What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-09-10 compared with 2023-09-12 · 244 added, 268 removed, 924 unchanged (36% of the section changed)

37 unchanged sentences

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of

Matrix Service Company

To the stockholders and the Board of Directors of Matrix Service Company

Opinion on Internal Control over Financial Reporting

48 unchanged sentences

For the fiscal year ended June 30, 2024, revenue totaled $728.2 million, of which $455.5 million related to fixed-price contracts.

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

How the Critical Audit Matter Was Addressed in the Audit

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• We evaluated the appropriateness and consistency of the methods and assumptions used by management to estimate total costs on fixed price contracts.

• We evaluated management’s ability to accurately estimate contract costs by comparing current gross margin to historical gross margin for certain fixed price contracts open and completed during each quarter.

• We selected a sample of fixed price contracts and performed the following:

◦ Evaluated gross margin changes over time for each selected contract from bid date to the testing date to evaluate management’s historical and current estimates of total costs at completion.

◦ Evaluated management’s ability to estimate total costs at completion for each selected contract by performing corroborating inquiries with the Company’s project managers and personnel involved with the selected contracts, including inquiries related to the timeline to completion and estimates of future costs to complete the contract.

◦ Selected a sample of estimates of future costs to complete for certain selected fixed price contracts and evaluated management’s estimates of total costs at completion by performing one of the following:

• We evaluated management’s ability to accurately estimate contract costs by comparing current gross margin to historical gross margin for certain fixed price contracts.

• For certain fixed price contracts we performed the following:

◦ Evaluated management’s ability to estimate total costs at completion by performing corroborating inquiries with the Company’s project managers and personnel involved with the selected contracts, including inquiries related to the timeline to completion and estimates of future costs to complete the contract.

◦ Selected a sample of estimates of future costs to complete and evaluated management’s estimates of total costs at completion by performing one of the following:

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

1 unchanged sentence

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

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

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

3 unchanged sentences

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

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

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

The Company performed an annual goodwill impairment test as of May 31, 2024, which resulted in no impairment in 2024.

Two reporting units with a combined total of $16.6 million of goodwill as of June 30, 2024 were at higher risk of future impairment and their estimated fair values exceed their carrying values by 13% to 70%, respectively.

The Company’s total goodwill was $29.0 million as of June 30, 2024.

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

We identified goodwill for two reporting units with a combined total of $16.6 million of goodwill as a critical audit matter because of the significant judgments made by management to estimate the fair values of these reporting units.

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

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the revenue growth rate, forecasted gross margins, and the discount rate used by management to estimate the fair value of the three identified reporting units included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the four identified reporting units, such as controls related to management’s selection of the revenue growth rate and discount rate and forecasts of gross margins.

Our audit procedures related to the revenue growth rate, forecasted gross margins, and the discount rate used by management to estimate the fair value of the two identified reporting units included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the two identified reporting units, as well as controls related to management’s selection of the revenue growth rate, forecasted gross margins, and discount rate.

• We evaluated management’s ability to accurately forecast the revenue growth rate and future gross margins by comparing actual results to management’s historical forecasts.

1 unchanged sentence

◦ Historical revenue growth and gross margins.

◦ Internal communications to management and the Board of Directors, including other forward estimates prepared or used by management for other accounting estimates.

◦ Internal communications to management and the Board of Directors, including other forward-looking estimates prepared or used by management for other accounting estimates.

◦ Remaining performance obligations.

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Selling, general and administrative expenses 70,085 68,249 67,690

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

Goodwill impairment — 12,316 18,312

Restructuring costs 501 3,142 646

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Other comprehensive loss, net of tax:

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

Foreign currency translation loss (net of tax expense of $0, $0 and $71 for the fiscal years ended June 30, 2024, 2023 and 2022, respectively) ( 766 ) ( 594 ) ( 1,426 )

Comprehensive loss $ ( 25,742 ) $ ( 52,955 ) $ ( 65,326 )

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Cash and cash equivalents $ 115,615 $ 54,812

Accounts receivable, less allowances (2023 - $1,061;

2022 - $1,320) 145,764 153,879

Accounts receivable, net of allowance for credit losses 138,987 145,764

Costs and estimated earnings in excess of billings on uncompleted contracts 33,893 44,888

9 unchanged sentences

Other intangible assets, net of accumulated amortization 1,651 3,066

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

Other assets, non-current (Note 2) 31,438 11,718

Total assets $ 451,351 $ 400,504

18 unchanged sentences

Total liabilities 287,169 219,020

Commitments and contingencies

Commitments and contingencies (Note 7)

Stockholders’ equity:

6 unchanged sentences

Accumulated other comprehensive loss ( 9,535 ) ( 8,769 )

191,237 243,236

Treasury stock, at cost — 579,422 and 840,899 shares as of June 30, 2024 and June 30, 2023, respectively ( 6,083 ) ( 9,753 )

12 unchanged sentences

Depreciation and amortization 11,023 13,694 15,254

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

Goodwill impairment — 12,316 18,312

Stock-based compensation expense 7,745 6,791 7,877

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

Deferred income tax — — 5,358

Gain on sale of property, plant and equipment (Note 3) ( 4,923 ) ( 2,841 ) ( 33,114 )

Provision for uncollectable accounts ( 101 ) 738 85

Accelerated amortization of deferred debt amendment fees (Note 5) — 1,518 —

Accelerated amortization of deferred debt amendment fees — — 1,518

Other 1,362 147 907

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

Accounts receivable 8,663 ( 6,587 ) 11,109

Accounts receivable, net of allowance for credit losses ( 12,077 ) 8,663 ( 6,587 )

Costs and estimated earnings in excess of billings on uncompleted contracts 10,995 ( 136 ) ( 13,978 )

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Net cash provided (used) by investing activities ( 945 ) ( 2,543 ) 35,673

See accompanying notes

Matrix Service Company

Consolidated Statements of Cash Flows (continued)

(In thousands)

Fiscal Years Ended

2023 June 30,

2022 June 30,

Financing activities:

Advances under senior secured revolving credit facility $ — $ — $ 1,125

Repayments of advances under senior secured revolving credit facility — — ( 10,913 )

Advances under asset-backed credit facility 10,000 10,000 20,000

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Paid-In Capital Retained

Earnings Accumulated

Earnings Treasury Stock Accumulated

Comprehensive

Loss Treasury

Balances, June 30, 2020 $ 279 $ 138,966 $ 206,402 $ ( 8,373 ) $ ( 29,385 ) $ 307,889

Shares Amount Shares Amount Total

June 30, 2021 27,888,217 $ 279 $ 137,575 $ 175,178 1,338,779 $ ( 20,744 ) $ ( 6,749 ) $ 285,539

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

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

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

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

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

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

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

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

Treasury shares sold to employee stock purchase plan — — ( 307 ) — ( 29,826 ) 577 — 270

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

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

Stock-based compensation expense — — 7,877 — — — — 7,877

Balances, June 30, 2021 279 137,575 175,178 ( 6,749 ) ( 20,744 ) 285,539

June 30, 2022 27,888,217 279 139,854 111,278 1,097,703 ( 15,530 ) ( 8,175 ) 227,706

Net loss — — — ( 52,361 ) — — — ( 52,361 )

Other comprehensive loss — — — — — — ( 594 ) ( 594 )

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

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

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

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

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

Treasury shares sold to employee stock purchase plan — — ( 685 ) — ( 50,139 ) 937 — 252

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

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

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

June 30, 2023 27,888,217 279 140,810 58,917 840,899 ( 9,753 ) ( 8,769 ) 181,484

Net loss — — — ( 24,976 ) — — — ( 24,976 )

Other comprehensive loss — — — — — — ( 766 ) ( 766 )

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

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

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

Issuance of restricted stock — — ( 3,868 ) — ( 297,026 ) 3,868 — —

Treasury shares sold to employee stock purchase plan — — ( 74 ) — ( 19,775 ) 258 — 184

Treasury shares repurchased to satisfy tax withholding obligations — — — — 55,324 ( 456 ) — ( 456 )

Stock-based compensation expense — — 7,745 — — — — 7,745

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

Modification of liability-classified awards (Note 10) — — 967 — — — — 967

June 30, 2024 27,888,217 $ 279 $ 145,580 $ 33,941 579,422 $ ( 6,083 ) $ ( 9,535 ) $ 164,182

See accompanying notes

1 unchanged sentence

Notes to Consolidated Financial Statements

Note 1— Summary of Significant Accounting Policies

Note 1— Basis of Presentation and Significant Accounting Policies

Organization and Basis of Presentation

2 unchanged sentences

We operate in the United States, Canada, South Korea and Australia.

Our reportable segments are Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions.

Our reportable segments are Storage and Terminal Solutions, Utility and Power Infrastructure, and Process and Industrial Facilities.

Use of Estimates

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Our revenue comes from contracts to provide engineering, procurement, fabrication and construction, repair and maintenance and other services.

Our engineering, procurement and fabrication and construction services are usually provided in association with capital projects, which are commonly fixed-price contracts that are billed based on project milestones.

Our engineering, procurement and fabrication and construction services are usually provided in association with construction projects, which are commonly fixed-price contracts that are billed based on project milestones.

Our repair and maintenance services typically are cost reimbursable or time and material based contracts and are billed monthly or, for projects of short duration, at the conclusion of the project.

The elapsed time from award to completion of performance may exceed one year for capital projects.

The elapsed time from award to completion of performance may exceed one year for construction projects.

Contract Identification

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We use a case-by-case evaluation of the underlying data and update our evaluation as further information becomes known.

We believe that any amounts exceeding our recorded accruals should not materially affect our financial position, results of operations or liquidity.

However, the results of litigation are inherently unpredictable, and the possibility exists that the ultimate resolution of one or more of these matters could result in a material effect on our financial position, results of operations or liquidity.

Inventories consist primarily of steel plate and pipe and aluminum coil and extrusions.

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

In accordance with current accounting guidance, goodwill is not amortized and is tested at least annually for impairment at the reporting unit level, which is a level below our reportable segments.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

We perform our annual impairment test in the fourth quarter of each fiscal year, or in between annual tests whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable, to determine whether an impairment exists and to determine the amount of headroom.

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As a result, actual results may differ from the estimates utilized in our income approach.

For the market approach, significant judgments and assumptions include the selection of guideline companies, forecasted guideline company EBITDA and our forecasted EBITDA.

For the market approach, significant judgments and assumptions include the selection of guideline companies, forecasted guideline company EBITDA (as defined in Note 4 - Goodwill) and our forecasted EBITDA (as defined in Note 4 - Goodwill).

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

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For subsidiaries with operations using a foreign functional currency, assets and liabilities are translated at the year-end exchange rates and the income statement accounts are translated at average exchange rates throughout the year.

Translation gains and losses are reported in Accumulated Other Comprehensive Loss, net of tax, in the Consolidated Statements of Changes in Stockholders’ Equity and in Other Comprehensive Income (Loss) in the Consolidated Statements of Comprehensive Income.

Translation gains and losses are reversed from Accumulated Other Comprehensive Income (Loss) and are recognized in current period income in the event we dispose of an entity with accumulated translation gains or losses.

Translation gains and losses are reported in Accumulated Other Comprehensive Loss, net of tax, in the Consolidated Statements of Changes in Stockholders’ Equity and in Other Comprehensive Loss in the Consolidated Statements of Comprehensive Income.

Translation gains and losses are reversed from Accumulated Other Comprehensive Loss and are recognized in current period income in the event we dispose of an entity with accumulated translation gains or losses.

Transaction gains and losses are reported as a component of Other income (expense) in the Consolidated Statements of Income.

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 reconciliations 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 June 30, 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 $ 459.7 million of remaining performance obligations yet to be satisfied as of June 30, 2023.

We had $ 1.1 billion of remaining performance obligations yet to be satisfied as of June 30, 2024.

We expect to recognize approximately $ 534.6 million of our remaining performance obligations as revenue within the next twelve months.

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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 reported on a net basis at the end of each period and are classified as current.

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").

3 unchanged sentences

The following table provides information about CIE and BIE:

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

2024 June 30,

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The amount of revenue recognized during the fiscal year ended June 30, 2024 that was included in the prior period BIE balance was $ 85.3 million.

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Progress billings in accounts receivable at June 30, 2024 and June 30, 2023 included retentions to be collected within one year of $ 11.6 million and $ 16.3 million, respectively.

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

Contract retentions collectable beyond one year are included in Other assets, non-current in the Consolidated Balance Sheets and totaled $ 28.6 million and $ 10.0 million as of June 30, 2024 and June 30, 2023, respectively.

Unpriced Change Orders and Claims

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

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $ 9.9 million and $ 9.7 million at June 30, 2024 and 2023, respectively.

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

12 unchanged sentences

Other international 9,344 13,189 4,223

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

Total Revenue $ 728,213 $ 795,020 $ 707,780

Contract Type Disaggregation:

5 unchanged sentences

Time and materials and other cost reimbursable contracts 272,665 375,594 286,592

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

Total Revenue $ 728,213 $ 795,020 $ 707,780

Revisions in Estimates

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

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

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

We achieved substantial completion on this work in early fiscal 2024.

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.

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We achieved substantial completion on this project in fiscal 2022.

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

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

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

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

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

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

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

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

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

This project reached substantial completion in fiscal 2023.

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

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

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

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

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Note 3— Property, Plant and Equipment

2 unchanged sentences

(In thousands)

Property, plant and equipment - at cost:

Property, plant and equipment

Land and buildings $ 32,610 $ 37,263

2 unchanged sentences

Office equipment and software 34,154 38,178

Finance Lease 33 —

Construction in progress 4,948 84

Total property, plant and equipment - at cost 200,389 222,292

Total property, plant and equipment 189,423 200,389

Accumulated depreciation ( 145,925 ) ( 152,844 )

Property, plant and equipment, net $ 43,498 $ 47,545

Geographical Disaggregation of Long-Lived Assets

Long-Lived Assets

2023 June 30,

2022 June 30,

(In thousands)

United States $ 122,398 $ 137,682 $ 157,442

Canada 3,988 3,436 6,523

Other international 11,862 12,263 12,372

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

Industrial Cleaning Disposal

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

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

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

Sale-leaseback Transaction

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

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

Burlington Office Disposal - Subsequent Event

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

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

During 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.

We closed this previously utilized facility because it was no longer strategic to the future of the business.

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

The facility was previously utilized for our industrial cleaning business, which was sold in fiscal 2023.

The gains from these asset sales were included in Other income in the Consolidated Statements of Income.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

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

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

In fiscal 2022, we took advantage of elevated real estate prices and sold our regional office and fabrication and warehouse facilities located in Orange, California for net proceeds of $ 37.4 million in cash and recorded a gain of $ 32.4 million on the sale.

In connection with the sale, we entered into a leaseback agreement while replacement facilities were obtained.

During fiscal 2024, we purchased a facility in Bakersfield, California for $ 4.1 million and leased new space for the regional office.

The Company will move into these new facilities in early fiscal 2025.

Depreciation expense totaled $ 9.6 million, $ 12.0 million, and $ 13.4 million in fiscal 2024, 2023, and 2022, respectively.

Note 4— Goodwill and Other Intangible Assets

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

Translation adjustment (1)

156 79 32 267

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

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

8 unchanged sentences

Net balance at June 30, 2023 19,397 4,239 5,484 29,120

Translation adjustment (1)

( 64 ) ( 33 ) — ( 97 )

Net balance at June 30, 2024 $ 19,333 $ 4,206 $ 5,484 $ 29,023

(1) The translation adjustments relate to the periodic translation of Canadian Dollar and South Korean Won denominated goodwill recorded as a part of prior acquisitions in Canada and South Korea, in which the local currency was determined to be the functional currency.

2 unchanged sentences

We performed our annual goodwill impairment test as of May 31, 2024, which resulted in no impairment.

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

The fiscal 2024 test indicated that two reporting units with a combined total of $ 16.6 million of goodwill as of June 30, 2024 were at higher risk of future impairment.

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

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

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

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

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

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

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

EBITDA is defined as earnings before interest expense, interest income, taxes, depreciation and amortization, The key assumptions used are described in Note 1 - Summary of Significant Accounting Policies.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

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

2 unchanged sentences

Accordingly, we performed an interim impairment test as of March 31, 2022 and concluded that there was $ 18.3 million of total impairment to goodwill, which was recognized in operating income during the three and nine months ended March 31, 2022 as follows:

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

• $8.4 million in the Process and Industrial Facilities segment;

8 unchanged sentences

(Years) (In thousands)

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

Intellectual property 10 $ 130 $ ( 109 ) $ 21

Customer based (1)

1 unchanged sentence

Total other intangible assets $ 11,274 $ ( 9,623 ) $ 1,651

(1) Customer-based intangible assets have been adjusted in fiscal 2023 to remove $4.2 million of customer relationships that have been fully amortized.

(1) Intangible assets have been adjusted in fiscal 2024 to remove $4.4 million of intangible assets that have been fully amortized.

At June 30, 2023

4 unchanged sentences

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

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

Customer based (1)

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

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

(1) Customer-based intangible assets have been adjusted in fiscal 2023 to remove $4.2 million of intangible assets that have been fully amortized.

Amortization expense totaled $ 1.4 million, $ 1.7 million, and $ 1.8 million in fiscal 2024, 2023, and 2022, respectively.

3 unchanged sentences

June 30, 2026 555

Total estimated amortization expense $ 1,651

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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 most recently 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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

and Canadian subsidiaries and are secured by a first lien on all our assets 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 June 30, 2023, our borrowing base was $ 67.0 million, we had $ 10.0 million of outstanding borrowings, and we had $ 19.3 million in letters of credit outstanding, which resulted in availability of $ 37.7 million under the ABL Facility.

The borrowing base is recalculated on a monthly basis and at June 30, 2024, our borrowing base was $ 60.9 million.

During fiscal 2024, the Company repaid all outstanding borrowings under the ABL Facility.

The Company had $ 6.9 million in letters of credit outstanding, nearly all of which expire within the next 12 months, which resulted in availability of $ 54.0 million under the ABL Facility.

Our borrowing base has ranged from $ 60.9 million to $ 74.6 million during fiscal 2024.

12 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 June 30, 2023, including applicable margin, was approximately 7.47 %.

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

The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that limit 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 June 30, 2024.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Note 6— Income Taxes

Sources of Pretax Income (Loss)

Fiscal Years Ended

Sources of Pretax Income (Loss) Fiscal Years Ended

2024 June 30,

4 unchanged sentences

Total $ ( 25,012 ) $ ( 52,761 ) $ ( 58,283 )

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Components of the Provision for Income Tax Expense (Benefit)

Fiscal Years Ended

Components of the Provision for Income Tax Expense (Benefit) Fiscal Years Ended

2024 June 30,

4 unchanged sentences

Foreign — — 1

( 400 ) 259 ( 12,928 )

Current Total ( 36 ) ( 400 ) 259

Federal — — 2,504

1 unchanged sentence

Foreign — — ( 4 )

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

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

Fiscal Years Ended

Deferred Total — — 5,358

Total $ ( 36 ) $ ( 400 ) $ 5,617

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

2024 June 30,

4 unchanged sentences

Impairment of non-deductible goodwill (1)

Charges without tax benefit 358 265 961

Charges without tax benefit, net of non-taxable income 384 358 265

Change in valuation allowance (2)

4 unchanged sentences

Federal rate differential net operating loss carryback — — 141

— 141 ( 5,223 )

Change in uncertain tax positions ( 81 ) ( 90 ) ( 120 )

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

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

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

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

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

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

Matrix Service Company

11 unchanged sentences

Book over tax amortization 5,607 7,218

Deferred FICA — 1,427

Research and development capitalization 12,425 6,592

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We placed a valuation allowance on our deferred tax assets in the second quarter of fiscal 2022 due to the existence of a cumulative loss over a three-year period.

We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided to the extent we generate taxable income in the future, or cumulative losses are no longer present and our future projections for growth or tax planning strategies are demonstrated.

Operating Loss and Tax Credit Carryforwards

7 unchanged sentences

Federal tax credits June 2041 to June 2044 $ 4,849

Federal foreign tax credits June 2024 to June 2025 $ 548

Federal foreign tax credits June 2025 $ 270

State net operating losses June 2025 to indefinite $ 106,191

2 unchanged sentences

Foreign tax credits June 2035 to June 2044 $ 682

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.

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

Deferred Payroll Taxes

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

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

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

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

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We maintain insurance coverage for various aspects of our operations.

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

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.

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

In 2020, we commenced litigation in the United States District Court for the Northern District of Ohio, Western Division (Matrix North American Construction, Inc.

Pro-Tec Coating Company, LLC, Case No.

3:20-cv-00084-JZ) 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 the remaining amount owed of $ 16.8 million in the second quarter of fiscal 2024.

In January 2021, we achieved mechanical completion on a crude oil storage project.

On April 1, 2022, we filed an arbitration demand against Keyera Energy, Inc.

in an effort to collect outstanding balances of $ 32.7 million related to the project.

In response, on June 2, 2022, the customer filed counterclaims seeking $ 20.0 million , which included liquidated damages and damages with respect to miscellaneous warranty items.

On October 31, 2022, the customer amended its counterclaim claiming

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

damages in a range of $ 18.8 million to $ 36.0 million, which included estimated amounts for “potential future costs.” In July 2024, the customer filed a second amended counterclaim which significantly increased the amount of alleged damages to a range of $ 69.6 million to $ 97.9 million, including a new claim for unspecified “other damages” of $ 46.9 million .

A portion of the total alleged damages, if we are held liable, may be subject to certain insurance coverages.

We believe we have substantial legal and contractual defenses to the claims presented, and are vigorously contesting the claims.

During fiscal 2023, we completed construction services on a time and materials basis for a customer at a mining and minerals facility.

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

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

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

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

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

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

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

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

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

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

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

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

Our trial regarding this matter is scheduled for September 2023.

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

The customer, 5E Boron Americas, LLC, responded by commencing litigation against us on July 17, 2023 in the United States District Court for the Central District of California, Eastern Division (5E Boron Americas, LLC v.

Matrix Service Inc., Case No.

5:23-cv-01396-AB(DTBx)), alleging breach of contract and breach of express warranty.

We denied all claims and filed a countersuit against the customer for failure to pay amounts due of $ 5.6 million.

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

We and our subsidiaries are participants in various other legal actions.

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Construction equipment leases generally have "month-to-month" lease terms that automatically renew as long as the equipment remains in use.

In fiscal 2021 we recorded $ 0.5 million of impairments to right-of-use assets related to leased office space that was closed in connection with our restructuring activities, see Note 14 – Restructuring Costs for additional information.

The components of lease expense in the Consolidated Statements of Income are as follows:

7 unchanged sentences

(1) Primarily represents the lease expense of construction equipment that is subject to month-to-month rental agreements with expected rental durations of less than one year.

The future undiscounted lease payments, as reconciled to the discounted operating lease liabilities presented in our Consolidated Balance Sheets, were as follows:

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

The future undiscounted lease payments, as reconciled to the discounted operating lease liabilities presented in our Consolidated Balance Sheets, were as follows:

June 30, 2024

12 unchanged sentences

Non-current operating lease liabilities $ 19,156

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

The following is a summary of the weighted average remaining operating lease and term and weighted average discount rate as of June 30, 2024:

Weighted-average remaining lease term (in years) 6.1 years

Weighted-average discount rate 6.3 %

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Supplemental cash flow information related to leases is as follows:

9 unchanged sentences

We have 5.0 million shares of preferred stock authorized, none of which was issued or outstanding at June 30, 2024 or June 30, 2023.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Stock Repurchase Program

14 unchanged sentences

Measured but unrecognized stock-based compensation expense at June 30, 2024 was $ 9.8 million, all of which related to nonvested restricted stock units which are expected to be recognized as expense over a weighted average period of 1.8 years.

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

We recognized excess tax expense (benefit) of $( 0.1 ) million, $ 1.2 million, and $ 1.0 million related to stock-based compensation vesting for the fiscal years ended June 30, 2024, 2023, and 2022, respectively.

Plan Information

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

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

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

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

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

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

The 2020 Plan was amended in November 2023 to increase the maximum authorized shares under the plan by 1,625,000 shares, increasing the total authorized shares under the 2020 Plan from 2,350,000 to 3,975,000 shares.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Awards totaling 3,975,000 shares have been authorized under the 2020 Plan, as amended.

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Director awards vest one year after the grant date.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

• Market-based awards—These awards are in the form of performance units which vest 3 years after the grant date only if our common stock achieves certain levels of total shareholder return when compared to the total shareholder return of a peer group of companies as selected by the Compensation Committee of the Board of Directors.

19 unchanged sentences

There were 214,017 and 242,743 restricted stock units cancelled in fiscal 2023 and 2022 with an average grant date fair value of $ 21.89 and $ 25.50 per share, respectively.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Cash-Settled Restricted Stock Units

3 unchanged sentences

with weighted average fair values of $ 1.4 million and $ 1.1 million, respectively.

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

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

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

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

There were no shares cancelled in fiscal 2024.

In fiscal 2023, 13,621 shares were cancelled with a weighted average fair value of $ 0.1 million.

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

3 unchanged sentences

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

In the first quarter of fiscal 2024, due to an insufficient number of remaining shares available for issuance under the 2020 Plan, market-based awards granted in that period were subject to cash settlement upon vesting at the election of the board of directors, and the above-target payout portion of the awards were accounted for as liability awards.

In the second quarter of fiscal 2024, stockholders approved an increase in the number of shares available for issuance under the 2020 Plan.

In the fourth quarter of fiscal 2024, the compensation committee of the board of directors concluded the Company has the intent and ability to settle the entire market-based awards in equity, and therefore the grants became share-settled, equity-classified awards.

The modification resulted in the elimination of the $ 1.0 million liability related to these awards, with a corresponding increase to additional paid-in capital, as presented on the Statements of Stockholders' Equity for the twelve months ended June 30, 2024.

We recognized $ 5.0 million, $ 1.3 million, and $ 0.6 million of expense in fiscal years 2024, 2023, and 2022, respectively, for cash-settled restricted stock units, which was included in selling, general and administrative expenses and cost of revenue in the Consolidated Statements of Income.

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

As of June 30, 2024, the current portion of the liability for cash-settled restricted stock units was $ 2.4 million and is included in accrued wages and benefits in the Consolidated Balance Sheets.

The non-current portion of the liability was $ 2.0 million and is included in other non-current liabilities in the Consolidated Balance Sheets.

Note 11—Earnings per Common Share

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Diluted loss per share $ ( 0.91 ) $ ( 1.94 ) $ ( 2.39 )

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

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Our matching contributions vest immediately.

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Our matching contributions were $ 5.1 million in fiscal year ended June 30, 2024 and $ 5.3 million in each of the fiscal years ended June 30, 2023 and 2022.

Multiemployer Pension Plans

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The “Surcharge Imposed” column includes plans in a red zone status that require a payment of a surcharge in excess of regular contributions.

The last column lists the expiration date of the collective-bargaining agreement to which the plan is subject.

Matrix Service Company

8 unchanged sentences

(In thousands)

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

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

Boilermaker-Blacksmith National Pension Trust 48-6168020/001 Red

Red Implemented $ 4,494 $ 5,284 $ 5,208 Yes

National Electrical Benefit Fund, IBEW locals 71, 126, 488, and 1319 53-0181657/001 Green

Green NA 2,666 3,437 2,973 No

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

Pipefitters Local 460 Pension Plan 51-6108443/001 Green

Green NA 4,217 2,479 111 No

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

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

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

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

Joint Pension Fund Local Union 164 IBEW 22-6031199/001 Green

Green NA 1,257 1,724 1,514 No

IBEW Local 654 Pension Plan 23-6538183/001 Green

Green NA 867 1,242 857 No

Joint Pension Fund of Local Union No 102 IBEW 22-1615726/001 Green

Green NA 403 1,143 906 No

IBEW Local 456 Pension Plan 22-6238995/001 Green

Green NA 801 1,180 734 No

Local 351 IBEW Pension Plan

22-3417366/001 Described below (1)

22-3417366/001 Green Green NA 841 1,033 395 No

Steamfitters Local Union No 420 Pension Plan 23-2004424/001 Red

Red Implemented 615 656 498 Yes

Pipefitters Local 342 Pension Plan 94-3190386/001 Green

Green NA 9 498 345 No

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

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

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

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

IBEW Local 98 Pension Plan 23-6583334/001 Yellow

Yellow Implemented 634 484 143 No

Laborers Local 220 Pension Plan 43-6159056/001 Green

Green NA 747 427 24 No

1 unchanged sentence

Total contributions made $ 20,833 $ 23,556 $ 16,818

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

(1) For the National Electrical Benefit Fund for Locals 71/126/488/1319, Pipefitters Local 460 Pension Plan, Local 351 IBEW Pension Plan, and Laborers Local 220 Pension Plan, we did not receive a funding notification that covered fiscal year 2023 during the preparation of the Form 10-K filed September 12, 2023.

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

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Upon the purchase of shares, the participants receive all stockholder rights including dividend and voting rights and are permitted to sell their shares at any time.

We have made 1,000,000 shares available under the ESPP.

We have made 1,000,000 shares available under the ESPP and as of June 30, 2024 there were 750,482 shares available for purchase.

The ESPP can be terminated at any time at the discretion of the Board of Directors and will automatically terminate once the plan shares are exhausted.

1 unchanged sentence

There were 19,775 shares issued in fiscal 2024, 50,139 shares in fiscal 2023, and 29,826 shares in fiscal 2022.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Note 13— Segment Information

In fiscal 2023, we operated our business through three reportable segments:

We operated our business through three reportable segments:

• Storage and Terminal Solutions :

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

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

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

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,

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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.

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

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

We also 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.

2 unchanged sentences

therefore, no intercompany profit or loss is recognized.

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

Corporate selling, general and administrative expenses, including corporate salaries and facilities costs, 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.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Results of Operations

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

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

Fiscal Year Ended June 30, 2024

Gross revenue $ 261,244 $ 169,558 $ 370,076 $ — $ 800,878

inter-segment revenue 5,551 54 253 — 5,858

Consolidated revenue 255,693 169,504 369,823 — 795,020

Total revenue (1)

$ 276,800 $ 183,920 $ 266,260 $ 1,233 $ 728,213

Cost of revenue ( 265,503 ) ( 174,688 ) ( 244,408 ) ( 3,141 ) ( 687,740 )

Gross profit (loss) 11,297 9,232 21,852 ( 1,908 ) 40,473

Selling, general and administrative expenses 19,823 8,844 10,354 31,064 70,085

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

Restructuring costs — 52 215 234 501

Operating income (loss) $ ( 8,526 ) $ 336 $ 11,283 $ ( 33,206 ) $ ( 30,113 )

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

Capital expenditures 1,406 4,501 2,775 327 9,009

Depreciation and amortization 3,281 3,465 4,783 2,165 13,694

(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $2.4 million for the year ended June 30, 2024.

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

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

Fiscal Year Ended June 30, 2023

Gross revenue $ 236,260 $ 220,093 $ 258,497 $ — $ 714,850

inter-segment revenue 3,421 — 3,649 — 7,070

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

Total revenue (1)

$ 255,693 $ 169,504 $ 369,823 $ — $ 795,020

Cost of revenue ( 245,223 ) ( 158,805 ) ( 359,067 ) ( 1,105 ) ( 764,200 )

Gross profit (loss) 10,470 10,699 10,756 ( 1,105 ) 30,820

Selling, general and administrative expenses 20,054 7,045 14,909 26,241 68,249

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

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

Segment assets 141,084 94,059 104,078 101,572 440,793

Capital expenditures 338 29 254 2,724 3,345

Depreciation and amortization 5,540 3,812 5,659 243 15,254

Goodwill impairment — — 12,316 — 12,316

Restructuring costs 969 37 972 1,164 3,142

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

(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $5.6 million for the year ended June 30, 2023.

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

Fiscal Year Ended June 30, 2022

Gross revenue $ 267,982 $ 210,052 $ 201,472 $ — $ 679,506

inter-segment revenue 4,553 — 1,555 — 6,108

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

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

Total revenue (1)

$ 232,839 $ 220,093 $ 254,848 $ — $ 707,780

Cost of revenue ( 232,577 ) ( 228,679 ) ( 245,578 ) ( 2,152 ) ( 708,986 )

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

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

Goodwill impairment 7,208 2,659 8,445 — 18,312

Restructuring costs 122 87 ( 1,578 ) 2,015 646

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

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

Capital expenditures 1,136 1,183 834 1,201 4,354

Depreciation and amortization 7,456 4,127 6,018 257 17,858

(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions, $3.4 million, and Process and Industrial Solutions, $3.6 million, for the year ended June 30, 2022.

Total Assets by Segment

June 30, 2024 June 30, 2023 June 30, 2022

(In thousands)

Storage and Terminal Solutions $ 138,529 $ 139,333 $ 141,084

Utility and Power Infrastructure 84,108 67,630 94,059

Process and Industrial Facilities 81,524 90,514 104,078

Corporate 147,190 103,027 101,572

Total Segment Assets $ 451,351 $ 400,504 $ 440,793

Geographical Disaggregation of Long-Lived Assets

The following table presents our long-lived tangible assets including property, plant and equipment, net, and operating right-of-use lease assets at June 30, 2024, 2023 and 2022:

June 30, 2024 June 30, 2023 June 30, 2022

(In thousands)

United States $ 57,520 $ 63,174 $ 69,932

Canada 1,368 1,957 1,397

Other international 3,760 4,213 4,607

Total Long-Lived Assets $ 62,648 $ 69,344 $ 75,936

Matrix Service Company

8 unchanged sentences

Customer two 10.3 % — % — % 28.2 %

Customer three 5.8 % — % — % 12.4 %

Customer four 4.0 % 12.3 % — % — %

Customer five 3.8 % — % 17.7 % — %

Customer six 3.6 % — % 16.7 % — %

Customer seven 2.9 % — % 13.5 % — %

Fiscal Year ended June 30, 2023

Customer one 10.7 % — % — % 22.9 %

Customer two 11.0 % — % 35.5 % — %

Customer three 4.7 % — % 15.1 % — %

Fiscal Year ended June 30, 2022

1 unchanged sentence

Customer two 11.0 % — % 35.5 % — %

Customer three 7.0 % 0.1 % 22.5 % — %

Customer four 4.4 % 11.2 % — % — %

Note 14— Restructuring Costs

5 unchanged sentences

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

Matrix Service Company

Notes to Consolidated Financial Statements (continued)

Restructuring costs incurred are classified as follows:

Fiscal Year Ended

June 30, 2023 Fiscal Year Ended

June 30, 2022 Fiscal Year Ended

June 30, 2021 Since Inception of Business Improvement Plan

Fiscal Year Ended Since Inception of Business Improvement Plan

June 30, 2024 June 30, 2023 June 30, 2022

(in thousands)

14 unchanged sentences

Deducted from asset accounts:

Allowance for doubtful accounts $ 1,320 $ ( 88 ) $ — $ ( 171 ) (A) $ 1,061

Valuation reserve for deferred tax assets 28,615 12,595 — ( 150 ) (B) 41,060

Allowance for credit losses $ 1,061 $ 3 $ — $ ( 863 ) (A) $ 201

Valuation allowance for deferred tax assets 41,060 8,542 — ( 168 ) (B) 49,434

Total $ 42,121 $ 8,545 $ — $ ( 1,031 ) $ 49,635

1 unchanged sentence

Deducted from asset accounts:

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

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

Allowance for credit losses $ 1,320 $ ( 88 ) $ — $ ( 171 ) (A) $ 1,061

Valuation allowance for deferred tax assets 28,615 12,595 — ( 150 ) (B) 41,060

Total $ 29,935 $ 12,507 $ — $ ( 321 ) $ 42,121

1 unchanged sentence

Deducted from asset accounts:

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

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

Allowance for credit losses $ 898 $ 738 $ — $ ( 316 ) (A) $ 1,320

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

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

1 unchanged sentence

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

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

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data