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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________
FORM 10-Q 
_______________________________________
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2023
or
Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the transition period from             to            
Commission File No. 1-15461
__________________________________________
MATRIX SERVICE COMPANY
(Exact name of registrant as specified in its charter)
__________________________________________
Delaware 73-1352174
(State of incorporation) (I.R.S. Employer Identification No.)
15 East 5th Street, Suite 1100, Tulsa, Oklahoma 74103
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (918838-8822
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
___________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareMTRXNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer 
Non-accelerated Filer Smaller Reporting Company 
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of May 8, 2023 there were 27,047,318 shares of the Company's common stock, $0.01 par value per share, outstanding.



Table of Contents




TABLE OF CONTENTS
PAGE
FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



Table of Contents




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Matrix Service Company
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)
Three Months EndedNine Months Ended
March 31,
2023
March 31,
2022
March 31,
2023
March 31,
2022
Revenue$186,895 $177,003 $589,166 $507,061 
Cost of revenue182,476 178,766 573,041 509,125 
Gross profit (loss)4,419 (1,763)16,125 (2,064)
Selling, general and administrative expenses16,862 17,041 51,218 49,592 
Goodwill impairment 18,312 12,316 18,312 
Restructuring costs316 (1,578)2,881 (278)
Operating loss(12,759)(35,538)(50,290)(69,690)
Other income (expense):
Interest expense(268)(204)(1,556)(2,705)
Interest income94 19 164 69 
Other(116)677 (706)534 
Loss before income tax expense (benefit)(13,049)(35,046)(52,388)(71,792)
Provision (benefit) for federal, state and foreign income taxes(363)(147)(363)5,564 
Net loss$(12,686)$(34,899)$(52,025)$(77,356)
Basic loss per common share$(0.47)$(1.30)$(1.93)$(2.90)
Diluted loss per common share$(0.47)$(1.30)$(1.93)$(2.90)
Weighted average common shares outstanding:
Basic27,038 26,783 26,969 26,714 
Diluted27,038 26,783 26,969 26,714 
See accompanying notes.










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Matrix Service Company
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
 
 Three Months EndedNine Months Ended
March 31,
2023
March 31,
2022
March 31,
2023
March 31,
2022
Net loss$(12,686)$(34,899)$(52,025)$(77,356)
Other comprehensive loss, net of tax:
Foreign currency translation loss (net of tax expense (benefit) of $0 for the three and nine months ended March 31, 2023 and ($16) and $30 for the three and nine months ended March 31, 2022, respectively)(234)(32)(722)(728)
Comprehensive loss$(12,920)$(34,931)$(52,747)$(78,084)
See accompanying notes.



















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Matrix Service Company
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
March 31,
2023
June 30,
2022
Assets
Current assets:
Cash and cash equivalents $48,204 $52,371 
Accounts receivable, less allowances (March 31, 2023—$1,100 and June 30, 2022—$1,320)163,426 153,879 
Costs and estimated earnings in excess of billings on uncompleted contracts53,398 44,752 
Inventories8,027 9,974 
Income taxes receivable539 13,547 
Prepaid expenses6,369 4,024 
Other current assets4,801 8,865 
Total current assets284,764 287,412 
Restricted cash 25,000 25,000 
Property, plant and equipment - net50,541 53,869 
Operating lease right-of-use assets22,889 22,067 
Goodwill29,712 42,135 
Other intangible assets, net of accumulated amortization3,499 4,796 
Other assets, non-current9,542 5,514 
Total assets$425,947 $440,793 
See accompanying notes.
















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Matrix Service Company
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
March 31,
2023
June 30,
2022
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$65,518 $74,886 
Billings on uncompleted contracts in excess of costs and estimated earnings114,729 65,106 
Accrued wages and benefits13,257 21,526 
Accrued insurance5,823 6,125 
Operating lease liabilities4,605 5,715 
Other accrued expenses4,477 4,427 
Total current liabilities208,409 177,785 
Deferred income taxes26 26 
Operating lease liabilities21,727 19,904 
Borrowings under asset-backed credit facility15,000 15,000 
Other liabilities, non-current782 372 
Total liabilities245,944 213,087 
Commitments and contingencies
Stockholders’ equity:
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of March 31, 2023 and June 30, 2022; 27,037,556 and 26,790,514 shares outstanding as of March 31, 2023 and June 30, 2022, respectively279 279 
Additional paid-in capital139,257 139,854 
Retained earnings59,253 111,278 
Accumulated other comprehensive loss(8,897)(8,175)
189,892 243,236 
Treasury stock, at cost — 850,661 shares as of March 31, 2023, and 1,097,703 shares as of June 30, 2022(9,889)(15,530)
Total stockholders' equity180,003 227,706 
Total liabilities and stockholders’ equity$425,947 $440,793 
See accompanying notes.








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Matrix Service Company
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 Nine Months Ended
March 31,
2023
March 31,
2022
Operating activities:
Net loss$(52,025)$(77,356)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and amortization10,499 11,557 
Goodwill impairment12,316 18,312 
Stock-based compensation expense5,154 5,823 
Deferred income tax 5,323 
Gain on sale of property, plant and equipment(21)(674)
Provision for uncollectible accounts(63)52 
Accelerated amortization of deferred debt amendment fees 1,518 
Other189 103 
Changes in operating assets and liabilities increasing (decreasing) cash:
Accounts receivable(9,484)10,288 
Costs and estimated earnings in excess of billings on uncompleted contracts(8,646)(15,619)
Inventories1,947 435 
Other assets and liabilities10,401 (2,769)
Accounts payable(9,344)7,188 
Billings on uncompleted contracts in excess of costs and estimated earnings49,623 20,036 
Accrued expenses(8,143)(6,734)
Net cash provided (used) by operating activities2,403 (22,517)
Investing activities:
Capital expenditures(6,212)(1,335)
Proceeds from asset sales110 1,250 
Net cash used by investing activities$(6,102)$(85)

 See accompanying notes.

















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Matrix Service Company
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Nine Months Ended
March 31,
2023
March 31,
2022
Financing activities:
Advances under asset-backed credit facility$10,000 $ 
Repayments of advances under asset-backed credit facility(10,000) 
Payment of debt amendment fees (1,054)
Issuances of common stock 199 
Proceeds from issuance of common stock under employee stock purchase plan200 212 
Repurchase of common stock for payment of statutory taxes due on equity-based compensation(310)(853)
Other (354)
Net cash used by financing activities(110)(1,850)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(358)(334)
Net decrease in cash, cash equivalents and restricted cash(4,167)(24,786)
Cash, cash equivalents and restricted cash, beginning of period 77,371 83,878 
Cash, cash equivalents and restricted cash, end of period $73,204 $59,092 
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes$(13,286)$(2,841)
Interest, including payment of debt amendment fees$1,675 $2,509 
Non-cash investing and financing activities:
Purchases of property, plant and equipment on account$30 $99 

 See accompanying notes.
























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Matrix Service Company
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share data)
(unaudited)
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Balances, December 31, 2022$279 $137,989 $71,939 $(8,663)$(10,092)$191,452 
Net loss  (12,686)  (12,686)
Other comprehensive loss   (234) (234)
Treasury shares sold to Employee Stock Purchase Plan (10,233 shares) (139)  203 64 
Stock-based compensation expense 1,407    1,407 
Balances, March 31, 2023$279 $139,257 $59,253 $(8,897)$(9,889)$180,003 
Balances, December 31, 2021$279 $135,913 $132,721 $(7,445)$(15,858)$245,610 
Net loss  (34,899)  (34,899)
Other comprehensive loss   (32) (32)
Treasury shares sold to Employee Stock Purchase Plan (9,290 shares) (115)  184 69 
Stock-based compensation expense 2,088    2,088 
Balances, March 31, 2022$279 $137,886 $97,822 $(7,477)$(15,674)$212,836 

Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Balances, June 30, 2022$279 $139,854 $111,278 $(8,175)$(15,530)$227,706 
Net loss  (52,025)  (52,025)
Other comprehensive loss   (722) (722)
Issuance of deferred shares (259,529 shares) (5,149)  5,149  
Treasury shares sold to Employee Stock Purchase Plan (40,377 shares) (602)  802 200 
Treasury shares purchased to satisfy tax withholding obligations (52,864 shares)    (310)(310)
Stock-based compensation expense 5,154    5,154 
Balances, March 31, 2023$279 $139,257 $59,253 $(8,897)$(9,889)$180,003 
Balances, June 30, 2021$279 $137,575 $175,178 $(6,749)$(20,744)$285,539 
Net loss  (77,356)  (77,356)
Other comprehensive loss   (728) (728)
Exercise of stock options (19,550 shares) (189)  388 199 
Issuance of deferred shares (268,403 shares) (5,102)  5,102  
Treasury shares sold to Employee Stock Purchase Plan (22,577 shares) (221)  433 212 
Treasury shares purchased to satisfy tax withholding obligations (76,703 shares)    (853)(853)
Stock-based compensation expense 5,823    5,823 
Balances, March 31, 2022$279 $137,886 $97,822 $(7,477)$(15,674)$212,836 
-7-


Table of Contents




Matrix Service Company
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 – Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of Matrix Service Company and its subsidiaries (“Matrix”, “we”, “our”, “us”, “its” or the “Company”), unless otherwise indicated. Intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by U.S. generally accepted accounting principles ("GAAP") for complete financial statements. The information furnished reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair statement of the results of operations, cash flows and financial position for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2022, included in our Annual Report on Form 10-K for the year then ended. The results of operations for the three and nine month periods ended March 31, 2023 may not necessarily be indicative of the results of operations for the full year ending June 30, 2023.
Significant Accounting Policies
Our significant accounting policies are detailed in “Note 1 - Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended June 30, 2022.
Note 2 – Revenue
Remaining Performance Obligations
We had $542.7 million of remaining performance obligations yet to be satisfied as of March 31, 2023. We expect to recognize $432.7 million of our remaining performance obligations as revenue within the next twelve months.
Contract Balances
Contract terms with customers include the timing of billing and payments, which usually differs from the timing of revenue recognition. As a result, we carry contract assets and liabilities in our balance sheet. These contract assets and liabilities are calculated on a contract-by-contract basis and are classified as current. We present our contract assets in the balance sheet as Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts ("CIE"). CIE consists of revenue recognized in excess of billings. We present our contract liabilities in the balance sheet as Billings on Uncompleted Contracts in Excess of Costs and Estimated Earnings ("BIE"). BIE consists of billings in excess of revenue recognized. The following table provides information about CIE and BIE:
March 31,
2023
June 30,
2022
Change
 (in thousands)
Costs and estimated earnings in excess of billings on uncompleted contracts$53,398 $44,752 $8,646 
Billings on uncompleted contracts in excess of costs and estimated earnings(114,729)(65,106)(49,623)
Net contract liabilities$(61,331)$(20,354)$(40,977)
The difference between the beginning and ending balances of our CIE and BIE primarily results from the timing of revenue recognized relative to the billings on the associated contract. The amount of revenue recognized during the nine months ended March 31, 2023 that was included in the June 30, 2022 BIE balance was $57.0 million. This revenue consists primarily of work performed during the period on contracts with customers that had advance billings.
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Table of Contents

Matrix Service Company
Notes to Condensed Consolidated Financial Statements
(unaudited)

Progress billings in accounts receivable at March 31, 2023 and June 30, 2022 included retentions to be collected within one year of $18.9 million and $16.1 million, respectively. Contract retentions collectible beyond one year are included in other assets, non-current in the Condensed Consolidated Balance Sheets and totaled $7.8 million as of March 31, 2023 and $4.0 million as of June 30, 2022.
Disaggregated Revenue
Revenue disaggregated by reportable segment is presented in Note 9 - Segment Information. The following tables presents revenue disaggregated by geographic area where the work was performed and by contract type:
Geographic Disaggregation:
 Three Months EndedNine Months Ended
 March 31,
2023
March 31,
2022
March 31,
2023
March 31,
2022
 (In thousands)
United States$178,261 $160,453 $524,731 $459,654 
Canada6,932 16,268 52,742 45,038 
Other international1,702 282 11,693 2,369 
Total Revenue$186,895 $177,003 $589,166 $507,061 

Contract Type Disaggregation:
 Three Months EndedNine Months Ended
 March 31,
2023
March 31,
2022
March 31,
2023
March 31,
2022
 (In thousands)
Fixed-price contracts$96,755 $100,602 $311,511 $303,508 
Time and materials and other cost reimbursable contracts90,140 76,401 277,655 203,553 
Total Revenue$186,895 $177,003 $589,166 $507,061 
Typically, we assume more risk with fixed-price contracts since increases in costs to perform the work may not be recoverable. However, these types of contracts typically offer higher profits than time and materials and other cost reimbursable contracts when completed at or below the costs originally estimated. The profitability of time and materials and other cost reimbursable contracts is typically lower than fixed-price contracts and is usually less volatile than fixed-price contracts since the profit component is factored into the rates charged for labor, equipment and materials, or is expressed in the contract as a percentage of the reimbursable costs incurred.
Revisions in Estimates
During the third quarter of fiscal 2023, unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete certain midstream gas processing capital projects in the Process and Industrial Facilities segment resulted in the projects reducing gross profit by $3.3 million. Together with prior unfavorable changes in the estimated recovery of change orders and increased costs, the projects reduced gross profit by $12.7 million during the nine months ended March 31, 2023. These charges were primarily the result of the client not approving adequate compensation to us for the impact that excessive scope changes had on our ability to progress work on the project according to forecast and for the impact that global supply chain issues and inflation had on the projects. We have accrued the full expected loss for these projects, which we expect to be mechanically complete in July 2023.
During the three and nine months ended March 31, 2022, our results of operations were materially impacted by an increase in the forecasted costs to complete a midstream gas processing project in the Process and Industrial Facilities segment, which resulted in a decrease in gross profit of $4.8 million. The increase in forecasted costs was primarily due to performance of a now-terminated subcontractor, which required rework in order to meet our client's expectations.
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Matrix Service Company
Notes to Condensed Consolidated Financial Statements
(unaudited)

During fiscal 2022, our results of operations were materially impacted by changes in the forecasted costs to complete a large capital project in the Utility and Power Infrastructure segment. Improved project execution resulted in an increase in gross profit of $0.8 million during the three months ended March 31, 2022. However, increases in the forecasted costs to complete the project during the first half of fiscal 2022 resulted in the project reducing gross profit by $5.1 million during the nine months ended March 31, 2022. The increase in forecasted costs during the first half of the fiscal year was principally due to unexpected equipment repairs during commissioning that delayed the scheduled completion and increased the estimated costs to complete. The project was completed in fiscal 2022.
During fiscal 2022, our results of operations were materially impacted by an increase in the costs required to complete a thermal energy storage tank repair and maintenance project in the Storage and Terminal Solutions segment, which resulted in a decrease in gross profit of $5.5 million in the first half of fiscal 2022. The increase in costs was primarily due to changes in repair scope, expanded client weld testing and associated schedule delays. We completed these repairs in the first quarter of fiscal 2023.
Note 3 – Property, Plant and Equipment
The following table presents the components of our property, plant and equipment - net at March 31, 2023 and June 30, 2022:
March 31,
2023
June 30,
2022
(In thousands)
Property, plant and equipment - at cost:
Land and buildings$36,458 $34,788 
Construction equipment90,308 93,036 
Transportation equipment47,863 48,999 
Office equipment and software38,456 43,823 
Construction in progress3,155 1,646 
Total property, plant and equipment - at cost216,240 222,292 
Accumulated depreciation(165,699)(168,423)
Property, plant and equipment - net$50,541 $53,869 
Note 4 – Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying value of goodwill by segment are as follows:
Utility and Power InfrastructureProcess and Industrial FacilitiesStorage and Terminal SolutionsTotal
 (In thousands)
Net balance at June 30, 2022$4,263 $18,427 $19,445 $42,135 
Goodwill impairment (12,316) (12,316)
Translation adjustment(1)
(36) (71)(107)
Net balance at March 31, 2023$4,227 $6,111 $19,374 $29,712 
(1)The translation adjustments relate to the periodic translation of Canadian Dollar and South Korean Won denominated goodwill recorded as a part of prior acquisitions in Canada and South Korea, in which the local currency was determined to be the functional currency.

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Matrix Service Company
Notes to Condensed Consolidated Financial Statements
(unaudited)

We performed our annual goodwill impairment test as of May 31, 2022, which resulted in no impairment. The fiscal 2022 test indicated that four reporting units with a combined total of $33.8 million of goodwill as of June 30, 2022 were at higher risk of future impairment. Operating results during the second quarter of fiscal 2023 of one of our reporting units at higher risk of impairment indicated that it was more likely than not that its goodwill was impaired. This reporting unit is in the Process and Industrial Facilities segment and includes the midstream gas processing projects referenced in Note 2 - Revenue, Revisions in Estimates, which experienced a material adverse change in gross profit during the second quarter of fiscal 2023. Based on the indicated outcome of this project and our near-term outlook for the reporting unit, we performed an interim impairment test for the unit and concluded that its $12.3 million of goodwill was fully impaired. The impairment was recognized in operating loss during the second quarter of fiscal 2023.
Based on the totality of both positive and negative factors, no impairment indicators related to the other reporting units existed at March 31, 2023. However, if our view of project opportunities or gross margins deteriorates, particularly for the remaining higher risk reporting units, then we may need to perform an interim goodwill impairment test, which could result in an impairment.
During the three and nine months ended March 31, 2022, we concluded that goodwill impairment indicators existed based on the decline in the price of our stock and operating results that had underperformed during the year. As such, we performed an interim impairment test and concluded $18.3 million of goodwill was impaired.
Other Intangible Assets
Information on the carrying value of other intangible assets is as follows:
  At March 31, 2023
  
Useful LifeGross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
 (Years)(In thousands)
Intellectual property10 to 15$2,483 $(2,328)$155 
Customer-based(1)
6 to 1513,144 (9,800)3,344 
Total amortizing intangible assets$15,627 $(12,128)$3,499 
(1)Customer-based intangible assets have been adjusted in fiscal 2023 to remove $4.2 million of customer relationships that have been fully amortized.
 
  At June 30, 2022
 Useful LifeGross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
 (Years)(In thousands)
Intellectual property10 to 15$2,558 $(2,276)$282 
Customer-based6 to 1517,331 (12,817)4,514 
Total amortizing intangible assets$19,889 $(15,093)$4,796 
Amortization expense totaled $0.4 million and $1.3 million during the three and nine months ended March 31, 2023 and $0.4 million and $1.4 million during the three and nine months ended March 31, 2022, respectively.
We estimate that the remaining amortization expense related to March 31, 2023 amortizing intangible assets will be as follows (in thousands):
Period ending:
Remainder of Fiscal 2023$432 
Fiscal 20241,416 
Fiscal 20251,096 
Fiscal 2026555 
Total estimated remaining amortization expense at March 31, 2023$3,499 
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Matrix Service Company
Notes to Condensed Consolidated Financial Statements
(unaudited)

Note 5 – Debt
On September 9, 2021, the Company and our primary U.S. and Canada operating subsidiaries entered into an asset-based credit agreement, which was amended on October 5, 2022 (as amended, the "ABL Facility"), with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer, and the lenders named therein. The maximum amount of loans under the ABL Facility is limited to $90.0 million. The ABL Facility's available borrowings may be increased by an amount not to exceed $15.0 million, subject to certain conditions, including obtaining additional commitments. The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes. Our obligations under the ABL Facility are guaranteed by substantially all of our U.S. and Canadian subsidiaries and are secured by a first lien on all our assets and the assets of our co-borrowers and guarantors under the ABL Facility.
The 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 March 31, 2023, our borrowing base was $78.5 million, we had $15.0 million of outstanding borrowings, and we had $19.3 million in letters of credit outstanding, which resulted in availability of $44.2 million under the ABL Facility.
Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate of either a base rate (“Base Rate”), an Adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR"), or at the Canadian Prime Rate, plus an applicable margin. The Adjusted Term SOFR is defined as (i) the SOFR plus (ii) 11.448 basis points for a one-month tenor and 26.161 basis points for a three-month tenor; provided that the Adjusted Term SOFR cannot be below zero. The Base Rate is defined as a fluctuating interest rate equal to the greater of: (i) rate of interest announced by Bank of Montreal from time to time as its prime rate; (ii) the U.S. federal funds rate plus 0.50%; (iii) Adjusted Term SOFR for one month period plus 1.00%; or (iv) 1.00%. Depending on the amount of average availability, the applicable margin is between 1.00% to 1.50% for Base Rate and Canadian Prime Rate borrowings, which includes either U.S. or Canadian prime rate, and between 2.00% and 2.50% for Adjusted Term SOFR borrowings. Interest is payable either (i) monthly for Base Rate or Canadian Prime Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility. The fee for undrawn amounts is 0.25% per annum and is due quarterly. The interest rate in effect for borrowings outstanding at March 31, 2023, including applicable margin, was approximately 7.17%.
The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that restrict our ability to sell assets, engage in mergers and acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay cash dividends, issue equity instruments, make distribution or redeem or repurchase capital stock. In the event that our availability is less than the greater of (i) $15.0 million and (ii) 15.00% of the commitments under the ABL Facility then in effect, a consolidated Fixed Charge Coverage Ratio of at least 1.00 to 1.00 must be maintained. We were in compliance with all covenants of the ABL Facility as of March 31, 2023.
Note 6 – Income Taxes
Effective Tax Rate
Our effective tax rates were 2.8% and 0.7% for the three and nine months ended March 31, 2023, compared to 0.4% and (7.8%) during the three and nine months ended March 31, 2022, respectively. The effective tax rates during fiscal 2023 were impacted by valuation allowances of $3.6 million and $13.3 million placed on deferred tax assets during the three and nine months ended March 31, 2023, respectively.
Valuation Allowance
We placed a valuation allowance on our deferred tax assets in the second quarter of fiscal 2022 due to the existence of a cumulative loss over a three-year period. We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided to the extent we generate taxable income in the future, or cumulative losses are no longer present and our future projections for growth or tax planning strategies are demonstrated.

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Table of Contents

Matrix Service Company
Notes to Condensed Consolidated Financial Statements
(unaudited)

Net Operating Loss Carryback Refund
Through provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the "CARES Act"), we had an income tax benefit from the ability to carryback the fiscal 2021 federal net operating loss to a period with a higher statutory federal income tax rate. During the third quarter of fiscal 2023, we received a $13.3 million tax refund in connection with this carryback, which was included in income taxes receivable in the Condensed Consolidated Balance Sheet as of June 30, 2022.
Deferred Payroll Taxes
During the second quarter of fiscal 2023, we repaid the remaining $5.6 million of U.S. payroll taxes we deferred through provisions of the CARES Act. The balance of deferred payroll taxes was included within accrued wages and benefits in the Condensed Consolidated Balance Sheet as of June 30, 2022.
Note 7 – Commitments and Contingencies
Insurance Reserves
We maintain insurance coverage for various aspects of our operations. However, we retain exposure to potential losses through the use of deductibles, self-insured retentions and coverage limits.
Typically, our contracts require us to indemnify our customers for injury, damage or loss arising from the performance of our services and provide warranties for materials and workmanship. We may also be required to name the customer as an additional insured up to the limits of insurance available, or we may be required to purchase special insurance policies or surety bonds for specific customers or provide letters of credit in lieu of bonds to satisfy performance and financial guarantees on some projects. We maintain a performance and payment bonding line sufficient to support the business. We generally require our subcontractors to indemnify us and our customer and name us as an additional insured for activities arising out of the subcontractors’ work. We also require certain subcontractors to provide additional insurance policies, including surety bonds in favor of us, to secure the subcontractors’ work or as required by the subcontract.
There can be no assurance that our insurance and the additional insurance coverage provided by our subcontractors will fully protect us against a valid claim or loss under the contracts with our customers.
Unpriced Change Orders and Claims
Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $14.7 million at March 31, 2023 and $8.9 million at June 30, 2022. The amounts ultimately realized may be significantly different than the recorded amounts resulting in a material adjustment to future earnings. The determination of our legal basis for a claim requires significant judgment. Generally, collection of amounts related to unpriced change orders and claims is expected within twelve months. However, since customers may not pay these amounts until final resolution of related claims, collection of these amounts may extend beyond one year.
Other
During the third quarter of fiscal 2020, we commenced litigation in an effort to collect accounts receivable from an iron and steel customer following the deterioration of the relationship in the second quarter of fiscal 2020. The unpaid account receivable balance at March 31, 2023 was $17.0 million. Litigation is unpredictable; however, based on the terms of the contract with this customer, we believe we are entitled to collect the full amount owed under the contract.
We are participants in various legal actions. It is the opinion of management that none of the other known legal actions will have a material impact on our financial position, results of operations or liquidity.




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Table of Contents

Matrix Service Company
Notes to Condensed Consolidated Financial Statements
(unaudited)

Note 8 – Earnings per Common Share
Basic earnings per share (“Basic EPS”) is calculated based on the weighted average shares outstanding during the period. Diluted earnings per share (“Diluted EPS”) includes the dilutive effect of stock options and nonvested deferred shares. In the event we report a loss, stock options and nonvested deferred shares are not included since they are anti-dilutive.
The computation of basic and diluted earnings per share is as follows:
 Three Months EndedNine Months Ended
March 31,
2023
March 31,
2022
March 31,
2023
March 31,
2022
 (In thousands, except per share data)
Basic EPS:
Net loss$(12,686)$(34,899)$(52,025)$(77,356)
Weighted average shares outstanding27,038 26,783 26,969 26,714 
Basic loss per share$(0.47)$(1.30)$(1.93)$(2.90)
Diluted EPS:
Net loss$(12,686)$(34,899)$(52,025)$(77,356)
Diluted weighted average shares outstanding27,038 26,783 26,969 26,714 
Diluted loss per share$(0.47)$(1.30)$(1.93)$(2.90)


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

 Three Months EndedNine Months Ended
March 31,
2023
March 31,
2022
March 31,
2023
March 31,
2022
 (In thousands)
Nonvested deferred shares133 34 81 110 





















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Table of Contents

Matrix Service Company
Notes to Condensed Consolidated Financial Statements
(unaudited)

Note 9 – Segment Information
We report our results of operations through three reportable segments: Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions.
Utility and Power Infrastructure: consists of power delivery services provided to investor-owned utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, upgrades and maintenance, as well as emergency and storm restoration services. We also provide engineering, fabrication, and construction services for LNG utility peak shaving facilities, and provide construction and maintenance services to a variety of power generation facilities, including natural gas fired facilities in simple or combined cycle configuration.
Process and Industrial Facilities: primarily serves customers in the downstream and midstream petroleum industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas and natural gas liquids. We also serve customers in various other industries such as petrochemical, sulfur, mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and other industrial customers. Our services include plant maintenance, turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.
Storage and Terminal Solutions: consists of work related to aboveground crude oil and refined product storage tanks and terminals. We also include work related to cryogenic and other specialty storage tanks and terminals, including LNG, liquid nitrogen/liquid oxygen, liquid petroleum, hydrogen and other specialty vessels such as spheres in this segment, as well as work related to marine structures and truck and rail loading/offloading facilities. Our services include engineering, fabrication, construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals. Finally, we offer tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

We evaluate performance and allocate resources based on operating income. We eliminate intersegment sales; therefore, no intercompany profit or loss is recognized. Corporate selling, general and administrative expenses are excluded from our three reportable segments in order to align controllable costs with the responsibility of segment management, and to be consistent with how our chief operating decision-maker assesses segment performance and allocates resources. In fiscal year 2022, we commenced a project to centralize and standardize certain support functions including accounting, human resources and project support. These centralized support functions are now included in corporate selling, general and administrative expense, but were previously included in our operating segment selling, general and administrative expense. Segment assets consist primarily of accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, property, plant and equipment, right-of-use lease assets, goodwill and other intangible assets.
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Table of Contents

Matrix Service Company
Notes to Condensed Consolidated Financial Statements
(unaudited)

Results of Operations
(In thousands)
 Three Months EndedNine Months Ended
 March 31,
2023
March 31,
2022
March 31,
2023
March 31,
2022
Gross revenue
Utility and Power Infrastructure$35,024 $59,341 $130,483 $171,298 
Process and Industrial Facilities99,706 69,786 267,232 167,033 
Storage and Terminal Solutions53,871 49,254 194,291 175,174 
Total gross revenue$188,601 $178,381 $592,006 $513,505 
Less: Inter-segment revenue
Utility and Power Infrastructure$ $ $54 $ 
Process and Industrial Facilities 815 109 3,841 
Storage and Terminal Solutions1,706 563 2,677 2,603 
Total inter-segment revenue$1,706 $1,378 $2,840 $6,444 
Consolidated revenue
Utility and Power Infrastructure$35,024 $59,341 $130,429 $171,298 
Process and Industrial Facilities99,706 68,971 267,123 163,192 
Storage and Terminal Solutions52,165 48,691 191,614 172,571 
Total consolidated revenue$186,895 $177,003 $589,166 $507,061 
Gross profit (loss)
Utility and Power Infrastructure$2,790 $(492)$6,929 $(7,089)
Process and Industrial Facilities3,160 (441)2,359 6,663 
Storage and Terminal Solutions(810)(458)8,403 (216)
Corporate(721)(372)(1,566)(1,422)
Total gross profit (loss)$4,419 $(1,763)$16,125 $(2,064)
Selling, general and administrative expenses
Utility and Power Infrastructure$1,869 $2,910 $5,394 $9,109 
Process and Industrial Facilities3,556 3,198