehensive income — — — ( 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 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balances, June 30, 2023 $ 279 $ 140,810 $ 58,917 $ ( 8,769 ) $ ( 9,753 ) $ 181,484 Net loss — — ( 20,599 ) — — ( 20,599 ) Other comprehensive income — — — ( 524 ) — ( 524 ) Issuance of restricted stock ( 297,026 shares) — ( 3,868 ) — — 3,868 — Treasury shares sold to Employee Stock Purchase Plan ( 15,714 shares) — ( 73 ) — — 205 132 Treasury shares purchased to satisfy tax withholding obligations ( 55,324 shares) — — — — ( 456 ) ( 456 ) Stock-based compensation expense — 5,765 — — — 5,765 Balances, March 31, 2024 $ 279 $ 142,634 $ 38,318 $ ( 9,293 ) $ ( 6,136 ) $ 165,802 Balances, June 30, 2022 $ 279 $ 139,854 $ 111,278 $ ( 8,175 ) $ ( 15,530 ) $ 227,706 Net loss — — ( 52,025 ) — — ( 52,025 ) Other comprehensive loss — — — ( 722 ) — ( 722 ) Issuance of restricted stock ( 259,529 shares) — ( 5,149 ) — — 5,149 — Treasury shares sold to Employee Stock Purchase Plan ( 40,377 shares) — ( 602 ) — — 802 200 Treasury shares purchased to satisfy tax withholding obligations ( 52,864 shares) — — — — ( 310 ) ( 310 ) Stock-based compensation expense — 5,154 — — — 5,154 Balances, March 31, 2023 $ 279 $ 139,257 $ 59,253 $ ( 8,897 ) $ ( 9,889 ) $ 180,003 -6- Table of Contents Matrix Service Company Notes to Condensed Consolidated Financial Statements (unaudited) Note 1 – Basis of Presentation and Significant Accounting Policies Basis of Presentation The condensed consolidated financial statements include the accounts of Matrix Service Company and its subsidiaries (“Matrix”, “we”, “our”, “us”, “its” or the “Company”), unless otherwise indicated. Intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by U.S. generally accepted accounting principles ("GAAP") for complete financial statements. The information furnished reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair statement of the results of operations, cash flows and financial position for the interim periods presented. 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. The results of operations for the three and nine month periods ended March 31, 2024 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). Adoption of this ASU will result in additional disclosure, but will not impact the Company's consolidated financial position, results of operations or cash flows. 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). Adoption of this ASU will result in additional disclosure, but will not impact the Company's consolidated financial position, results of operations or cash flows. Other accounting pronouncements issued but not effective until after March 31, 2024 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 $ 680.0 million of remaining performance obligations yet to be satisfied as of March 31, 2024. We expect to recognize $ 431.9 million of our remaining performance obligations as revenue within the next twelve months. Contract Balances Contract terms with customers include the timing of billing and payments, which usually differs from the timing of revenue recognition. As a result, we carry contract assets and liabilities in our balance sheet. These contract assets and liabilities are calculated on a contract-by-contract basis and are classified as current. We present our contract assets in the balance sheet as Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts ("CIE"). CIE consists of revenue recognized in excess of billings. We present our contract liabilities in the balance sheet as Billings on Uncompleted Contracts in Excess of Costs and Estimated Earnings ("BIE"). BIE consists of billings in excess of revenue recognized. The following table provides information about CIE and BIE: -7- Table of Contents March 31, 2024 June 30, 2023 Change (In thousands) Costs and estimated earnings in excess of billings on uncompleted contracts $ 34,600 $ 44,888 $ ( 10,288 ) Billings on uncompleted contracts in excess of costs and estimated earnings ( 167,657 ) ( 85,436 ) ( 82,221 ) Net contract liabilities $ ( 133,057 ) $ ( 40,548 ) $ ( 92,509 ) 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, 2024 that was included in the June 30, 2023 BIE balance was $ 84.7 million. Progress billings in accounts receivable at March 31, 2024 and June 30, 2023 included retentions to be collected within one year of $ 12.7 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 $ 25.9 million as of March 31, 2024 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 $ 12.0 million at March 31, 2024 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 Revenue disaggregated by reportable segment is presented in Note 9 - Segment Information. The following tables presents revenue disaggregated by geographic area where the work was performed and by contract type: Geographic Disaggregation: Three Months Ended Nine Months Ended March 31, 2024 March 31, 2023 March 31, 2024 March 31, 2023 (In thousands) United States $ 153,181 $ 178,261 $ 487,140 $ 524,731 Canada 11,998 6,932 43,419 52,742 Other international 834 1,702 8,155 11,693 Total Revenue $ 166,013 $ 186,895 $ 538,714 $ 589,166 Contract Type Disaggregation: Three Months Ended Nine Months Ended March 31, 2024 March 31, 2023 March 31, 2024 March 31, 2023 (In thousands) Fixed-price contracts $ 90,878 $ 96,755 $ 305,346 $ 311,511 Time and materials and other cost reimbursable contracts 75,135 90,140 233,368 277,655 Total Revenue $ 166,013 $ 186,895 $ 538,714 $ 589,166 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 $ 3.3 million and $ 12.7 million during the three and nine months ended March 31, 2023, 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. -8- Table of Contents Note 3 – Property, Plant and Equipment Building Purchase During the third quarter of fiscal 2024, we purchased a fabrication facility in Bakersfield, California for $ 4.1 million to replace a facility currently being leased by the Company. 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 sale of the Catoosa, Oklahoma facility completed our divestiture and closure of a non-core service offering of the business as part of our strategy to focus the business on core markets. 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. 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 not record any impairments during the three and nine months ended March 31, 2024. 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 May 3, 2024 (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 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. 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 borrowing base is recalculated on a monthly basis and at March 31, 2024, our borrowing base was $ 72.3 million. The Company had $ 7.0 million in letters of credit outstanding as of March 31, 2024, which resulted in availability of $ 65.3 million under the ABL Facility. Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate of either a base rate (“Base Rate”), an Adjusted Term 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; provided that the Adjusted Term SOFR cannot be below zero. The Base Rate is defined as a fluctuating interest rate equal to the greater of: (i) rate of interest announced by Bank of Montreal from time to time as its prime rate; (ii) the U.S. federal funds rate plus 0.50 %; (iii) Adjusted Term SOFR for one month period plus 1.00 %; or (iv) 1.00 %. Depending on the amount of average availability, the applicable margin is between 1.00 % to 1.50 % for Base Rate and Canadian Prime Rate borrowings, which includes either U.S. 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. The fee for undrawn amounts is 0.25 % per annum and is due quarterly. -9- Table of Contents 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, 2024. Note 6 – Income Taxes Effective Tax Rate Our effective tax rates were zero for each of the three and nine months ended March 31, 2024. During the three and nine months ended March 31, 2023, our effective tax rates were 2.8 % and 0.7 %, respectively. The effective tax rates during fiscal 2024 were impacted by valuation allowances of $ 4.4 million and $ 5.8 million placed on deferred tax assets during the three and nine months ended March 31, 2024, 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. 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. Note 7 – Commitments and Contingencies Insurance Reserves We maintain insurance coverage for various aspects of our operations. However, we retain exposure to potential losses through the use of deductibles, self-insured retentions and coverage limits. 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. We may also be required to name the customer as an additional insured up to the limits of insurance available, or we may be required to purchase special insurance policies or surety bonds for specific customers or provide letters of credit in lieu of bonds to satisfy performance and financial guarantees on some projects. We maintain a performance and payment bonding line sufficient to support the business. We generally require our subcontractors to indemnify us and our customer and name us as an additional insured for activities arising out of the subcontractors’ work. We also require certain subcontractors to provide additional insurance policies, including surety bonds in favor of us, to secure the subcontractors’ work or as required by the subcontract. 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. Litigation 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. 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 full payment of $ 16.8 million in the second quarter of fiscal 2024. 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 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, which totaled $ 5.6 million as of March 31, 2024. Our trial for this matter is currently scheduled for January 2025. -10- Table of Contents Litigation is unpredictable; however, we believe we have set appropriate reserves 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. Note 8 – Earnings per Common Share 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 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 March 31, 2024 March 31, 2023 March 31, 2024 March 31, 2023 (In thousands, except per share data) Basic EPS: Net loss $ ( 14,581 ) $ ( 12,686 ) $ ( 20,599 ) $ ( 52,025 ) Weighted average shares outstanding 27,443 27,038 27,357 26,969 Basic loss per share $ ( 0.53 ) $ ( 0.47 ) $ ( 0.75 ) $ ( 1.93 ) Diluted EPS: Net loss $ ( 14,581 ) $ ( 12,686 ) $ ( 20,599 ) $ ( 52,025 ) Diluted weighted average shares outstanding 27,443 27,038 27,357 26,969 Diluted loss per share $ ( 0.53 ) $ ( 0.47 ) $ ( 0.75 ) $ ( 1.93 ) The following securities are considered antidilutive and have been excluded from the calculation of Diluted EPS: Three Months Ended Nine Months Ended March 31, 2024 March 31, 2023 March 31, 2024 March 31, 2023 (In thousands) Nonvested restricted stock shares 1,056 133 868 81 -11- Table of Contents Note 9 – Segment Information We report our results of operations through three reportable segments: 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 : 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 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, including hydrogen processing, production, loading and distribution facilities. 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. We eliminate intersegment sales; therefore, no intercompany profit or loss is recognized. 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. 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. Operating Segment Information - The following tables set forth certain selected financial information for our operating segments for the periods indicated: (In thousands) Storage and Terminal Solutions Utility and Power Infrastructure Process and Industrial Facilities Corporate Total Three Months Ended March 31, 2024 Total revenue (1) $ 54,304 $ 46,120 $ 65,589 $ — $ 166,013 Cost of revenue ( 51,991 ) ( 44,711 ) ( 63,822 ) 89 ( 160,435 ) Gross profit 2,313 1,409 1,767 89 5,578 Selling, general and administrative expenses 5,395 2,733 2,590 9,230 19,948 Operating loss $ ( 3,082 ) $ ( 1,324 ) $ ( 823 ) $ ( 9,141 ) $ ( 14,370 ) (1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $1.3 million for the three months ended March 31, 2024. -12- Table of Contents Storage and Terminal Solutions Utility and Power Infrastructure Process and Industrial Facilities Corporate Total Three Months Ended March 31, 2023 Total revenue (1) $ 52,165 $ 35,024 $ 99,706 $ — $ 186,895 Cost of revenue ( 52,975 ) ( 32,234 ) ( 96,546 ) ( 721 ) ( 182,476 ) Gross profit (loss) ( 810 ) 2,790 3,160 ( 721 ) 4,419 Selling, general and administrative expenses 5,735 1,869 3,556 5,702 16,862 Restructuring costs 79 — 106 131 316 Operating income (loss) $ ( 6,624 ) $ 921 $ ( 502 ) $ ( 6,554 ) $ ( 12,759 ) (1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $1.7 million for the three months ended March 31, 2023. Storage and Terminal Solutions Utility and Power Infrastructure Process and Industrial Facilities Corporate Total Nine Months Ended March 31, 2024 Total revenue (1) $ 206,808 $ 118,659 $ 212,014 $ 1,233 $ 538,714 Cost of revenue ( 197,704 ) ( 112,139 ) ( 198,498 ) ( 2,347 ) ( 510,688 ) Gross profit (loss) 9,104 6,520 13,516 ( 1,114 ) 28,026 Selling, general and administrative expenses 14,362 6,259 7,884 24,287 52,792 Operating income (loss) $ ( 5,258 ) $ 261 $ 5,632 $ ( 25,401 ) $ ( 24,766 ) (1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $3.1 million for the nine months ended March 31, 2024. Storage and Terminal Solutions Utility and Power Infrastructure Process and Industrial Facilities Corporate Total Nine Months Ended March 31, 2023 Total revenue (1) $ 191,614 $ 130,429 $ 267,123 $ — $ 589,166 Cost of revenue ( 183,211 ) ( 123,500 ) ( 264,764 ) ( 1,566 ) ( 573,041 ) Gross profit (loss) 8,403 6,929 2,359 ( 1,566 ) 16,125 Selling, general and administrative expenses 15,342 5,394 11,308 19,174 51,218 Goodwill impairment — — 12,316 — 12,316 Restructuring costs 984 37 803 1,057 2,881 Operating income (loss) $ ( 7,923 ) $ 1,498 $ ( 22,068 ) $ ( 21,797 ) $ ( 50,290 ) (1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $2.8 million for the nine months ended March 31, 2023. Total assets by segment March 31, 2024 June 30, 2023 Storage and Terminal Solutions $ 142,168 $ 139,333 Utility and Power Infrastructure 77,054 67,630 Process and Industrial Facilities 118,412 90,514 Corporate 102,371 103,027 Total Segment Assets $ 440,005 $ 400,504 -13- Table of Contents Note 10 – Restructuring Costs In fiscal 2020, we initiated a business improvement plan to increase profitability and reduce our cost structure in order to help us become more competitive and deliver higher quality service. 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 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 three and nine months ended March 31, 2023, we incurred restructuring costs of $ 0.3 million and $ 2.9 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. No restructuring costs were incurred during the three and nine months ended March 31, 2024. -14- Table of Contents