MATRIX SERVICE CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this Form 10-Q which address activities, events or developments which we expect, believe or anticipate will or may occur in the future are forward-looking statements. The words “believes,” “intends,” “expects,” “anticipates,” “projects,” “estimates,” “predicts” and similar expressions are also intended to identify forward-looking statements. Although we believe that our expectations regarding future events are based on reasonable assumptions, we can give no assurance that such expectations or assumptions will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. These forward-looking statements include, among others, such things as: • amounts and nature of future project awards, revenue and margins from each of our segments; • our ability to generate sufficient cash from operations, access our credit facility, or raise cash in order to meet our short and long-term capital requirements; • our ability to comply with the covenants in our credit agreement; • the impact to our business from economic, market or business conditions in general and in the natural gas, oil, petrochemical, industrial and power industries in particular; • the impact of interest rates and inflation on our operating expenses and our business operations; • the likely impact of new or existing regulations or market forces on the demand for our services; • the impact to our business from disruptions to supply chains, inflation and availability of materials and labor; • our expectations with respect to the likelihood of a future impairment; • our expectations regarding pending litigation; and • expansion and other trends of the industries we serve. These statements are based on certain assumptions and analyses we made in light of our experience and our historical trends, current conditions and expected future developments as well as other factors we believe are appropriate. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ materially from our expectations, including: • any risk factors discussed in this Form 10-Q, Form 10-K for the fiscal year ended June 30, 2024, and in our other filings with the Securities and Exchange Commission; • economic, market or business conditions in general and in the natural gas, power, oil, petrochemical, industrial and power industries in particular; • the transition to renewable energy sources and its impact on our current customer base; • the under- or over-utilization of our work force; • delays in the commencement or progression of major projects, whether due to permitting issues or other factors; • reduced creditworthiness of our customer base and the higher risk of non-payment of receivables; • the inherently uncertain outcome of current and future litigation; • the adequacy of our reserves for claims and contingencies; and • changes in laws or regulations, including the imposition, cancellation or delay of tariffs on imported goods. -15- Table of Contents Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business operations. We assume no obligation to update, except as required by law, any such forward-looking statements, whether as a result of new information, future events or otherwise. -16- Table of Contents RESULTS OF OPERATIONS Overview We operate 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. 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 power delivery work for public and private utilities, including construction of new substations, upgrades of existing substations, and maintenance. 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 engineer and construct thermal vacuum test chambers for aerospace and defense industries and other infrastructure for industries including chemicals, petrochemical, sulfur, mining and minerals primarily in the extraction of non-ferrous metals, cement, agriculture, wastewater treatment facilities and other industrial customers. Operational Update Operating activity increased during the third quarter of fiscal 2025 as revenues showed a 13% increase from second quarter of 2025. The increase was driven primarily by an increase in activity for refinery maintenance and turnaround services. As we move forward through the coming quarters, we believe activity levels will rise for projects currently in backlog. Project awards during the quarter were $301.2 million, resulting in a current quarter book-to-bill of 1.5x. Award activity was driven by our Storage and Terminal Solutions segment, and included the award of a large specialty storage project. The market drivers for each of our segments are strong and include increased oil and gas demand, the clean energy transition, low-cost feed stock, data center energy demand, industrial reshoring/onshoring, grid reliability and electrical supply assurance. As a result, we believe we will have strong award activity in the coming quarters. While our award activity in the quarter was strong, heightened macroeconomic uncertainty and the evolving impact of U.S. trade policy on infrastructure economics has impacted the timing of customer decisions in the near term. We believe customer delays in project starts and final investment decisions to be a short-term disruption, while an overall favorable regulatory environment for our customers underpins long-term momentum for our business. We continue to sharpen and better align our business for the current and coming marketplace. Accordingly, during the third and fourth quarters, we are consolidating certain aspects of the business to further improve our performance and create a flatter, leaner management structure. In addition, we continue to evaluate our business lines and, where appropriate, reallocate resources to those businesses that present the best opportunities. We remain focused on delivering sustainable, long-term shareholder value by building a resilient, growth-oriented platform aligned with the evolving needs of our customers. -17- Table of Contents Backlog We define backlog as the total dollar amount of revenue that we expect to recognize as a result of performing work that has been awarded to us through a signed contract, limited notice to proceed ("LNTP") or other type of assurance that we consider firm. The following arrangements are considered firm: • fixed-price awards; • minimum customer commitments on cost plus arrangements; and • certain time and material arrangements in which the estimated value is firm or can be estimated with a reasonable amount of certainty in both timing and amounts. For long-term maintenance contracts with no minimum commitments and other established customer agreements, we include only the amounts that we expect to recognize as revenue over the next 12 months. For arrangements in which we have received a LNTP, we include the entire scope of work in our backlog if we conclude that the likelihood of the full project proceeding is probable. For all other arrangements, we calculate backlog as the estimated contract amount less revenue recognized as of the reporting date. The following table provides a summary of changes in our backlog for the three months ended March 31, 2025: Storage and Terminal Solutions Utility and Power Infrastructure Process and Industrial Facilities Total (In thousands) Backlog as of December 31, 2024 $ 738,986 $ 318,516 $ 253,632 $ 1,311,134 Project awards 204,839 37,686 58,667 301,192 Revenue recognized (96,054) (58,676) (45,431) (200,161) Backlog as of March 31, 2025 $ 847,771 $ 297,526 $ 266,868 $ 1,412,165 Book-to-bill ratio (1) 2.1 x 0.6 x 1.3 x 1.5 x (1) Calculated by dividing project awards by revenue recognized. The following table provides a summary of changes in our backlog for the nine months ended March 31, 2025: Storage and Terminal Solutions Utility and Power Infrastructure Process and Industrial Facilities Total (In thousands) Backlog as of June 30, 2024 $ 798,255 $ 379,697 $ 251,521 $ 1,429,473 Project awards 319,316 93,493 126,898 539,707 Other adjustment (2) — — (4,106) (4,106) Revenue recognized (269,800) (175,664) (107,445) (552,909) Backlog as of March 31, 2025 $ 847,771 $ 297,526 $ 266,868 $ 1,412,165 Book-to-bill ratio (1) 1.2 x 0.5 x 1.2 x 1.0 x (1) Calculated by dividing project awards by revenue recognized. (2) Backlog was reduced as a result of the closure of a customer's facility. This customer has historically represented less than 1% of our consolidated revenues. -18- Table of Contents In the Storage and Terminal Solutions segment, we booked $204.8 million of project awards during the third quarter of fiscal 2025. Project awards included a project for the engineering and construction of large refrigerated propane and butane tanks as well as spheres for related NGL products. During the nine months ended March 31, 2025, we booked $319.3 million of project awards. This segment includes significant opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, NGLs and other forms of low carbon energy. We believe LNG and ammonia projects in particular will be key growth drivers for this segment. Bidding activity on LNG and ammonia projects has been strong and we expect that to continue. In the Utility and Power Infrastructure segment, we booked $37.7 million of project awards during the third quarter of fiscal 2025. During the nine months ended March 31, 2025, we booked $93.5 million of project awards. Our opportunity pipeline for LNG peak shaving projects continues to be promising; however those awards, while significant, can be less frequent. Power delivery opportunities are expected to be driven over the long-term by increasing electrical demand and the related electrical grid requirements. Project opportunities and bidding activity are strong for both the power delivery portion of the business and LNG peak shaving. In the Process and Industrial Facilities segment, we booked $58.7 million of project awards during the third quarter of fiscal 2025. During the nine months ended March 31, 2025, we booked $126.9 million of project awards, and were notified of a five-year renewal of a refinery maintenance contract. We continue to see demand for thermal vacuum chambers in the coming quarters, as well as increasing opportunities in mining and minerals, chemicals, low carbon and refinery turnarounds. Project awards in all segments are cyclical and are typically the result of a sales process that can take several months or years to complete. It is common for awards to shift from one period to another as the timing of awards is dependent upon a number of factors including changes in market conditions, permitting, off take agreements, project financing and other factors. Backlog volatility may increase for some segments from time to time when individual project awards are less frequent, but more significant. There is an inherent lag between the time a project is awarded and when it begins to have a material impact on revenue. This lag can vary and can extend up to six months or longer in unique circumstances, depending on finalization of scopes, contracts, permits, and facility process requirements. Additionally, awards for larger construction projects may be recognized as revenue over a multi-year period as the projects may take a few years to complete. -19- Table of Contents Three months ended March 31, 2025 Compared to the Three months ended March 31, 2024 The information below is an analysis of our consolidated results for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments. Consolidated Results of Operations Three Months Ended March 31, 2025 v 2024 Dollars in thousands 2025 2024 Change % Revenue $ 200,161 $ 166,013 $ 34,148 21 % Cost of revenue 187,311 160,435 26,876 17 % Gross profit 12,850 5,578 7,272 130 % Selling, general and administrative expenses 17,726 19,948 (2,222) (11) % Restructuring costs 124 — 124 — % Operating loss (5,000) (14,370) 9,370 65 % Other income (expense): Interest expense (134) (143) 9 6 % Interest income 1,518 165 1,353 820 % Other 182 (235) 417 177 % Loss before income tax expense (3,434) (14,583) 11,149 76 % Provision for federal, state and foreign income taxes — (2) 2 — % Net loss $ (3,434) $ (14,581) $ 11,147 76 % Revenue - The increase in consolidated revenue of $34.1 million, or 21%, was primarily attributable to higher revenue volumes in our Storage and Terminal Solutions and Utility and Power Infrastructure segments, partially offset by reduced revenue volumes in Process and Industrial Facilities. Gross profit - Gross profit in the third quarter of fiscal 2025 increased $7.3 million, or 130%, compared to the third quarter of fiscal 2024. Gross margin of 6.4% for the third quarter of fiscal 2025 increased compared with gross margin of 3.4% for the third quarter of fiscal 2024. The increase in gross margin for the quarter is attributable to higher gross margins in our Utility and Power Infrastructure and Process and Industrial Facility segments. Selling, general and administrative expenses - The decrease in SG&A expenses of $2.2 million, or 11%, is primarily due to a decrease in cash-settled stock-based compensation of $1.6 million. Interest income - The increase in interest income of $1.4 million is primarily due to an increase in our cash balance. Provision for income taxes - Our effective tax rates for the three months ended March 31, 2025 and March 31, 2024 were zero. The effective tax rates during both periods were impacted by valuation allowances of $1.2 million and $4.4 million respectively, placed on deferred tax assets generated during the quarters. We placed a valuation allowance on our deferred tax assets due to the existence of a cumulative loss over a three-year period. Currently, we place valuation allowances on newly generated deferred tax assets. We will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided as we generate taxable income. -20- Table of Contents Results of Operations by Business Segment Three Months Ended March 31, 2025 v 2024 Dollars in thousands 2025 2024 Change % Favorable (Unfavorable) Revenue Storage and Terminal Solutions $ 96,054 $ 54,304 $ 41,750 77 % Utility and Power Infrastructure 58,676 46,120 12,556 27 % Process and Industrial Facilities 45,431 65,589 (20,158) (31) % Total revenue (1) $ 200,161 $ 166,013 $ 34,148 21 % (1) Total revenues are net of inter-segment revenues which are primarily Process and Industrial Facilities and were $1.1 million for the three months ended March 31, 2025. Gross profit (loss) Storage and Terminal Solutions $ 3,731 $ 2,313 $ 1,418 61 % Utility and Power Infrastructure 5,537 1,409 4,128 293 % Process and Industrial Facilities 3,759 1,767 1,992 113 % Corporate (177) 89 (266) (299) % Total gross profit $ 12,850 $ 5,578 $ 7,272 130 % Gross margin % Storage and Terminal Solutions 3.9 % 4.3 % (.4)% (9) % Utility and Power Infrastructure 9.4 % 3.1 % 6.3% 203 % Process and Industrial Facilities 8.3 % 2.7 % 5.6% 207 % Total gross margin % 6.4 % 3.4 % 3.0% 88 % Operating income (loss) Storage and Terminal Solutions $ (2,613) $ (3,082) $ 469 15 % Utility and Power Infrastructure 2,877 (1,324) 4,201 317 % Process and Industrial Facilities 1,617 (823) 2,440 296 % Corporate (6,881) (9,141) 2,260 25 % Total Operating Loss $ (5,000) $ (14,370) $ 9,370 65 % Storage and Terminal Solutions Storage and Terminal Solutions revenues increased by $41.8 million, or 77%, in the three months ended March 31, 2025 compared to the same period last year, driven by an increased volume of work for specialty vessel and LNG storage projects. Storage and Terminal Solutions gross profit increased by $1.4 million, or 61%, in the three months ended March 31, 2025 compared to the same period last year. The segment gross margin was 3.9% for the three months ended March 31, 2025 compared to segment gross margin of 4.3% in the same period last year. Although higher revenue resulted in improved leverage of our cost structure, segment gross margin continues to be impacted by under-recovery as we allocate more resources to this segment in anticipation of continuing revenue growth. Additionally, gross margin for the third quarter of fiscal 2025 was negatively impacted by lower than anticipated labor productivity on a crude terminal project. Utility and Power Infrastructure Utility and Power Infrastructure revenues increased by $12.6 million, or 27%, in the three months ended March 31, 2025 compared to the same period last year. The increase is primarily attributable to a higher volume of work for natural gas peak shaving projects. Utility and Power Infrastructure gross profit increased by $4.1 million, or 293%, in the three months ended March 31, 2025 compared to the same period last year. The segment gross margin was 9.4% for the three months ended March 31, 2025 compared to 3.1% in the same period last year, an increase of 6.3% due to strong project execution and improved construction overhead cost absorption as a result of higher revenues. -21- Table of Contents Process and Industrial Facilities Process and Industrial Facilities revenues decreased by $20.2 million, or 31%, in the three months ended March 31, 2025 compared to the same period last year. The decrease is primarily attributable to lower revenue volumes resulting from the completion of a large renewable diesel project. We believe this reduction in revenue is temporary given our strong backlog, including a significant gas processing construction project that is expected to commence in early fiscal 2026. Process and Industrial Facilities gross profit increased by $2.0 million, or 113%, in the three months ended March 31, 2025 compared to the same period last year. The segment gross margin was 8.3% for the three months ended March 31, 2025 compared to 2.7% in the same period last year. Gross margin in the prior period was adversely impacted by reduced labor demand for turnaround and maintenance services in the final year of a three-year refinery maintenance contract which has since been renewed. The accounting for this change resulted in a cumulative catch-up adjustment over the life of the contract, which impacted gross margins during the prior year period. Nine months ended March 31, 2025 Compared to the Nine months ended March 31, 2024 The information below is an analysis of our consolidated results for the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments. Consolidated Results of Operations Nine Months Ended March 31, 2025 v 2024 Dollars in thousands 2025 2024 Change % Revenue $ 552,909 $ 538,714 $ 14,195 3 % Cost of revenue 521,354 510,688 10,666 2 % Gross profit 31,555 28,026 3,529 13 % Selling, general and administrative expenses 53,592 52,792 800 2 % Restructuring costs 124 — 124 — % Operating loss (22,161) (24,766) 2,605 11 % Other income (expense): Interest expense (368) (787) 419 53 % Interest income 4,668 477 4,191 879 % Other (313) 4,481 (4,794) (107) % Loss before income tax expense (18,174) (20,595) 2,421 12 % Provision for federal, state and foreign income taxes 16 4 12 — % Net loss $ (18,190) $ (20,599) $ 2,409 0 12 % Revenue - The increase in overall revenue of $14.2 million, or 3%, was primarily attributable to increased revenue volumes in our Storage and Terminal Solutions and Utility and Power Infrastructure segments, partially offset by a decrease in Process and Industrial Facilities. Gross profit - Gross profit in the nine months ended March 31, 2025 increased $3.5 million, or 13%, compared to the same period prior year. Gross margin increased to 5.7% for the nine months ended March 31, 2025 compared to 5.2% for the same period prior year. The increase in gross margin for the quarter is attributable to higher gross margins in our Storage and Terminal Solutions and Utility and Power Infrastructure segments, partially offset by lower margins in our Process and Industrial Facility segment. Selling, general and administrative expenses - The increase in SG&A expenses of $0.8 million, or 2%, is primarily due to an increase in salaries and wages of $2.3 million, all necessitated to support conversion of backlog to revenue and expected growth of the business. The increase was partially offset by a decrease in cash-settled stock-based compensation expense of $2.1 million. Interest income - The increase in interest income of $4.2 million is primarily due to an increase in our cash balance. -22- Table of Contents Other income - Other income decreased $4.8 million in the nine months ended March 31, 2025 as compared to the same period prior year. Other income during the nine months ended March 31, 2024 included a gain of $2.0 million from the sale of a facility in Catoosa, Oklahoma. Additionally, in the first quarter of fiscal 2024, we recognized a gain of $2.5 million on the sale of a previously utilized facility in Burlington, Ontario. Provision for income taxes - Our effective tax rates for the nine months ended March 31, 2025 and March 31, 2024 were (0.1%) and zero, respectively. The effective tax rates during both periods were impacted by valuation allowances of $4.3 million and $5.8 million, respectively, placed on deferred tax assets generated during the quarters. We placed a valuation allowance on our deferred tax assets due to the existence of a cumulative loss over a three-year period. Currently, we place valuation allowances on newly generated deferred tax assets. We will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided as we generate taxable income. -23- Table of Contents Results of Operations by Business Segment Nine Months Ended March 31, 2025 v 2024 Dollars in thousands 2025 2024 Change % Favorable (Unfavorable) Revenue Storage and Terminal Solutions $ 269,800 $ 206,808 $ 62,992 30 % Utility and Power Infrastructure 175,664 118,659 57,005 48 % Process and Industrial Facilities 107,445 212,014 (104,569) (49) % Corporate — 1,233 (1,233) — % Total revenue (1) $ 552,909 $ 538,714 $ 14,195 3 % (1) Total revenues are net of inter-segment revenues which are primarily Process and Industrial Facilities and were $2.8 million for the nine months ended March 31, 2025. Gross profit (loss) Storage and Terminal Solutions $ 15,700 $ 9,104 $ 6,596 72 % Utility and Power Infrastructure 10,253 6,520 3,733 57 % Process and Industrial Facilities 6,126 13,516 (7,390) (55) % Corporate (524) (1,114) 590 53 % Total gross profit $ 31,555 $ 28,026 $ 3,529 13 % Gross margin % Storage and Terminal Solutions 5.8 % 4.4 % 1.4% 32 % Utility and Power Infrastructure 5.8 % 5.5 % 0.3% 5 % Process and Industrial Facilities 5.7 % 6.4 % (0.7)% (11) % Corporate — % (90.3) % 90.3% (100) % Total gross margin % 5.7 % 5.2 % 0.5% 10 % Operating income (loss) Storage and Terminal Solutions $ (1,780) $ (5,258) $ 3,478 66 % Utility and Power Infrastructure 56 261 (205) (79) % Process and Industrial Facilities 541 5,632 (5,091) (90) % Corporate (20,978) (25,401) 4,423 17 % Total Operating Loss $ (22,161) $ (24,766) $ 2,605 11 % -24- Table of Contents Storage and Terminal Solutions Storage and Terminal Solutions revenues increased by $63.0 million, or 30%, in the nine months ended March 31, 2025 compared to the same period last year, driven by increased volume of work for specialty vessel and LNG storage, partially offset by decreases in tank repair and maintenance work. Storage and Terminal Solutions gross profit increased by $6.6 million, or 72%, in the nine months ended March 31, 2025 compared to the same period last year. The segment gross margin was 5.8% for the nine months ended March 31, 2025 compared to segment gross margin of 4.4% in the same period last year. The improved gross margin relative to the prior year period reflects consistent project execution and improved construction overhead cost absorption as a result of higher revenues. Utility and Power Infrastructure Utility and Power Infrastructure revenues increased by $57.0 million, or 48%, in the nine months ended March 31, 2025 compared to the same period last year. The increase is primarily attributable to higher volumes of work for LNG peak shaving projects, partially offset by decreases in power delivery work. Utility and Power Infrastructure gross profit increased by $3.7 million, or 57%, in the nine months ended March 31, 2025 compared to the same period last year. The segment gross margin was 5.8% for the nine months ended March 31, 2025 compared to 5.5% in the same period last year. Process and Industrial Facilities Process and Industrial Facilities revenues decreased by $104.6 million, or 49%, in the nine months ended March 31, 2025 compared to the same period last year. The decrease is primarily attributable to lower revenue volumes for a now completed large renewable diesel project, in addition to lower revenue volumes for thermal vacuum chambers. We believe this reduction in revenue is temporary given our strong backlog, including a significant gas processing construction project that is expected to commence in early fiscal 2026. Process and Industrial gross profit decreased by $7.4 million, or 55%, in the nine months ended March 31, 2025 compared to the same period last year. The segment gross margin was 5.7% for the nine months ended March 31, 2025 compared to 6.4% in the same period last year. The segment gross margin in the current period was impacted by higher levels of under-recovery of construction overhead costs due to lower revenue. LIQUIDITY AND CAPITAL RESOURCES Overview We assess liquidity based on the ongoing ability to pay our liabilities as they become due, fund business operations and meet all monetary contractual obligations. Our primary sources of liquidity at March 31, 2025 were unrestricted cash and cash equivalents on hand, capacity under our ABL Facility, and cash generated from operations. Our primary operational uses of capital are expenditures required to execute our projects, fund business operations and fulfill our contractual obligations. We believe that for at least the next 12 months, our cash position, anticipated cash generated by operating activities, along with our availability under the ABL Facility, is sufficient to support our operating requirements. Unrestricted cash and cash equivalents at March 31, 2025 totaled $185.5 million and availability under the ABL Facility totaled $61.5 million, resulting in total liquidity of $247.1 million. During the third quarter of fiscal 2025, liquidity increased $35.4 million primarily as a result of cash provided by operating activities. The following table provides a reconciliation of restricted cash and unrestricted cash in the Consolidated Balance Sheets to the total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows, as well as availability and total liquidity (in thousands): March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 Total cash, cash equivalents and restricted cash $ 210,541 $ 181,777 $ 149,610 $ 140,615 Less: Restricted cash 25,000 25,000 25,000 25,000 Unrestricted cash 185,541 156,777 124,610 115,615 Availability under ABL Facility 61,543 54,920 56,642 53,988 Total Liquidity $ 247,084 $ 211,697 $ 181,252 $ 169,603 The following table provides a summary of changes in our liquidity for the three months ended March 31, 2025 (in thousands): -25- Table of Contents Liquidity at December 31, 2024 $ 211,697 Cash provided by operating activities 31,247 Capital expenditures (2,566) Proceeds from asset sales 74 Increase in availability under ABL Facility 6,623 Cash provided by financing activities 47 Effect of exchange rate changes on cash (38) Liquidity at March 31, 2025 $ 247,084 The following table provides a summary of changes in our liquidity for the nine months ended March 31, 2025 (in thousands): Liquidity at June 30, 2024 $ 169,603 Cash provided by operating activities 76,763 Capital expenditures (5,425) Proceeds from asset sales 237 Increase in availability under ABL Facility 7,555 Cash used by financing activities (1,086) Effect of exchange rate changes on cash (563) Liquidity at March 31, 2025 $ 247,084 Factors that routinely impact our short-term liquidity and may impact our long-term liquidity include, but are not limited to: • changes in costs and estimated earnings in excess of billings on uncompleted contracts and billings on uncompleted contracts in excess of costs due to contract terms that determine the timing of billings to customers and the collection of those billings: ◦ some fixed-price customer contracts allow for significant upfront billings at the beginning of a project, which increases liquidity near term; ◦ some cost-plus and fixed-price customer contracts are billed based on milestones which may increase or decrease liquidity in the near term depending on the timing of when we incur significant expenditures and when we collect from our customers; ◦ time and material contracts are normally billed in arrears. Therefore, we are routinely required to carry these costs until they can be billed and collected; and ◦ some of our large construction projects may require security in the form of significant retentions. Retentions are normally held until certain contractual milestones are achieved; therefore, collection may extend beyond one year; • the mix of work can impact liquidity. In periods where fixed-price contracts comprise a larger portion of revenue, l iquidity may increase depending on the timing of the billing schedule in relation to project cash outflows. In periods where time and material contracts comprise a larger portion of revenue, liquidity may decrease; • other changes in working capital, including the timing of tax payments and refunds; • release of contract retentions, and • capital expenditures. Other factors that may impact both short and long-term liquidity include: • contract disputes; -26- Table of Contents • collection issues, including those caused by weak commodity prices, economic slowdowns or other factors which can lead to credit deterioration of our customers; • borrowing constraints under our ABL Facility and maintaining compliance with all covenants contained in the ABL Facility; • letters of credit. We have certain contracts with customers, and may have future contracts, that permit the customer to obtain, at the customer's expense, letters of credit as a form of security under the contract. Letters of credit reduce our borrowing availability under the Company's ABL Facility; • acquisitions and disposals of businesses or assets; and • purchases of shares under our stock buyback program. ABL Credit Facility We have 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. The maximum amount of loans under the ABL Facility is limited to $90.0 million. 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 under the ABL Facility. The ABL Facility matures, and any outstanding amounts become due and payable, on September 9, 2026. The borrowing base is recalculated on a monthly basis and at March 31, 2025, our borrowing base was $66.3 million. We had no borrowings outstanding and $4.8 million in letters of credit outstanding as of March 31, 2025, which resulted in availability of $61.5 million under the ABL Facility. For additional information regarding our ABL Facility, see Item I of Part I, "Financial Statements - Note 4 - Debt." -27- Table of Contents CASH FLOW ANALYSIS The following table summarizes our changes in cash flow activities for the periods indicated (in thousands): Nine Months Ended March 31, 2025 2024 Cash flows provided by operating activities $ 76,763 $ 25,567 Cash flows used in investing activities (5,188) (154) Cash flows used in financing activities (1,086) (10,324) Effect of exchange rate changes on cash (563) (243) Change in cash and cash equivalents 69,926 14,846 Cash and cash equivalents at beginning of period 140,615 79,812 Cash and cash equivalents at end of period $ 210,541 $ 94,658 Cash Flows Provided by Operating Activities The following table summarizes the components of cash flows provided by operating activities for the periods indicated (in thousands): Nine Months Ended March 31, 2025 2024 Net loss $ (18,190) $ (20,599) Gain on sale of property, plant and equipment (122) (4,530) Depreciation and amortization 7,538 8,337 Stock-based compensation 6,754 5,765 Other non-cash expenses 108 169 Cash effect of changes in operating assets and liabilities 80,675 36,425 Net cash provided by operating activities $ 76,763 $ 25,567 The significant components of the $80.7 million change in operating assets and liabilities for the nine months ended March 31, 2025 are summarized as follows: • Accounts receivable, excluding credit losses recognized during the period and including retention amounts classified as non-current, increased by $88.8 million which decreased cash flows from operating activities. The increases are primarily attributable to the timing of billing and collections. • Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") increased $4.7 million which decreased cash flows from operating activities. Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $161.3 million which increased cash flows from operating activities. CIE and BIE balances can experience significant fluctuations based on business volumes and the timing of when job costs are incurred and the timing of customer billings and payments. • Accounts payable increased by $13.0 million which increased cash flows from operating activities. These operating liabilities can fluctuate based on business volumes; the timing of vendor payments; accruals; lease commencement, lease payments, expiration, or termination of operating leases; and other timing differences. • Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, increased $1.2 million which decreased cash flows from operating activities. These operating assets can fluctuate based on business volumes; the timing of inventory builds and draw-downs, accrual and receipt of income taxes receivable; prepayments of certain expenses; lease commencement, passage of time, expiration, or termination of operating leases; and other timing differences. -28- Table of Contents • Accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current increased by $1.1 million which increased cash flows from operating activities. These operating liabilities can fluctuate based on the timing of payroll, distributions, business volumes; vendor payments; accruals; lease commencement, lease payments, expiration, or termination of operating leases; and other timing differences. The significant components of the $36.4 million change in operating assets and liabilities for the nine months ended March 31, 2024 are summarized as follows: • Accounts receivable, excluding credit losses recognized during the period and including retention amounts classified as non-current, increased by $43.1 million, which decreased cash flows from operating activities. The increases are primarily attributable to the timing of billing and collections, partially offset by $16.8 million we received as full payment for the favorable resolution of a legal matter. • Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") decreased $10.3 million which increased cash flows from operating activities. Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $82.2 million which increased cash flows from operating activities. CIE and BIE balances can experience significant fluctuations based on business volumes and the timing of when job costs are incurred and the timing of customer billings and payments. • Accounts payable decreased by $20.9 million which decreased cash flows from operating activities. These operating liabilities can fluctuate based on business volumes; the timing of vendor payments; accruals; lease commencement, lease payments, expiration, or termination of operating leases; and other timing differences. • Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, decreased $3.8 million, which increased cash flows from operating activities. These operating assets can fluctuate based on business volumes; the timing of inventory builds and draw-downs, accrual and receipt of income taxes receivable; prepayments of certain expenses; lease commencement, passage of time, expiration, or termination of operating leases; and other timing differences. • Accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current increased by $4.1 million increased cash flows from operating activities. These operating liabilities can fluctuate based on the timing of payroll, distributions, business volumes; vendor payments; accruals; lease commencement, lease payments, expiration, or termination of operating leases; and other timing differences. Cash Flows Used by Investing Activities Investing activities used $5.2 million of cash in the nine months ended March 31, 2025 due to capital expenditures associated with improvements at a fabrication facility in Bakersfield, California that we purchased in fiscal 2024, as well as the purchase of construction equipment to support our projects. Investing activities used $0.2 million of cash in the nine months ended March 31, 2024 due to capital expenditures partially offset by proceeds from asset sales. In the first quarter of fiscal 2024, we sold a previously utilized facility in Burlington, Ontario for $2.7 million in net proceeds. In the second quarter of fiscal 2024, we sold a facility in Catoosa, Oklahoma for $2.7 million in net proceeds. We closed these previously utilized facilities as they were no longer strategic to the future of the business. In the third quarter of fiscal 2024 we purchased a fabrication facility in Bakersfield, California for $4.1 million to replace a facility being leased by the Company. Cash Flows Used by Financing Activities Financing activities used $1.1 million of cash in the nine months ended March 31, 2025 primarily due to the repurchase of common stock for payment of statutory taxes due on equity-based compensation. Financing activities used $10.3 million of cash in the nine months ended March 31, 2024 primarily due to $10.0 million in net repayments under our ABL facility. -29- Table of Contents Dividend Policy We have never paid cash dividends on our common stock and the terms of our ABL Facility limit dividends to stock dividends only. Any future dividend payments will depend on the terms of our ABL Facility, our financial condition, capital requirements and earnings as well as other relevant factors. Stock Repurchase Program We may repurchase common stock pursuant to the Stock Buyback Program, which was approved by the board of directors in November 2018. Under the program, the aggregate number of shares repurchased may not exceed 2,707,175 shares. We may repurchase our stock from time to time in the open market at prevailing market prices or in privately negotiated transactions and are not obligated to purchase any shares. The program will continue unless and until it is modified or revoked by the Board of Directors. We made no repurchases under the program in the three months ended March 31, 2025 and have no current plans to repurchase stock. As of March 31, 2025, there were 1,349,037 shares available for repurchase under the Stock Buyback Program. The terms of our ABL Facility limit share repurchases to $2.5 million per fiscal year provided that we meet certain availability thresholds and do not violate our Fixed Charge Coverage Ratio financial covenant. Treasury Shares We had 281,365 treasury shares as of March 31, 2025 and intend to utilize these treasury shares in connection with equity awards under our stock incentive plans and for sales to the Employee Stock Purchase Plan. -30- Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES There have been no material changes in our critical accounting policies and estimates from those reported in our fiscal 2024 Annual Report on Form 10-K filed with the SEC. For more information on our critical accounting policies and estimates, see Part II, Item 7 of our fiscal 2024 Annual Report on Form 10-K. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in market risk faced by us from those reported in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the Securities and Exchange Commission. For more information on market risk, see Part II, Item 7A in our fiscal 2024 Annual Report on Form 10-K.