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PURPOSE
Working to build a better future,
improve quality of life, and create
long-term value for our people,
business partners, shareholders,
and communities.
BOARD OF DIRECTORS
Jim W. Mogg
Board Chair
John R. Hewitt
President and
Chief Executive Officer
Martha Z. Carnes
Chair of Audit Committee
John D. Chandler
Chair of Compensation
Committee
Carlin G. Conner
Director
Liane K. Hinrichs
Chair of Nominating
and Corporate Governance
Committee
James H. Miller
Director
VISION
To be the company of choice
for engineering, constructing, and
maintaining the energy and industrial
infrastructure that people rely
on around the world.
VALUES
COMMITMENT TO SAFETY
INTEGRITY
POSITIVE RELATIONSHIPS
STEWARDSHIP
COMMUNITY INVOLVEMENT
DELIVER THE BEST
EXECUTIVE OFFICERS
John R. Hewitt
President and
Chief Executive Officer
Kevin S. Cavanah
Vice President and
Chief Financial Officer
Rick J. Bennett
Vice President and
Chief Information Officer
Kevin A. Durkin
Vice President and Chief Business
Development and Strategy Officer
Alan R. Updyke
Vice President and Chief Operating
Officer and Interim President, Matrix NAC
Bradley J. Rinehart
President,
Matrix Service
Nancy E. Austin
Vice President and
Chief Administrative Officer
Glyn A. Rodgers
President,
Matrix PDM Engineering
Justin D. Sheets
Vice President, General Counsel
and Corporate Secretary
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Matrix Service Company is an Equal Opportunity/Affirmative Action employer and does not discriminate against any employee or applicant for employment because of race,
color, religion, gender, sexual orientation, national origin, age, genetic information, disability, veteran status, marital status, or any other legally protected characteristic or category.
A LETTER FROM OUR CEO.
FISCAL 2021 WAS A YEAR DEFINED BY UNPRECEDENTED CHALLENGES:
• A global pandemic that forced sudden and dramatic changes in the ways we live and work;
• A steep decline in energy demand and market confidence that, for Matrix Service Company,
resulted in delayed project awards and starts, and reduced maintenance work volumes;
• Economic uncertainty and global supply chain disruptions that further exacerbated overall
business decision-making and operations; and
• Multiple acts of societal racism that further solidified the need for social justice and a focus
on equity and inclusion.
These challenges have served as a catalyst for transformational change for society, our clients, and Matrix. They have
further strengthened our resolve to build sustainability into everything we do — resolve that is embedded in our Purpose,
Vision, and Values. And they serve to remind us that it is during challenging times such as these that Purpose, Vision,
and Values matter more than ever.
Since our inception, Matrix has worked hard to earn a reputation built on our Core Values. We are uncompromising in
our ethics, integrity, and respect, and in our commitment to safety and quality. We remain dedicated to continuous
improvement across every aspect of our business. And we strive to make positive, lasting impacts that leave the
communities where we live and work better than we found them.
As we continue our transformation to support the changing needs of our business, our clients, and our world, we are
proud of our reputation for living up to our brand promise to MOVE TO A HIGHER STANDARD — a promise we make
every day to all stakeholders, and to ourselves.
THE YEAR IN REVIEW
While financial results in this fiscal year were dramatically impacted by continued delays in project awards and starts
and reduced maintenance volumes brought about by the global pandemic, the year also brought several notable
achievements. Among them:
A TOTAL RECORDABLE INCIDENT RATE (TRIR) OF 0.28. This record performance, which our teams achieved while
adhering to rigorous COVID-19 protocols, represents world-class safety as we strive to attain and maintain zero-incident
safety performance throughout our operations.
ONGOING COMMUNITY SERVICE. Just as our employees, clients, and Company have faced unprecedented challenges
during the pandemic, so have our communities. In these times, they have needed the strength and support of companies
such as Matrix more than ever. Throughout the pandemic, our Company and our employees have continued to give back,
doing what we can to support the building blocks that lead to better quality of life and improve the communities where
we live and work.
CONTINUATION OF EFFORTS TO EMBED DIVERSITY, EQUITY, AND INCLUSION (DEI) INTO OUR CULTURE. We have
done so through a number of initiatives including employee learning, participation in the CEO Action for Diversity &
Inclusion and other conferences, commitment to pay equity, establishment of our Employee Resource Groups (ERGs)
framework, and use of our social media channels and mobile apps to publicly stand against racism and reinforce our
zero-tolerance policy.
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SUPPORT OF OUR CLIENTS’ ACCELERATED TRANSITION TO CLEAN ENERGY.
Our industry-leading storage and project infrastructure expertise supports:
• Bridging fuels such as natural gas and LNG;
• Development of standardized hydrogen solutions for liquefaction plants, marine bunkering,
fueling stations, plant and storage expansions, spaceship fueling, and other hydrogen facilities;
• Renewable energy infrastructure including conversion of fossil fuel plants to renewable fuels,
such as biodiesel and biojet fuel;
• Mining and minerals with a focus on metals such as copper, lithium, nickel, and cobalt needed
to support the growing demand for storage batteries and renewable power; and
• Electrification of everything investments supported by our electrical infrastructure offering.
ADVANCEMENT OF OUR WORK ACROSS THE THREE PILLARS OF ENVIRONMENTAL, SOCIAL, AND GOVERNANCE.
We have published our first Sustainability Report where we detail our efforts and accomplishments in the areas of
Environmental, Social, and Governance (ESG). While this is our first formal Report, our journey has been ongoing and,
like our commitment to zero-incident safety performance, is one that will not end.
IN CLOSING, Albert Einstein once said “In the middle of difficulty lies opportunity.”
Throughout our history, Matrix employees have found opportunity where others might see only adversity, and in doing
so, we have become a diversified North American Engineering, Procurement, and Construction (EPC) service provider.
The opportunities in front of us are strong as we look to a post-pandemic environment. As we continue to streamline
and fortify our business, we are confident in our ability to achieve and sustain top-tier performance, and meet the
changing business needs of our clients.
Thank you for your continued trust and support, and for your commitment to Matrix Service Company.
Respectfully,
John R. Hewitt
President and Chief Executive Officer
“In the middle of difficulty lies opportunity.”
- Albert Einstein
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
□ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
□ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 2021
or
For the transition period from
to
Commission File No. 001-15461
MATRIX SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
5100 E. Skelly Drive, Suite 500
Tulsa, Oklahoma
(Address of Principal Executive Offices)
73-1352174
(I.R.S. Employer
Identification No.)
74135
(Zip Code)
Registrant’s telephone number, including area code: (918) 838-8822
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol(s)
MTRX
Name of each exchange on which registered
NASDAQ Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes □ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes □ No ☒
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 □
Emerging growth company □
Accelerated filer ☒
Non-accelerated filer □
Smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes □ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates computed by reference to the price at which the common
stock was last sold as of the last business day of the registrant’s most recently completed second quarter was approximately $284 million.
The number of shares of the registrant’s common stock outstanding as of September 9, 2021 was 26,697,028 shares.
Documents Incorporated by Reference
Certain sections of the registrant’s definitive proxy statement relating to the registrant’s 2021 annual meeting of stockholders, which definitive
proxy statement will be filed within 120 days of the end of the registrant’s fiscal year, are incorporated by reference into Part III of this
Form 10-K.
[THIS PAGE INTENTIONALLY LEFT BLANK]
TABLE OF CONTENTS
Part I
Page
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
Item 4.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . .
26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
Item 8.
Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . .
79
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79
Part III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . .
80
Item 14.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
Part IV
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81
Item 16.
Form 10-K Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83
1
PART I
Item 1.
Business
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 Annual Report 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.
These forward-looking statements include, among others, such things as:
•
•
•
•
•
•
•
•
the impact to our business of the COVID-19 pandemic;
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 of changes in crude oil, natural gas and other commodity prices;
the likely impact of new or existing regulations or market forces on the demand for our services;
our expectations with respect to the likelihood of a future impairment; 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 many
of which are beyond our control, including:
•
•
•
•
•
•
•
•
•
the risk factors discussed in Item 1A of this Annual Report and listed from time to time in our filings with
the Securities and Exchange Commission (‘‘SEC’’);
economic, market or business conditions in general (including the length and severity of the COVID-19
pandemic) and in the oil, natural gas, power, petrochemical, agricultural and mining 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 COVID-19 concerns,
permitting issues or other factors;
reduced creditworthiness of our customer base and the higher risk of non-payment of receivables due to
volatility of crude oil, natural gas, and other commodity prices which affect our customers’ businesses;
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.
Consequently, all of the forward-looking statements made in this Annual Report 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.
2
BACKGROUND
We began operations in 1984 as an Oklahoma corporation under the name of Matrix Service. In 1989, we
incorporated in the State of Delaware under the name of Matrix Service Company. We provide engineering,
fabrication,
infrastructure, construction, and maintenance services primarily to the oil, natural gas, power,
petrochemical, industrial, agricultural, mining and minerals markets. We also sell products for crude oil and refined
product aboveground storage tanks. We maintain regional offices throughout the United States, Canada and other
international locations, and operate through separate union and merit subsidiaries.
We are licensed to operate in all 50 states, in four Canadian provinces and in other international locations.
Our principal executive offices are located at 5100 E. Skelly Drive, Suite 500, Tulsa, Oklahoma 74135. Our telephone
number is (918) 838-8822. Unless the context otherwise requires, all references herein to ‘‘Matrix Service
Company’’, ‘‘Matrix’’, the ‘‘Company’’ or to ‘‘we’’, ‘‘our’’, and ‘‘us’’ are to Matrix Service Company and its
subsidiaries.
We believe we have an obligation to better the world in which we live and work – to do today’s work in a manner
that advances and protects tomorrow’s world for future generations. Across the ideals of environmental stewardship,
social responsibility, governance, diversity, inclusiveness and equity, we are committed to ensuring our business
strategies, policies, and practices align with sustainability goals where we can have the greatest impact globally and
in our own local communities. We are committed to fulfilling our purpose today by safely engineering, constructing,
and maintaining essential infrastructure that provides a better, brighter future for tomorrow.
WEBSITE ACCESS TO REPORTS
Our public website is matrixservicecompany.com. We make available free of charge through the ‘‘Investor Relations’’
section of our website our annual reports to stockholders, annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. Any materials we file with or furnish to the SEC are also maintained
on the SEC website (sec.gov).
The information contained on our website, or available by hyperlink from our website, is not incorporated into this
Annual Report or other documents we file with, or furnish to, the SEC. We intend to use our website as a means of
disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.
Such disclosures will be included in the ‘‘Investor Relations’’ section of our website. Investors should monitor that
section of our website for press releases, investor presentations, SEC filings and public conference calls and
webcasts.
While not our primary means of communication, investors can also learn more about us by visiting our social media
channels. We encourage investors, the media, and others interested in us to review the information posted on our
Facebook site (facebook.com/matrixservicecompany), our LinkedIn account (linkedin.com/company/matrix-service-
company) and our Twitter account (twitter.com/matrixserviceco). Investors, the media or other interested parties can
subscribe to the Twitter feed at the address listed above.
OPERATING SEGMENTS
Due to changing markets facing our clients and to better align our financial reporting with our long-term strategic
growth areas, we began reporting our financial results under new reportable segments effective July 1, 2020. The new
reportable segments along with a description of each are as follows:
•
•
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 construction and maintenance services to a variety of power generation facilities, including natural
gas fired facilities in simple or combined cycle configuration and provide engineering, fabrication, and
construction services for LNG utility peak shaving facilities.
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,
3
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 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 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.
OTHER BUSINESS MATTERS
Customers and Marketing
We provided services to approximately 470 customers in fiscal 2021. Most of our revenue comes from long-term
customer relationships. One customer individually accounted for $86.7 million or 12.9% of our consolidated revenue
in fiscal 2021, all of which was included in the Utility and Power Infrastructure segment. No other customers
individually accounted for more than 10% of our consolidated revenue in fiscal 2021. See Part II, Item 8. Financial
Statement and Supplementary Data, Note 13 - Segment Information, for more information about concentration of
revenue by segment.
We market our services and products primarily through our marketing and business development personnel, senior
professional staff and our operating management. We competitively bid most of our projects; however, we have a
number of preferred provider relationships with customers who award us work through long-term agreements.
Our projects have durations ranging from a few days to multiple years.
Competition
We compete with local, regional, national and international contractors and service providers. Competitors vary with
the markets we serve with few competitors competing in all of the markets we serve or in all of the services we
provide. Contracts are generally awarded based on price, quality, safety performance, schedule, experience and
customer satisfaction.
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 as high. For all other arrangements, we calculate backlog as the estimated contract amount
less revenue recognized as of the reporting date.
4
The following table provides a summary of changes in our backlog in fiscal 2021:
Utility and
Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
Total
(In thousands)
Backlog as of June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Project awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 272,816
107,279
—
(210,052)
188,969
$ 145,725 $ 339,924 $ 758,465
451,713
155,465
(74,219)
— (74,219)
(673,398)
(263,429)
(199,917)
Backlog as of June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book-to-bill ratio(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 170,043
$ 134,777 $ 157,741 $ 462,561
0.5
0.9
0.6
0.7
(1)
The other adjustment in the Storage and Terminal Solutions segment was due to a customer’s decision not to renew our existing LNTP for
a storage tank capital project. We were paid for all work performed on the project. This project is still active and we will be required to
update pricing when the customer makes its final investment decision, which we expect will occur in fiscal 2022.
(2)
Calculated by dividing project awards by revenue recognized.
Due to the impact of the COVID-19 pandemic and the resulting disruption to energy and industrial markets, some
of our customers continue to be conservative with their spending levels.
In the Utility and Power Infrastructure segment, performance in the power delivery business continues to be strong
on lower revenue. Bidding activity is strong and we expect project awards to increase. Similarly, our opportunity
pipeline for LNG peak shaving projects is building, however those awards, while significant, can be less frequent.
During the third quarter of fiscal 2021, we received a key contract for an upgrade of an LNG peak shaving facility.
We are optimistic that electrical infrastructure and LNG peak shaving will be critical to the spending priorities of the
Biden Administration and lead to increased opportunities in this segment.
In the Process and Industrial Facilities segment, the short-term impact of the global pandemic on our refinery
maintenance operations has moderated. We saw an increase in demand for refinery and maintenance work on existing
long-term maintenance contracts with certain customers. However, other customers continue to delay or reduce
discretionary maintenance and capital spending. In addition, we continue to see strong demand for thermal vacuum
chambers, as well as increasing opportunities in mining and minerals and chemicals. The larger midstream natural
gas projects continue to be limited, but we are seeing some activity in smaller capital work. We are also seeing
increasing opportunities in projects that support the ongoing transition to greener energy.
In the Storage and Terminal Solutions segment, opportunities for crude oil tanks and terminals continue to be limited
as our customers rationalize the near-term demand for crude oil storage and terminalling, which has been significantly
disrupted by the pandemic. We believe crude oil will continue to play an important role in the global economy for
some time and we expect crude oil storage and terminal opportunities to return as the world recovers from the
pandemic, however, based on the transition to greener energy, the longer-term demand for crude oil storage is less
certain. This segment also includes a strong funnel of opportunities for storage infrastructure projects related to
natural gas, LNG, ammonia, NGLs, and chemical feed stocks. We are also seeing an increase in inquiries related to
renewable energy, especially for hydrogen storage and related facilities.
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. We expect to recognize approximately 85% of our total backlog
reported as of June 30, 2021 as revenue within fiscal 2022.
Seasonality and Other Factors
Our operating results can exhibit seasonal fluctuations, especially in our Process and Industrial Facilities segment,
for a variety of reasons. Turnarounds and planned outages at customer facilities are typically scheduled in the spring
and the fall when the demand for energy is lower. Within the Utility and Power Infrastructure segment, transmission
and distribution work is generally scheduled by the public utilities when the demand for electricity is at its lowest.
Therefore, revenue volume in the summer months is typically lower than in other periods throughout the year.
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During fiscal 2021, our operations were significantly impacted by the COVID-19 pandemic, which led to the closure
of certain offices, shutdowns of certain job sites and the loss of productivity, among other issues. Our business can
also be affected, both positively and negatively, by seasonal factors such as energy demand or weather conditions
including hurricanes, snowstorms, and abnormally low or high temperatures. Some of these seasonal factors may
cause some of our offices and projects to close or reduce activities temporarily. In addition to the above noted factors,
the general timing of project starts and completions could exhibit significant fluctuations.
Other factors impacting operating results in all segments come from decreased work volume during holidays, work
site permitting delays or customers accelerating or postponing work. The differing types, sizes, and durations of our
contracts, combined with their geographic diversity and stages of completion, often results in fluctuations in our
operating results.
Our overhead cost structure is generally fixed. Significant fluctuations in revenue volume usually leads to over or
under recovery of fixed overhead costs, which can have a material impact on our gross margin and profitability.
Material Sources and Availability
The ongoing COVID-19 pandemic has resulted in disruptions to global supply chains, which have led to higher prices
for some of the materials we need to run our business, including, but not limited to, structural steel, steel piping, rebar,
valves, copper, and delivery freight. We have been proactive with managing our procurement processes to help reduce
the impacts of rising materials prices on our business and to help ensure we continue to have the materials we need
available. However, rising prices and the potential for materials shortages have created additional risk into bidding
and executing work profitably.
The timing of normalization of the global supply chains is uncertain and will depend on several factors, including
the speed of recovery from the pandemic, producer capacity, the level of imports, worldwide demand, tariffs on
imported goods and other market conditions.
Insurance
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.
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. 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 customers 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. 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.
Human Capital Management
Employees
Successful execution of our business strategy is dependent on attracting, developing, and retaining key employees
who represent our core values and the communities we serve. Our people are our greatest resource, which makes our
certification in fiscal 2021 as a Great Place To Work® — for the fifth consecutive year — both a point of pride and
an invaluable tool for continuous improvement supporting our objective of always being an employer of choice.
Our office-based employee retention rate has consistently been above 90% for the past 5 years.
Given the nature of our work, the size of our employee population can vary significantly throughout the year because
of the number, type and size of projects we have in progress at any particular time. As of June 30, 2021, we had
2,717 employees worldwide. Of those employees, 689 were employed in office-based positions and 2,028 were
employed in field or craft positions. The breakdown by country was: 2,413 located in the United States, 265 in
Canada, and 39 across other international locations. At the end of fiscal 2021, 48% of our overall workforce and
28% of our management team was represented by women and minorities, and 33% of the independent directors
serving on our Board of Directors are female.
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The percentage of our employees represented by unions as of June 30, 2021 was approximately 22%. Operating under
collective bargaining agreements with various unions, our union employees are provided with benefits including
health and welfare, pension, training programs and competitive compensation plans. We have not experienced any
strikes or work stoppages in recent years and are proud that our relationships with our employees and labor unions
are strong.
Business Ethics and Core Values
Our employees are entrusted with engineering, constructing, and maintaining the complex, critical infrastructure that
supports modern daily living and quality of life. Ethics and integrity are foundational in our ability to be successful
and are engrained in our culture and core values. Across all areas of our business, we maintain focus on compliance
and doing the right thing, and integrity is essential to every aspect of our business, in both policy and practice.
Accordingly, we are committed to ensuring compliance with all applicable laws and regulations, and to maintaining
the highest standards of ethical conduct in accordance with our code of conduct.
Health and Safety
Ensuring the safety of our employees and those around us is integral to who we are, and paramount to our success
and sustainability. The journey to achieving and maintaining a zero-incident safety performance requires robust
training along with comprehensive policies, processes, and systems to plan, perform, report, measure, review, and
improve our performance. We have incorporated safety as a key performance metric in our incentive compensation
plan by measuring our annual Total Recordable Incident Rate (‘‘TRIR’’), which is calculated by multiplying the
number of recordable incidents by 200,000 and dividing that number by the total hours worked each year. This metric
is also used by others in our industry, which allows for a more objective comparison of our performance. In fiscal
2021, our TRIR was 0.28, which represents a record for us and world-class safety performance.
Our commitment to health and safety during the pandemic reached far beyond our employees and included their
families, our clients, and our communities. Relying on our Business Continuity Plan, we took swift, immediate action
across our network of offices and on our project sites to help protect our people and those with whom we work.
We provided our clients with our COVID-19 Mitigation Plan and Infectious Disease Response Program, both of
which also address supplier requirements, and we worked proactively with our clients to ensure proper protocols were
in place and followed.
Diversity, Equity, and Inclusion (DEI)
Foundational to attracting, developing, and retaining a diverse, engaged workforce is our commitment to making sure
our employees feel safe, know they are valued and that their work matters, and that they are provided opportunities
to achieve their maximum potential. We believe when we value each other’s differences and encourage everyone’s
voice to be heard, we can break down the barriers that stifle ideas and opportunities.
In fiscal 2021, we established our employee diversity baseline to identify areas for improvement and help shape our
recruiting efforts, succession planning, and professional development. We sponsored Days of Understanding and
other events covering topics such as implicit and unconscious bias, racism and the Tulsa Race Massacre,
uncomfortable conversations, LGBTQ+ history and inclusion, and more. In late fiscal 2021, we also established the
framework to support Employee Resource Groups (‘‘ERGs’’) and, with input from our employees enterprise-wide,
identified our first ERGs, which will focus on the following communities: Asian, Black, Hispanic/Latino, LGBTQ+,
Women, and Veterans. Our ERGs will be designed to foster a diverse and inclusive workplace through employee-led,
organic efforts.
Total Rewards Package
As part of our compensation philosophy and to attract and retain superior talent, we offer and maintain
market-competitive, total rewards programs for our employees. In addition to base salaries, additional programs
include incentive and project bonus opportunities, comprehensive healthcare coverage and insurance benefits,
Company matched retirement plans, health savings and flexible spending accounts, an Employee Stock Purchase
Plan, paid holidays and other paid time off, family leave, and flexible work schedules where possible. Other offerings
include employee assistance programs with 365/24/7 access to resources and help, and Matrix HealthMatters, our
robust wellness program that provides resources and education to help employees and their families get and stay
healthy, focusing wholistically on physical, mental and financial health.
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Training and Employee Development Programs
Investment in continuous learning is essential to providing industry-leading expertise and service to our clients,
continuous improvement across our organization, and meaningful career development opportunities for our people.
From in-person to online courses, formalized and other specialized training, our employees benefit from opportunities
to strengthen their leadership and management competencies, improve communication and interpersonal skills, and
advance their technical proficiency. Through Matrix University, our people have access to resources that include a
robust Learning Management System (LMS) that provides enterprise-wide access for employees to a number of
online learning modules and support tools.
Our employees also benefit from the Matrix Performance Development Program, designed for collaborative
development of annual performance goals and to promote continuous, transparent feedback between employees and
their supervisors.
Employee Engagement
We also empower our employees to donate time, talent, and resources through Company-led initiatives, employee
matching, and paid volunteer time off. Each year, our employees collectively log thousands of hours participating in
individual community service projects in addition to hours they invest serving on boards and participating in
Company-sponsored charitable events. We also provide direct corporate financial support to nonprofit organizations
in the communities where we live and work.
Patents and Proprietary Technology
Our subsidiaries have several patents and patents pending, and continue to pursue new ideas and innovations to better
serve our customers in several areas of our business. The Flex-A-Span® and Flex-A-Seal® trademarks are utilized
to market our unique seals for floating roof tanks. The FastFroth® trademark is utilized to market our unique
industrial cleaning process. Our patented RS 1000 Tank Mixer controls sludge build-up in crude oil tanks through
resuspension. The Flexible Fluid Containment System patent covers a system that captures and contains flue leaking
from pipe and valve connections. The Flex-A-Swivel® patent refers to our unique pipe swivel joint assembly.
Our patent for Spacerless or Geocomposite Double Bottom for Storage Tanks relates to a replacement bottom with
leak detection and containment that allows for the retrofitting of an existing tank while minimizing the loss of
capacity. The patent for the Training Tank for Personnel Entry, Exit and Rescue relates to a training device that can
be used to train personnel on equipment that is made to simulate confined space scenarios.
We also hold a perpetual license to use various patents and technologies related to LNG storage tanks, liquid
nitrogen/liquid oxygen storage tanks, liquid petroleum gas storage tanks and thermal vacuum chambers.
While our intellectual property is not our main business, we believe that the ability to use these patents and
technology enables us to expand our presence in the markets we serve and minimizes the development costs typically
associated with organic growth.
Regulation
Health and Safety Regulations
Our operations are subject to regulation by the U.S. Occupational Safety and Health Administration (‘‘OSHA’’) and
Mine Safety and Health Administration (‘‘MSHA’’), the U.S. Department of Transportation, and to regulation under
state laws and by the Canadian Workers’ Compensation Board and its Workplace Health, Safety and Compensation
Commission. Regulations promulgated by these agencies require employers and independent contractors to
implement work practices, medical surveillance systems and personnel protection programs to protect employees
from workplace hazards and exposure to hazardous chemicals and materials. In recognition of the potential for
accidents within various scopes of work, these agencies have enacted strict and comprehensive safety regulations.
We have established and consistently reinforce and monitor compliance with comprehensive programs intended to
ensure that we comply with all applicable health and safety regulations to protect the safety of our workers,
subcontractors and customers. While we believe that we operate safely and prudently, there can be no assurance that
accidents will not occur or that we will not incur substantial liability in connection with the operation of our
businesses. In order to minimize the financial exposure resulting from potential accidents associated with our work,
we maintain liability insurance to limit losses that could result from our work.
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Environmental
We believe we have an obligation to better the world in which we live and work – to do today’s work in a manner
that advances and protects tomorrow’s world for future generations. Across our organization, from our project sites
to our offices, we are committed to environmental stewardship and to continuously seeking better, more sustainable
ways to perform our work in existing and new markets, including renewables.
Our operations and the operations of our customers are subject to extensive and changing environmental laws and
regulations. These laws and regulations relate primarily to air and water pollutants and the management and disposal
of hazardous materials. We are exposed to potential liability for personal injury or property damage caused by any
release, spill, exposure or other accident involving such pollutants, substances or hazardous materials.
In order to limit costs incurred as a result of environmental exposure, we maintain contractor’s pollution liability
insurance that covers liability that may be incurred as a result of accidental releases of hazardous materials.
We believe that we are currently in compliance, in all material aspects, with all applicable environmental laws and
regulations. We do not expect any material charges in subsequent periods relating to environmental conditions that
currently exist and do not currently foresee any significant future capital spending relating to environmental matters.
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Item 1A. Risk Factors
The following risk factors should be considered with the other information included in this Annual Report on
Form 10-K. As we operate in a continuously changing environment, other risk factors may emerge which could
have a material adverse effect on our results of operations, financial condition and cash flow.
Risk Factors Related to the COVID-19 Pandemic
The COVID-19 pandemic has adversely affected our business and operations.
The COVID-19 pandemic has adversely affected our business and operations and the business and operations of our
customers. We have experienced unpredictable reductions in demand for our services. In response to the
COVID-19 pandemic, companies within the oil and natural gas and other industries (including our customers) have
announced spending cuts and/or project delays which, in turn, have resulted in decreased awards of new contracts
or adjustments, reductions, suspensions or cancellations of existing contracts. Such continued delays have impacted
our business, results of operations and financial condition.
The ongoing pandemic has also resulted in disruptions to labor and global supply chains, which have led to labor shortages
and higher prices for some of the materials we need to run our business, including, but not limited to, structural steel, steel
piping, rebar, valves, copper, and delivery freight. We have been proactive with managing our workforce and procurement
processes to help reduce the impacts of labor shortages and rising materials prices on our business and to help ensure we
continue to have the labor and materials we need available. However, rising prices and the potential for labor and materials
shortages have created additional risk into bidding and executing work profitably.
Because the duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and
difficult to predict, the impact on our business, financial condition and results of operations remains uncertain. While
we expect the COVID-19 pandemic to have an adverse effect on our business, financial condition, liquidity, cash flow
and results of operations, we are unable to predict the extent, nature or duration of these impacts at this time.
Financial Risks
Our borrowing capacity under our Credit Agreement is determined by the size of our borrowing base and if the
size of our borrowing base does not provide adequate liquidity, then we may need to raise additional capital in the
future for working capital, capital expenditures and/or acquisitions, and we may not be able to do so on favorable
terms or at all, which would impair our ability to operate our business or achieve our strategic plan.
Cash and cash equivalents on hand at June 30, 2021 totaled $83.9 million. Management believes it has sufficient cash
on hand and will generate sufficient cash from operations to fund the business. However, should we require additional
liquidity, there is risk that we will be unable access the amount of additional liquidity needed from our Credit
Agreement if the level of assets included in the borrowing base is insufficient. The borrowing base includes restricted
cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced for certain
reserves.
To the extent that cash on hand, cash flow from operations, and borrowing availability under the Credit Agreement
are insufficient to make future investments, or provide needed working capital, we may require additional financing
from other sources. Our ability to obtain such additional financing in the future will depend in part upon prevailing
capital market conditions, as well as conditions in our business and our operating results; and those factors may affect
our efforts to arrange additional financing on terms that are satisfactory to us. If adequate funds are not available, or
are not available on acceptable terms, we may not be able to make future investments or respond to competitive
challenges.
Our Credit Agreement imposes restrictions that may limit business alternatives.
Our Credit Agreement prohibits or limits us from making acquisitions, repurchasing equity, incurring additional debt,
acquiring or disposing of assets, or making other distributions, including cash dividends. In addition, our Credit
Agreement requires that we comply with a Fixed Charge Coverage Ratio financial covenant under certain conditions.
These covenants and restrictions may impact our ability to effectively execute operating and strategic plans and our
operating performance may not be sufficient to comply with the required covenants.
Our failure to comply with one or more of the covenants in our Credit Agreement could result in an event of default.
We can provide no assurance that a default could be remedied, or that our creditors would grant a waiver or further
amend the terms of the Credit Agreement.
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Risk Factors Related to Our Business and Operations
Unsatisfactory safety performance may subject us to penalties, affect customer relationships, result in higher
operating costs, negatively impact employee morale and result in higher employee turnover.
Our projects are conducted at a variety of sites including construction sites and industrial facilities. With each
location, hazards are part of the day-to-day exposures that we must manage on a continuous basis to ensure our
employees return home from work the same way they arrived. We understand that everyone plays a role with safety
and everyone can make a difference with their active participation. With our proactive approach, our strategy is to
identify the exposures and correct them before they result in an incident whether that involves an injury, damage or
destruction of property, plant and equipment or an environmental impact. We are intensely focused on maintaining
a strong safety culture and strive for zero incidents.
Although we have taken what we believe are appropriate precautions to adequately train and equip our employees,
we have experienced serious accidents, including fatalities, in the past and may experience additional accidents in the
future. Serious accidents may subject us to penalties, civil litigation or criminal prosecution. Claims for damages to
persons, including claims for bodily injury or loss of life, could result in costs and liabilities, which could materially
and adversely affect our financial condition, results of operations or cash flows. Poor safety performance could also
jeopardize our relationships with our customers and increase our insurance premiums.
Our profitability could be negatively impacted if we are not able to maintain appropriate utilization of our
workforce.
The extent to which we utilize our workforce affects our profitability. If we under utilize our workforce, our project
gross margins and overall profitability suffer in the short-term. If we over utilize our workforce, we may negatively
impact safety, employee satisfaction and project execution. The utilization of our workforce is impacted by numerous
factors including:
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our estimate of the headcount requirements for various operating units based upon our forecast of the
demand for our products and services;
our ability to maintain our talent base and manage attrition;
productivity;
our ability to schedule our portfolio of projects to efficiently utilize our employees and minimize downtime
between project assignments; and
our need to invest time and resources into functions such as training, business development, employee
recruiting, and sales that are not chargeable to customer projects.
An inability to attract and retain qualified personnel, and in particular, engineers, project managers, and skilled
craft workers, could impact our ability to perform on our contracts, which could harm our business and impair
our future revenue and profitability.
We initiated workforce reductions during the COVID-19 pandemic as demand for our services declined. Once the
demand for our services increases, our ability to attract and retain qualified engineers, project managers, skilled
craftsmen and other experienced professionals in accordance with our need will be an important factor in our ability
to maintain profitability and grow our business. The market for these professionals is competitive, particularly during
periods of economic growth when the supply is limited. We cannot provide any assurance that we will be successful
in our efforts to retain or attract qualified personnel when needed. Therefore, when we anticipate or experience
growing demand for our services, we may incur additional cost to maintain a professional staff in excess of our
current contract needs in an effort to have sufficient qualified personnel available to address this anticipated demand.
If we do incur additional compensation and benefit costs, our customer contracts may not allow us to pass through
these costs.
Competent and experienced engineers, project estimators, project managers, and craft workers are especially critical
to the profitable performance of our contracts, particularly on our fixed-price contracts where superior design and
execution of the project can result in profits greater than originally estimated or where inferior design and project
execution can reduce or eliminate estimated profits or even result in a loss.
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Our project managers are involved in most aspects of contracting and contract execution, including:
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supervising the bidding process, including providing estimates of significant cost components, such as
material and equipment needs, and the size, productivity and composition of the workforce;
negotiating contracts;
supervising project performance, including performance by our employees, subcontractors and other
third-party suppliers and vendors;
estimating costs for completion of contracts that is used to estimate amounts that can be reported as revenue
and earnings on the contract under the percentage-of-completion method of accounting;
negotiating requests for change orders and the final terms of approved change orders; and
determining and documenting claims by us for increased costs incurred due to the failure of customers,
subcontractors and other third-party suppliers of equipment and materials to perform on a timely basis and
in accordance with contract terms.
Our results of operations depend upon the award of new contracts and the timing of those awards.
Our revenue is derived primarily from contracts awarded on a project-by-project basis. Generally, it is difficult to
predict whether and when we will be awarded a new contract due to lengthy and complex bidding and selection
processes, changes in existing or forecasted market conditions, customers’ access to financing, governmental
regulations, permitting and environmental matters. Because our revenue are derived from contract awards, our results
of operations and cash flows can fluctuate materially from period to period.
The uncertainty associated with the timing of contract awards may reduce our short-term profitability as we balance our
current capacity with expectations of future contract awards. If an expected contract award is delayed or not received, we
could incur costs to maintain an idle workforce that may have a material adverse effect on our results of operations.
Alternatively, we may decide that our long-term interests are best served by reducing our workforce and incurring increased
costs associated with severance and termination benefits, which also could have a material adverse effect on our results of
operations in the period incurred. Reducing our workforce could also impact our results of operations if we are unable to
adequately staff projects that are awarded subsequent to a workforce reduction.
Demand for our products and services is cyclical and is vulnerable to the level of capital and maintenance spending
of our customers and to downturns in the industries and markets we serve, as well as conditions in the general economy.
The demand for our products and services depends upon the existence of construction and maintenance projects
primarily in the midstream and downstream petroleum, power and other heavy industries in the United States and
Canada. Therefore, it is likely that our business will continue to be cyclical in nature and vulnerable to general
downturns in the United States, Canadian and world economies and negative changes in commodity prices, which
could adversely affect the demand for our products and services.
The availability of engineering and construction projects is dependent upon economic conditions in the oil, natural
gas, petrochemical, industrial, and power industries, and specifically, the level of capital expenditures on energy
infrastructure. A prolonged period of relatively low commodity prices in North America has had an adverse impact
on the level of capital expenditures of our customers and/or their ability to finance these expenditures. Our failure
to obtain projects, the delay of project awards, the cancellation of projects or delays in the execution of contracts has
resulted and may continue to result in under-utilization of our resources, which could adversely impact our revenue,
margins, operating results and cash flow. There are numerous factors beyond our control that influence the level of
maintenance and capital expenditures of our customers, including:
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current or projected commodity prices, including oil, natural gas, power and mineral prices;
the demand for alternative energy products;
refining margins;
the demand for oil, natural gas and electricity;
the ability of oil, natural gas, industrial and power companies to generate, access and deploy capital;
exploration, production and transportation costs;
interest rates;
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the discovery rate, size and location of new oil and natural gas reserves;
technological challenges and advances;
ability to export hydrocarbon products;
tax incentives, including those for alternative energy projects;
regulatory restraints on the rates that power companies may charge their customers; and
local, national and international political and economic conditions.
The volume of storage related projects is influenced by the overall forward market for crude oil, and certain
market conditions may adversely affect financial and operating results.
Our results may be influenced by the overall forward market for crude oil. A ‘‘contango’’ market (meaning that the
price of crude oil for future delivery is higher than the current price) is associated with greater demand for crude oil
storage capacity, because a party can simultaneously purchase crude oil at current prices for storage and sell at higher
prices for future delivery. A ‘‘backwardated’’ market (meaning that the price of crude oil for future delivery is lower
than the current price) is associated with lower demand for crude oil storage capacity, because a party can capture
a premium for prompt delivery of crude oil rather than storing it for future sale. A prolonged backwardated market
or other adverse market conditions could have an adverse impact on demand for new storage related construction.
Finally, higher absolute levels of crude oil prices increase the costs of financing and insuring crude oil in storage,
which negatively affects storage economics. As a result, the overall forward market for crude oil may have an adverse
effect on our business, results of operations and financial condition.
The terms of our contracts could expose us to unforeseen costs and costs not within our control, which may not
be recoverable and could adversely affect our results of operations and financial condition.
A significant amount of our work is performed under fixed price contracts. Under fixed-price contracts, we agree to
perform the contract for a fixed price and, as a result, can improve our expected profit by superior execution,
productivity, workplace safety and other factors resulting in cost savings. However, we could incur cost overruns
above the approved contract price, which may not be recoverable. Under certain incentive fixed-price contracts, we
may agree to share with a customer a portion of any savings we generate while the customer agrees to bear a portion
of any increased costs we may incur up to a negotiated ceiling. To the extent costs exceed the negotiated ceiling price,
we may be required to absorb some or all of the cost overruns.
Fixed-price contract prices are established based largely upon estimates and assumptions relating to project scope and
specifications, personnel and productivity, material needs, and site conditions. These estimates and assumptions may
prove inaccurate, or conditions may change due to factors out of our control, resulting in cost overruns, which we
may be required to absorb and which could have a material adverse effect on our business, financial condition and
results of operations. In addition, our profits from these contracts could decrease or we could experience losses if we
incur difficulties in performing the contracts or are unable to secure fixed-pricing commitments from our
manufacturers, suppliers and subcontractors at the time we enter into fixed-price contracts with our customers.
Under cost-plus and time-and-material contracts, we perform our services in return for payment of our agreed upon
reimbursable costs plus a profit. The profit component is typically expressed in the contract either as a percentage
of the reimbursable costs we actually incur or is factored into the rates we charge for labor or for the cost of
equipment and materials, if any, we are required to provide. Our profit could be negatively impacted if our actual
costs exceed the estimated costs utilized to establish the billing rates included in the contracts.
We may incur significant costs in providing services in excess of original project scope without having an approved
change order.
After commencement of a contract, we may perform, without the benefit of an approved change order from the
customer, additional services requested by the customer that were not contemplated in our contract price for various
reasons, including customer changes or incomplete or inaccurate engineering, changes in project specifications and
other similar information provided to us by the customer. Our construction contracts generally require the customer
to compensate us for additional work or expenses incurred under these circumstances.
A failure to obtain adequate compensation for these matters could require us to record in the current period an
adjustment to revenue and profit recognized in prior periods under the percentage-of-completion accounting method.
Any such adjustments, if substantial, could have a material adverse effect on our results of operations and financial
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condition, particularly for the period in which such adjustments are made. We can provide no assurance that we will
be successful in obtaining, through negotiation, arbitration, litigation or otherwise, approved change orders in an
amount adequate to compensate us for our additional work or expenses.
Domestic and Foreign trade tariffs could raise the price and reduce the availability of raw materials to us, which
could negatively impact our operating results and financial condition.
Domestic and foreign trade tariffs could raise the price and reduce the availability of raw materials such as steel plate
and steel pipe, which are key materials used by us. Supplies of these materials are available throughout the United
States and globally from numerous sources. We anticipate that adequate amounts of these materials will be available
in the foreseeable future. However, if trade tariffs should significantly impact the price and availability of these
materials, we could experience lower gross margins, operational inefficiencies and project delays.
We are exposed to credit risk from customers. If we experience delays and/or defaults in customer payments, we
could suffer liquidity problems or we could be unable to recover amounts owed to us.
Under the terms of our contracts, at times we commit resources to customer projects prior to receiving payments from
customers in amounts sufficient to cover expenditures on these projects as they are incurred. Many of our fixed-price or
cost-plus contracts require us to satisfy specified progress milestones or performance standards in order to receive a
payment. Under these types of arrangements, we may incur significant costs for labor, equipment and supplies prior to
receipt of payment. If the customer fails or refuses to pay us for any reason, there is no assurance we will be able to collect
amounts due to us for costs previously incurred. In some cases, we may find it necessary to terminate subcontracts with
suppliers engaged by us to assist in performing a contract, and we may incur costs or penalties for canceling our
commitments to them. Delays in customer payments require an investment in working capital. If we are unable to collect
amounts owed to us under our contracts, we may be required to record a charge against previously recognized earnings
related to the project, and our liquidity, financial condition and results of operations could be adversely affected.
Our backlog is subject to unexpected fluctuations, adjustments and cancellations and does not include the full value
of our long-term maintenance contracts, and therefore, may not be a reliable indicator of our future earnings.
Backlog may not be a reliable indicator of our future performance. We cannot guarantee that the revenue projected
in our backlog will be realized or profitable. Projects may remain in our backlog for an extended period of time. In
addition, project cancellations or scope adjustments may occur from time to time with respect to contracts included
in our backlog that could reduce the dollar amount of our backlog and the revenue and profits that we actually earn.
Many of our contracts have termination rights. Therefore, project adjustments may occur from time to time to
contracts in our backlog.
The loss of one or more of our significant customers could adversely affect us.
One or more customers have in the past and may in the future contribute a material portion of our revenue in any
one year. Because these significant customers generally contract with us for specific projects or for specific periods
of time, we may lose these customers from year to year as the projects or maintenance contracts are completed. The
loss of business from any one of these customers could have a material adverse effect on our business or results of
operations.
Our business may be affected by difficult work sites and environments, which may adversely affect our overall business.
We perform our work under a variety of conditions, including, but not limited to, difficult terrain, difficult site
conditions and busy urban centers where delivery of materials and availability of labor may be impacted. Performing
work under these conditions can slow our progress, potentially causing us to incur contractual liability to our
customers. These difficult conditions may also cause us to incur additional, unanticipated costs that we might not be
able to pass on to our customers.
We are susceptible to severe weather conditions as a result of climate change or otherwise, which may harm our
business and financial results.
Our business may be adversely affected by severe weather in areas where we have significant operations.
Repercussions of severe weather conditions may include:
•
•
curtailment of services;
suspension of operations;
14
•
•
•
•
•
•
inability to meet performance schedules in accordance with contracts and potential liability for liquidated
damages;
injuries or fatalities;
weather related damage to our facilities or work-in-progress on project sites;
disruption of information systems;
inability to receive machinery, equipment and materials at job sites; and
loss of productivity.
The frequency and severity of severe weather conditions may be enhanced by present and future changes to our
climate.
We contribute to multiemployer plans that could result in liabilities to us if those plans are terminated or if we
withdraw from those plans.
We contribute to several multiemployer pension plans for employees covered by collective bargaining agreements.
These plans are not administered by us and contributions are determined in accordance with provisions of negotiated
labor contracts. The Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension
Plan Amendments Act of 1980, imposes certain liabilities upon employers who are contributors to a multiemployer
plan in the event of the employer’s withdrawal from, or upon termination of, such plan. In fiscal 2021, we incurred
withdrawal liability to one multiemployer plan due to our strategic initiative to exit the domestic iron and steel
industry. If we terminate, withdraw, or partially withdraw from other multiemployer pension plans, we could be
required to make significant cash contributions to fund that plan’s unfunded vested benefit, which could materially
and adversely affect our financial condition and results of operations; however, we are not currently able to determine
the net assets and actuarial present value of the multiemployer pension plans’ unfunded vested benefits allocable to
us, if any, and we are not presently aware of the amounts, if any, for which we may be contingently liable if we were
to withdraw from any of these plans. In addition, if the funding level of any of these multiemployer plans becomes
classified as ‘‘critical status’’ under the Pension Protection Act of 2006, we could be required to make significant
additional contributions to those plans.
A failure or outage in our operational systems or cyber security attacks on any of our systems, or those of third
parties, may adversely affect our financial results.
We have become more reliant on technology to help increase efficiency in our business. We use numerous
technologies to help run our operations, and this may subject our business to increased risks. Any cyber security
attack that affects our facilities, our systems, our customers and any of our financial data could have a material
adverse effect on our business. In addition, a cyber-attack on our customer and employee data may result in a
financial loss, including potential fines for failure to safeguard data, and may damage our reputation. Third-party
systems on which we rely could also suffer system failure. Any of these occurrences could disrupt our business, result
in potential liability or reputational damage or otherwise have an adverse effect on our financial results.
We have experienced cybersecurity threats to our information technology infrastructure and have experienced
cyber-attacks, attempts to breach our systems and other similar incidents. Such prior events have not had a material
impact on our financial condition, results of operations or liquidity. However, future threats could cause harm to our
business and our reputation, as well as negatively impact our results of operations materially. Our insurance coverage
may not be adequate to cover all the costs related to cyber-attacks or disruptions resulting from such events.
Any security breach resulting in the unauthorized use or disclosure of certain personal information could put
individuals at risk of identity theft and financial or other harm and result in costs to us in investigation, remediation,
legal defense and in liability to parties who are financially harmed. We may incur significant costs to protect against
the threat of information security breaches or to respond to or alleviate problems caused by such breaches.
For example, laws may require notification to regulators, clients or employees and enlisting credit monitoring or
identity theft protection in the event of a privacy breach. A cybersecurity attack could also be directed at our systems
and result in interruptions in our operations or delivery of services to our clients and their customers. Furthermore,
a material security breach could cause us to lose revenue, lose clients or cause damage to our reputation.
To reduce organizational risk from cybersecurity threats, we carry cyber liability insurance and have undertaken
several initiatives in recent years. We strengthened our identity and access management capabilities by requiring
15
multi-factor authentication, increased the threat detection efficiencies within our security information and event
management capacity, and completed projects designed to reduce our organization’s external attack surface. In
addition, in the area of security awareness and training, we have updated our foundational curriculum, established
mandatory recurring training requirements, and commenced periodic phishing campaign assessments.
We rely on internally and externally developed software applications and systems to support critical functions
including project management, estimating, scheduling, human resources, accounting, and financial reporting.
Any sudden loss, disruption or unexpected costs to maintain these systems could significantly increase our
operational expense as well as disrupt the management of our business operations.
We rely on various software systems to conduct our critical operating and administrative functions. We depend on
our software vendors to provide long-term software maintenance support for our information systems. Software
vendors may decide to discontinue further development, integration or long-term software maintenance support for
our information systems, in which case we may need to abandon one or more of our current information systems and
migrate some or all of our project management, human resources, estimating, scheduling, accounting and financial
information to other systems, thus increasing our operational expense as well as disrupting the management of our
business operations.
Accounting Risks
Our use of percentage-of-completion accounting for fixed-price contracts and our reporting of profits for cost-plus
contracts prior to contract completion could result in a reduction or elimination of previously reported profits.
Our revenue are recognized using the percentage-of-completion method of accounting. Under percentage-of-
completion accounting, contract revenue and earnings are recognized ratably over the contract term based on the
proportion of actual costs incurred to total estimated costs. In addition, some contracts contain penalty provisions for
failure to achieve certain milestones, schedules or performance standards. We review our estimates of contract
revenue, costs and profitability on a monthly basis. As a result, we may adjust our estimates on one or more occasions
as a result of changes in cost estimates, change orders to the original contract, or claims against the customer for
increased costs incurred by us due to customer-induced delays and other factors.
If estimates of costs to complete fixed price contracts indicate a loss, a provision is made through a contract
write-down for the total loss anticipated in the period the loss is determined. Contract profit estimates are also
adjusted, on a percentage of completion basis, in the fiscal period in which it is determined that an adjustment is
required. No restatements are made to prior periods. Further, many of our contracts contain various cost and
performance incentives and penalties that impact the earnings we realize from our contracts, and adjustments related
to these incentives and penalties are recorded on a percentage of completion basis in the period when estimable and
probable.
As a result of the requirements of the percentage-of-completion method of accounting, the possibility exists that we
could have estimated and reported a profit on a contract over several prior periods and later determine, as a result
of additional information, that all or a portion of such previously estimated and reported profits were overstated. If
this occurs, the full aggregate amount of the overstatement will be reported for the period in which such change in
estimate occurs.
Actual results could differ from the estimates and assumptions that we use to prepare our financial statements.
To prepare financial statements in conformity with generally accepted accounting principles, management is required
to make estimates and assumptions, as of the date of the financial statements, which affect the reported values of
assets, liabilities, revenue and expenses and disclosures of contingent assets and liabilities. Areas requiring significant
estimation by our management include:
•
•
•
•
•
contract costs and application of percentage-of-completion accounting;
provisions for uncollectible receivables from customers for invoiced amounts;
the amount and collectibility of unpriced change orders and claims against customers;
provisions for income taxes and related valuation allowances;
recoverability of goodwill and intangible assets;
16
•
•
valuation of assets acquired and liabilities assumed in connection with business combinations; and
accruals for estimated liabilities, including litigation and insurance reserves.
Our actual results could materially differ from these estimates.
Earnings for future periods may be affected by impairment charges.
Because we have grown in part through acquisitions, goodwill and other acquired intangible assets represent a
substantial portion of our assets. We perform annual goodwill impairment reviews in the fourth quarter of every fiscal
year. In addition, we perform an impairment review whenever events or changes in circumstances indicate the
carrying value of goodwill or an intangible or fixed asset may not be recoverable. As of June 30, 2021, we had
$6.6 million of amortizing intangible assets and $60.6 million of non-amortizing goodwill representing 1.4% and
13.0% of our total assets, respectively.
Legal, Insurance, Regulatory and Compliance Risks
We are involved, and are likely to continue to be involved in legal proceedings, which will increase our costs and,
if adversely determined, could have a material effect on our financial condition, results of operations, cash flows
and liquidity.
We are currently a defendant in legal proceedings arising from the operation of our business, and it is reasonable to
expect that we would be named in future actions. Many of the actions against us arise out of the normal course of
performing services on project sites, and include workers’ compensation claims, personal injury claims and contract
disputes with our customers. From time to time, we are also named as a defendant for actions involving the violation
of federal and state labor laws related to employment practices, wages and benefits. We may also be a plaintiff in legal
proceedings against customers seeking to recover payment of contractual amounts due to us as well as claims for
increased costs incurred by us resulting from, among other things, services performed by us at the request of a
customer that are in excess of original project scope that are later disputed by the customer and customer-caused
delays in our contract performance.
We maintain insurance against operating hazards in amounts that we believe are customary in our industry. However,
our insurance policies include deductibles and certain coverage exclusions, so we cannot provide assurance that we
are adequately insured against all of the risks associated with the conduct of our business. A successful claim brought
against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our financial
condition, results of operations, cash flows and liquidity.
Litigation, regardless of its outcome, is expensive, typically diverts the efforts of our management away from
operations for varying periods of time, and can disrupt or otherwise adversely impact our relationships with current
or potential customers, subcontractors and suppliers. Payment and claim disputes with customers may also cause us
to incur increased interest costs resulting from incurring indebtedness under our revolving line of credit or receiving
less interest income resulting from fewer funds invested due to the failure to receive payment for disputed claims and
accounts.
Our projects expose us to potential professional liability, product liability, pollution liability, warranty and other
claims, which could be expensive, damage our reputation and harm our business. We may not be able to obtain
or maintain adequate insurance to cover these claims.
We perform construction and maintenance services at large industrial facilities where accidents or system failures can
be disastrous and costly. Any catastrophic occurrence in excess of our insurance limits at locations engineered or
constructed by us or where our products are installed or services performed could result in significant professional
liability, product liability, warranty and other claims against us by our customers, including claims for cost overruns
and the failure of the project to meet contractually specified milestones or performance standards. Further, the
rendering of our services on these projects could expose us to risks and claims by third parties and governmental
agencies for personal injuries, property damage and environmental matters, among others. Any claim, regardless of
its merit or eventual outcome, could result in substantial costs, divert management’s attention and create negative
publicity, particularly for claims relating to environmental matters where the amount of the claim could be extremely
large. We may not be able to or may choose not to obtain or maintain insurance coverage for the types of claims
described above. If we are unable to obtain insurance at an acceptable cost or otherwise protect against the claims
described above, we will be exposed to significant liabilities, which may materially and adversely affect our financial
condition and results of operations.
17
Employee, subcontractor or partner misconduct or our overall failure to comply with laws or regulations could
harm our reputation, damage our relationships with customers, reduce our revenue and profits, and subject us to
criminal and civil enforcement actions.
Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of our
employees, subcontractors or partners could have a significant negative impact on our business and reputation. Such
misconduct could include the failure to comply with safety standards, laws and regulations, customer requirements,
regulations pertaining to the internal controls over financial reporting, environmental laws and any other applicable
laws or regulations. The precautions we take to prevent and detect these activities may not be effective, since our
internal controls are subject to inherent limitations, including human error, the possibility that controls could be
circumvented or become inadequate because of changed conditions, and fraud.
Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and
penalties, harm our reputation, damage our relationships with customers, reduce our revenue and profits and subject
us to criminal and civil enforcement actions.
Environmental factors and changes in laws and regulations could increase our costs and liabilities.
Our operations are subject to environmental laws and regulations, including those concerning emissions into the air;
discharges into waterways; generation, storage, handling, treatment and disposal of hazardous material and wastes;
and health and safety.
laws and
Our projects often involve highly regulated materials,
regulations generally impose limitations and standards for regulated materials and require us to obtain permits and
comply with various other requirements. The improper characterization, handling, or disposal of regulated materials
or any other failure by us to comply with federal, state and local environmental laws and regulations or associated
environmental permits could subject us to the assessment of administrative, civil and criminal penalties, the
imposition of investigatory or remedial obligations, or the issuance of injunctions that could restrict or prevent our
ability to operate our business and complete contracted projects.
including hazardous wastes. Environmental
In addition, under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (‘‘CERCLA’’), and comparable state and foreign laws, we may be required to investigate and remediate
regulated materials. CERCLA and the comparable state laws typically impose liability without regard to whether a
company knew of or caused the release, and liability for the entire cost of clean-up can be imposed upon any
responsible party.
We are subject to numerous other laws and regulations including those related to business registrations and licenses,
environment, workplace, employment, health and safety. These laws and regulations are complex, change frequently
and could become more stringent in the future. It is impossible to predict the effect on us of any future changes to
these laws and regulations. We can provide no absolute assurance that our operations will continue to comply with
future laws and regulations or that the costs to comply with these laws and regulations and/or a failure to comply with
these laws will not significantly adversely affect our business, financial condition and results of operations.
Climate change legislation or regulations restricting emissions of ‘‘greenhouse gases’’ could result in reduced
demand for our services and products.
There has been an increased focus in the last several years on climate change in response to findings that emissions
of carbon dioxide, methane and other greenhouse gases present an endangerment
to public health and the
environment. As a result, there have been a variety of regulatory developments, proposals or requirements and
legislative initiatives as well as pressure from institutional investors to restrict the emission of greenhouse gases. The
growing imperative on customers for whom we provide services to limit greenhouse gas emissions could affect
demand for our products and services. Further, scientists have concluded that
increasing greenhouse gas
concentrations in the atmosphere may produce physical effects, such as increased severity and frequency of storms,
droughts, floods and other climate events. Such climate events have the potential to adversely affect our operations
or those of our customers, which in turn could have a negative effect on us.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide
anti-bribery laws.
The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions generally prohibit
companies and their intermediaries from making improper payments to officials or others for the purpose of obtaining
or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in parts of the world
18
that have experienced corruption to some degree and, in certain circumstances, strict compliance with anti-bribery
laws may conflict with local customs and practices. We train our personnel concerning anti-bribery laws and issues,
and we also inform our customers, vendors, and others who work for us or on our behalf that they must comply with
anti-bribery law requirements. We also have procedures and controls in place to monitor compliance. We cannot
assure that our internal controls and procedures always will protect us from the possible reckless or criminal acts
committed by our employees or agents. If we are found to be liable for anti-bribery law violations (either due to our
own acts or our inadvertence, or due to the acts or inadvertence of others including our partners, agents,
subcontractors or suppliers), we could suffer from criminal or civil penalties or other sanctions, including contract
cancellations or debarment, and loss of reputation, any of which could have a material adverse effect on our business.
Litigation or investigations relating to alleged or suspected violations of anti-bribery laws, even if ultimately such
litigation or investigations demonstrate that we did not violate anti-bribery laws, could be costly and could divert
management’s attention away from other aspects of our business.
Economic, political and other risks associated with international operations could adversely affect our business.
A portion of our operations are conducted outside the United States, and accordingly, our business is subject to risks
associated with doing business internationally, including changes in foreign currency exchange rates, instability in
political or economic conditions, difficulty in repatriating cash proceeds, differing employee relations, differing
regulatory environments, trade protection measures, and difficulty in administering and enforcing corporate policies
which may be different than the normal business practices of local cultures.
General Risk Factors
Acquisitions may result in significant transaction expenses, and unidentified liabilities and risks associated with
entering new markets. We may also be unable to profitably integrate and operate these businesses.
Any future acquisitions may result in significant transaction expenses, unexpected liabilities and other risks in
addition to the integration and consolidation risks. If we make any future acquisitions, we will likely assume
liabilities of the acquired business or have exposure to contingent liabilities that may not be adequately covered by
insurance or indemnification, if any, from the former owners of the acquired business. These potential liabilities could
have a material adverse effect on our business.
We may also not be able to successfully complete our ongoing integration of the operations, personnel and technology
from our acquisitions. Because of their size and complexity, if we fail to complete our integration efforts successfully,
we may experience interruptions in our business activities, a decrease in the quality of our services, a deterioration
in our employee and customer relationships, and harm to our reputation, all of which could have a material adverse
effect on our business, financial condition and results of operations. Our integration activities have required
significant attention from management, which potentially decreases the time that management may devote to serve
existing customers, attract new customers and develop new services and strategies. We may also experience
difficulties in combining corporate cultures, maintaining employee morale and retaining key employees. The
integration efforts may also impose substantial demands on our operations or other projects. We will have to actively
strive to demonstrate to our existing customers that these integrations have not resulted in adverse changes in our
standards or business focus. Our acquisitions have involved a significant capital commitment, and the return that we
achieve on any capital invested may be less than the return achieved on our other projects or investments. There will
be challenges in consolidating and rationalizing information technology platforms and administrative infrastructures.
In addition, any delays or increased costs of integrating acquired companies could adversely affect our operations,
financial results and liquidity.
We may not realize the growth opportunities, operating margins and synergies that are anticipated from
acquisitions.
The benefits we expect to achieve as a result of an acquisition will depend, in part, on our ability to realize the
anticipated growth opportunities, operating margins and synergies. Our success in realizing these growth
opportunities, operating margins and synergies, and the timing of this realization, depends on the successful
integration of the acquired business and operations with our existing business and operations. Even if we are able to
integrate existing and acquired businesses successfully, this integration may not result in the realization of the full
benefits of the growth opportunities, operating margins and synergies we currently expect within the anticipated time
frame or at all. Accordingly, the benefits from an acquisition may be offset by costs incurred or delays in integrating
the companies, which could cause our revenue assumptions and operating margin to be inaccurate.
19
We face substantial competition in each of our business segments, which may have a material adverse effect on
our business.
We face competition in all areas of our business from regional, national and international competitors. Our
competitors range from small, family-owned businesses to well-established, well-financed entities, both privately and
publicly held, including many large engineering and construction companies and specialty contractors. We compete
primarily on the basis of price, customer satisfaction, safety performance and programs, quality of our products and
services, and schedule. As a result, an increase in the level of competition in one or more markets may result in lower
operating margins than we have recently experienced.
Our common stock, which is listed on the NASDAQ Global Select Market, has experienced significant price and
volume fluctuations. These fluctuations could continue in the future, and our stockholders may not be able to
resell their shares of common stock at or above the purchase price paid.
The market price of our common stock may change significantly in response to various factors and events beyond
our control, including the following:
•
•
•
•
•
•
the risk factors described in this Item 1A;
general conditions in our customers’ industries;
general conditions in the security markets;
the significant concentration of ownership of our common stock in the hands of a small number of
institutional investors;
a shortfall in operating revenue or net income from that expected by securities analysts and investors; and
changes in securities analysts’ estimates of our financial performance or the financial performance of our
competitors or companies in our industry.
Some companies that have volatile market prices for their securities have been subject to security class action suits
filed against them. If a suit were to be filed against us, regardless of the outcome, it could result in substantial costs
and a diversion of our management’s attention and resources. This could have a material adverse effect on our
business, results of operations and financial condition.
Future sales of our common stock may depress our stock price.
Sales of a substantial number of shares of our common stock in the public market or otherwise, either by us, a
member of management or a major stockholder, or the perception that these sales could occur, could depress the
market price of our common stock and impair our ability to raise capital through the sale of additional equity
securities.
We may issue additional equity securities, which could lead to dilution of our issued and outstanding stock.
The issuance of additional common stock, restricted stock units or securities convertible into our common stock could
result in dilution of the ownership interest held by existing stockholders. We are authorized to issue, without
stockholder approval 5,000,000 shares of preferred stock, par value $0.01 per share, in one or more series, which may
give other stockholders dividend, conversion, voting, and liquidation rights, among other rights, which may be
superior to the rights of holders of our common stock. In addition, we are authorized to issue, without stockholder
approval, a significant number of additional shares of our common stock and securities convertible into either
common stock or preferred stock.
Shareholder activists could cause a disruption to our business.
An activist investor may indicate disagreement with our strategic direction or capital allocation policies and may seek
representation on our Board of Directors. Our business, operating results or financial condition could be adversely
affected and may result in, among other things:
•
•
•
increased operating costs, including increased legal expenses, insurance, administrative expenses and
associated costs incurred in connection with director election contests;
uncertainties as to our future direction, which could result in the loss of potential business opportunities and
could make it more difficult to attract, retain, or motivate qualified personnel, and strain relationships with
investors and customers; and
reduction or delay in our ability to effectively execute our current business strategy and to implement new
strategies.
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Item 1B. Unresolved Staff Comments
None
Item 2.
Properties
Our principal properties are as follows:
Description of Facility
Segment
Location
United States:
Tulsa, Oklahoma
Bellingham, Washington
Broomall, Pennsylvania
Catoosa, Oklahoma
Columbus, Ohio
Houston, Texas
Corporate headquarters and
regional office
Regional office, fabrication
facility and warehouse
Regional office
Fabrication facility, regional
offices and warehouses
Regional office
Regional offices and warehouse
Norco, California
Regional office and warehouse
Orange, California
Fabrication facility, regional
office and warehouse
Pittsburgh, Pennsylvania
Somerset, New Jersey
Regional office
Regional office and warehouse
Temperance, Michigan
Regional office and warehouse
Tucson, Arizona
Regional office and warehouse
International:
Burlington, Ontario, Canada
Leduc, Alberta, Canada
Regional office
Regional office and warehouse
Sarnia, Ontario, Canada
Regional office and warehouse
Paju-si, Gyeonggi-do, South
Korea
Sydney, New South Wales,
Australia
Fabrication facility, regional
office and warehouse
Regional office
All segments
Process and Industrial
Facilities, Storage and
Terminal Solutions
All segments
All segments
All segments
All segments
Process and Industrial
Facilities, Storage and
Terminal Solutions
Process and Industrial
Facilities, Storage and
Terminal Solutions
All segments
Utility and Power
Infrastructure, Process
and Industrial Facilities
Storage and Terminal
Solutions
Process and Industrial
Facilities, Storage and
Terminal Solutions
All segments
Storage and Terminal
Solutions
Storage and Terminal
Solutions
Storage and Terminal
Solutions
Storage and Terminal
Solutions
Interest
Leased
Owned
Leased
Leased &
Owned(1)
Leased
Leased &
Owned
Leased
Leased &
Owned
Leased
Leased
Owned
Leased
Owned
Leased
Owned
Owned
Leased
(1) We constructed certain facilities on land acquired through ground leases with renewal options.
In addition to the locations listed above, we have smaller regional locations and temporary office facilities at
numerous customer locations throughout the United States and Canada.
21
Item 3.
Legal Proceedings
We are a party to a number of legal proceedings. We believe that the nature and number of these proceedings are
typical for a company of our size engaged in our type of business and that none of these proceedings will result in
a material effect on our business, results of operations, financial condition, cash flows or liquidity.
Item 4. Mine Safety Disclosures
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the ‘‘Dodd-Frank Act’’) requires
domestic mine operators to disclose violations and orders issued under the Federal Mine Safety and Health Act of
1977 (the ‘‘Mine Act’’) by the federal Mine Safety and Health Administration. We do not act as owner of any mines,
but as a result of our performing services or construction at mine sites as an independent contractor, we may be
considered an ‘‘operator’’ within the meaning of the Mine Act.
Information concerning mine safety violations or other regulatory matters required to be disclosed in this annual
report under Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95 to this
Annual Report on Form 10-K.
22
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common stock trades on the NASDAQ Global Select Market under the trading symbol ‘‘MTRX’’. Substantially
all of our stockholders maintain their shares in ‘‘street name’’ accounts and are not individually stockholders of
record. As of July 31, 2021, there were 20 holders of record of our common stock.
Dividend Policy
We have never paid cash dividends on our common stock and the terms of our Credit Agreement limit dividends to
stock dividends only (see Item 8. Financial Statements and Supplementary Data, Note 5 - Debt for more information
about our Credit Agreement). Any future dividend payments will depend on the terms of our Credit Agreement, our
financial condition, capital requirements and earnings as well as other relevant factors.
Issuer Purchases of Equity Securities
The terms of our Credit Agreement limit share repurchases to $2.5 million per fiscal year provided that that we do
not violate our Fixed Charge Coverage Ratio financial covenant. 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 fourth quarter of fiscal 2021 and have no current plans
to repurchase stock in the near-term. As of June 30, 2021, there were 1,349,037 shares available for purchase under
the Stock Buyback Program.
23
Performance Graph
The following Performance Graph and related information shall not be deemed ‘‘soliciting material’’ or to be ‘‘filed’’
with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the
extent that we specifically incorporate it by reference into such filing.
The following graph compares, for the period from June 30, 2016 to June 30, 2021, the cumulative stockholder return
on our common stock with the cumulative total return of the NASDAQ Composite Index, the Dow Jones U.S. Heavy
Construction Index, and the S&P Construction & Engineering Index. We intend to replace the S&P Construction &
Engineering Index with the Dow Jones U.S. Heavy Construction Index beginning in fiscal 2022 to be more consistent
with the indexes to which our peers compare themselves.
The graph below assumes an investment of $100 (with reinvestment of all dividends) in our common stock, the
NASDAQ Composite Index,
the Dow Jones U.S. Heavy Construction Index, and the S&P Construction &
Engineering Index on June 30, 2016 and tracks their relative performance through June 30, 2021. The stock price
performance reflected in the following graph is not necessarily indicative of future stock performance.
2016
2017
2018
2019
2020
2021
June 30,
Matrix Service Company. . . . . . . . . . . . . . . . . . . . . . . $100.00 $ 56.70 $111.28 $122.86 $ 58.94 $ 63.67
NASDAQ Composite. . . . . . . . . . . . . . . . . . . . . . . . . . $100.00 $128.30 $158.57 $170.91 $216.96 $315.10
S&P Construction & Engineering . . . . . . . . . . . . . . . . $100.00 $110.34 $121.21 $126.69 $128.70 $225.71
Dow Jones US Heavy Construction . . . . . . . . . . . . . . $100.00 $106.22 $114.10 $120.55 $104.68 $190.54
24
Item 6.
Selected Financial Data
Selected Financial Data
(In thousands, except percentages and per share data)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin % . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . .
Selling, general and administrative %. . . . . . . .
Intangible asset impairments and restructuring
costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . .
Operating income (loss) % . . . . . . . . . . . . . . . .
Net income (loss) attributable to Matrix
Service Company . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) per share-basic . . . . . . . . . . . . .
Earnings (loss) per share-diluted . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . .
Cash flows provided (used) by operations . . . .
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2021
$673,398
640,633
32,765
June 30,
2020
Fiscal Years Ended
June 30,
2019
June 30,
2018
June 30,
2017
$1,100,938
998,762
102,176
$1,416,680
1,284,729
131,951
$1,091,553
999,617
91,936
$1,197,509
1,116,506
81,003
4.9%
69,756
10.4%
9.3%
9.3%
8.4%
6.8%
86,276
94,021
84,417
76,144
7.8%
6.6%
7.7%
6.4%
6,756
(43,747)
52,525
(36,625)
—
37,930
17,998
(10,479)
—
4,859
(6.5)%
(3.3)%
2.7%
(1.0)%
0.4%
(31,224)
(1.18)
(1.18)
137,817
467,556
—
4,354
(2,971)
462,561
(33,074)
(1.24)
(1.24)
159,213
517,310
9,208
18,539
44,085
758,465
27,982
1.04
1.01
141,811
633,394
5,347
19,558
41,394
1,098,349
(11,480)
(0.43)
(0.43)
118,581
558,033
—
8,711
74,671
1,218,596
(183)
(0.01)
(0.01)
139,654
586,030
44,682
11,908
(18,746)
682,273
Refer to the Results of Operations section included in Item 7 of this Annual Report on Form 10-K for a discussion
of the operating results for the fiscal year ended 2021 in comparison to the fiscal year ended 2020.
25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of our financial condition and results of operations is based on our
consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States (‘‘GAAP’’). GAAP represents a comprehensive set of accounting and disclosure rules
and requirements, the application of which requires management judgments and estimates including, in certain
circumstances, choices between acceptable GAAP alternatives. The preparation of these consolidated financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience
and various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ
from these estimates under different assumptions or conditions. Note 1- Summary of Significant Accounting Policies
of the Notes to Consolidated Financial Statements included in Part II, Item 8 - Financial Statements and
Supplementary Data in this Annual Report on Form 10-K, contains a comprehensive summary of our significant
accounting policies. The following is a discussion of our most critical accounting policies, estimates, judgments and
uncertainties that are inherent in our application of GAAP.
RESULTS OF OPERATIONS
Change in Reportable Segments
Due to changing markets facing our clients and to better align our financial reporting with our long-term strategic
growth areas, we began reporting our financial results under new reportable segments effective July 1, 2020. The new
reportable segments along with a description of each are as follows:
•
•
•
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 construction and maintenance services to a variety of power generation facilities, including natural
gas fired facilities in simple or combined cycle configuration and provide engineering, fabrication, and
construction services for LNG utility peak shaving facilities.
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 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 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.
All prior period segment information has been restated to conform with our new reportable segments. In addition,
beginning July 1, 2020, we separately report corporate selling, general and administrative expenses and other
corporate expenses that were previously allocated to the segments.
Overview
The majority of the work for all segments is performed in the United States, with 10.2% of revenue generated
internationally during fiscal 2021, 7.3% in fiscal 2020 and 3.4% in fiscal 2019. The percentage of revenue generated
internationally increased in fiscal 2021 compared to fiscal 2020 and fiscal 2019 due to higher levels of work in
Canada.
Significant period to period changes in revenue, gross profits and operating results between fiscal 2021 and fiscal
2020 and fiscal 2020 and fiscal 2019 are discussed below on a consolidated basis and for each segment.
26
Matrix Service Company
Results of Operations
(In thousands)
Fiscal Year 2021
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit %. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss %. . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2020
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit %. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . .
Intangible asset impairments and restructuring
costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) % . . . . . . . . . . . . . . . . . . .
Variances Fiscal Year 2021 to Fiscal Year 2020
Increase/(Decrease)
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . .
Intangible asset impairments and restructuring
costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2020
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit %. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . .
Intangible asset impairments and restructuring
costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) % . . . . . . . . . . . . . . . . . . .
Fiscal Year 2019
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit %. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . .
Operating income % . . . . . . . . . . . . . . . . . . . . . . . .
Utility and
Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
Corporate
Total
$210,052
1,506
$ 199,917
17,642
$ 263,429
13,617
$
0.7%
9,882
1,312
(9,688)
(4.6)%
8.8%
14,756
3,807
(921)
(0.5)%
5.2%
18,644
1,391
(6,418)
(2.4)%
— $ 673,398
—
32,765
—%
4.9%
26,474
246
(26,720)
—%
69,756
6,756
(43,747)
(6.5)%
$212,001
7,081
$ 421,871
36,349
$ 467,066
61,413
$
3.3%
8.6%
13.1%
(2,667)
—%
— $1,100,938
102,176
9.3%
10,047
24,266
26,386
25,577
86,276
27,625
(30,591)
22,914
(10,831)
1,066
33,961
(14.4)%
(2.6)%
7.3%
920
(29,164)
—%
52,525
(36,625)
(3.3)%
$ (1,949)
(5,575)
(165)
$(221,954) $(203,637) $
(18,707)
(9,510)
(47,796)
(7,742)
— $ (427,540)
(69,411)
(16,520)
2,667
897
(26,313)
20,903
(19,107)
9,910
325
(40,379)
(674)
2,444
(45,769)
(7,122)
Utility and
Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
Corporate
Total
$212,001
7,081
$421,871
36,349
$467,066
61,413
$
3.3%
8.6%
13.1%
(2,667)
—%
— $1,100,938
102,176
9.3%
10,047
24,266
26,386
25,577
86,276
27,625
(30,591)
22,914
(10,831)
1,066
33,961
(14.4)%
(2.6)%
7.3%
920
(29,164)
—%
52,525
(36,625)
(3.3)%
$249,867
21,161
$654,014
58,853
$512,799
54,600
$
— $1,416,680
131,951
(2,663)
—%
26,928
(29,591)
—%
9.3%
94,021
37,930
2.7%
8.5%
9.0%
10.6%
9,842
11,319
26,932
31,921
30,319
24,281
4.5%
4.9%
4.7%
27
Variances Fiscal Year 2020 to Fiscal Year 2019
Increase/(Decrease)
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . .
Intangible asset impairments and restructuring
costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . .
Operational Update
Utility and
Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
Corporate
Total
$(37,866)
(14,080)
205
$(232,143)
(22,504)
(2,666)
$(45,733)
6,813
(3,933)
$ — $(315,742)
(29,775)
(7,745)
(4)
(1,351)
27,625
(41,910)
22,914
(42,752)
1,066
9,680
920
427
52,525
(74,555)
Throughout the course of the COVID-19 pandemic, our top priority has been to maintain a safe working environment
for all field and office employees, customers and business partners. Our project teams, in coordination with our
clients, are monitoring the impact of new variants of COVID-19 and continue to operate under enhanced work
processes to protect the health and safety of everyone on our job sites.
Since the beginning of the pandemic we have reduced our cost structure in excess of $60 million, or approximately
25%, with a third of those reductions related to SG&A and the rest related to construction overhead, which is included
in cost of revenue in the Consolidated Statements of Income. In order to achieve these cost savings, we incurred
$14.0 million of restructuring costs during fiscal 2020 and $6.8 million during fiscal 2021. Despite these significant
reductions in construction overhead, our revenue volume in fiscal 2021 did not allow for complete recovery of
overhead, which reduced gross margin.
In fiscal 2021, we engaged a third party consultant to help us perform a strategic review of our end markets in support
of updating our business strategy and to ensure that our organizational structure is properly designed to support our
updated strategy. Based on the preliminary results of this review, we believe there are opportunities for us to be more
competitive, which will require organizational and process changes and will likely result in additional restructuring
costs. We expect to substantially complete this initiative in fiscal 2022.
In order to more clearly depict our core profitability, the following tables present our operating results after certain
adjustments:
Reconciliation of Adjusted Net Income (Loss) and Diluted Earnings (Loss) per Common Share(1)
(In thousands, except per share data)
Net income (loss), as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of adjustments and other net tax items . . . . . . . . . . . . . . . . . . . .
$(31,224)
6,756
—
(1,739)
$(33,074)
14,010
38,515
(8,644)
Adjusted net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(26,207)
$ 10,807
Fiscal Years Ended
June 30,
2020
June 30,
2021
June 30,
2019
$27,982
—
—
—
$27,982
Loss per fully diluted share, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (1.18)
$ (1.24)
$ 1.01
Adjusted earnings (loss) per fully diluted share. . . . . . . . . . . . . . . . . . . . . . . . .
$ (0.99)
$
0.40
$ 1.01
(1)
This table presents non-GAAP financial measures of our adjusted net income (loss) and adjusted diluted earnings (loss) per common share
for fiscal 2021, 2020 and 2019. The most directly comparable financial measures are net loss and net loss per diluted share, respectively,
presented in the Consolidated Statements of Income. We have presented these non-GAAP financial measures because we believe they more
clearly depict our core operating results during the periods presented and provide a more comparable measure of our operating results to
other companies considered to be in similar businesses. Since adjusted net income (loss) and adjusted diluted earnings (loss) per common
share are not measures of performance calculated in accordance with GAAP, they should be considered in addition to, rather than as a
substitute for, the most directly comparable GAAP financial measures.
28
Reconciliation of Net Income (Loss) to Adjusted EBITDA(1)
June 30,
2021
Fiscal Years Ended
June 30,
2020
(in thousands)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible asset impairment . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for federal, state and foreign income taxes . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(31,224)
—
6,756
8,156
1,559
(12,039)
17,858
$(33,074)
38,515
14,010
9,877
1,597
(3,570)
19,124
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (8,934)
$ 46,479
June 30,
2019
$27,982
—
—
11,908
1,296
10,430
18,224
$69,840
(1)
This table presents Adjusted EBITDA, which we define as net income (loss) before impairment of goodwill and other intangible assets,
restructuring costs, stock-based compensation expense, interest expense, income taxes, depreciation and amortization, because it is used by
the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in
similar businesses. We believe that the line item on our Consolidated Statements of Income entitled ‘‘Net income (loss)’’ is the most directly
comparable GAAP measure to Adjusted EBITDA. Since Adjusted EBITDA is not a measure of performance calculated in accordance with
GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance. Adjusted
EBITDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, this measure
is not a measure of our ability to fund our cash needs. As Adjusted EBITDA excludes certain financial information compared with net
income (loss), the most directly comparable GAAP financial measure, users of this financial information should consider the type of events
and transactions that are excluded. Adjusted EBITDA has certain material limitations as follows:
•
•
•
•
•
•
It does not include impairments to goodwill and other intangible assets. While impairments to intangible assets are non-cash
expenses in the period recognized, cash or other consideration was still transferred in exchange for the intangible assets in the
period of the acquisition. Any measure that excludes impairments to intangible assets has material limitations since these
expenses represent the loss of an asset that was acquired in exchange for cash or other assets.
It does not include restructuring costs. Restructuring costs represent material costs that we incurred and are oftentimes cash
expenses. Therefore, any measure that excludes restructuring costs has material limitations.
It does not include stock-based compensation. Stock-based compensation represents material amounts of equity that are
awarded to our employees and directors for services rendered. While the expense is non-cash, we release vested shares out of
our treasury stock, which has historically been replenished by using cash to periodically repurchase our stock. Therefore, any
measure that excludes stock-based compensation has material limitations.
It does not include interest expense. Because we have borrowed money to finance our operations and to acquire businesses, pay
commitment fees to maintain our senior secured revolving credit facility, and incur fees to issue letters of credit under the senior
secured revolving credit facility, interest expense is a necessary and ongoing part of our costs and has assisted us in generating
revenue. Therefore, any measure that excludes interest expense has material limitations.
It does not include income taxes. Because the payment of income taxes is a necessary and ongoing part of our operations, any
measure that excludes income taxes has material limitations.
It does not include depreciation or amortization expense. Because we use capital and intangible assets to generate revenue,
depreciation and amortization expense is a necessary element of our cost structure. Therefore, any measure that excludes
depreciation or amortization expense has material limitations.
Fiscal 2021 Versus Fiscal 2020
Consolidated
Consolidated revenue was $673.4 million for the fiscal year ended June 30, 2021, compared to $1.101 billion in fiscal
2020. On a segment basis, revenue decreased for the Process and Industrial Facilities, Storage and Terminal
Solutions, and Utility and Power Infrastructure segments by $222.0 million, $203.7 million, and $1.9 million
respectively.
Consolidated gross profit was $32.8 million in fiscal 2021 compared to $102.2 million in fiscal 2020. Gross margin
was 4.9% in fiscal 2021 compared to 9.3% in fiscal 2020. Gross margins in fiscal 2021 were negatively impacted
by lower than forecasted volume, which led to under recovery of construction overhead costs, lower than previously
forecasted margins on large capital projects in the Utility and Power Infrastructure and Storage and Terminal
29
Solutions segments, and an unfavorable settlement on a contract dispute in the Storage and Terminal Solutions
segment. Gross margins in fiscal 2020 were the result of strong project execution, offset by the under recovery of
construction overhead costs due to lower than anticipated revenue volume, particularly in the fourth quarter as the
COVID-19 pandemic began impacting our operations.
Consolidated SG&A expenses were $69.8 million in fiscal 2021 compared to $86.3 million in fiscal 2020. The
decrease in fiscal 2021 was primarily attributable to implemented cost reductions.
We recorded non-cash goodwill and other intangible asset impairments of $38.5 million during the second quarter
of fiscal 2020. See Item 8. Financial Statements, Note 4 - Goodwill and Other Intangible Assets for more information
about the impairments.
As a result of actions taken to reduce our cost structure, we recorded $6.8 million and $14.0 million of restructuring
costs in fiscal 2021 and fiscal 2020, respectively. See ‘‘Operational Update’’ in this Results of Operations section and
Item 8. Financial Statements and Supplementary Data, Note 14 - Restructuring Costs, for more information.
Interest expense was $1.6 million in fiscal 2021 and fiscal 2020. Interest income was $0.1 million during fiscal 2021
compared to $1.3 million in fiscal 2020. The decrease in interest income was primarily due to lower interest rates in
the current period.
Our effective tax rate for fiscal 2021 was 27.8% compared to 9.7% in fiscal 2020. Through provisions in the
CARES Act, we have an income tax benefit of $5.2 million from the ability to carryback the fiscal 2021 federal net
operating loss to a period with a higher statutory federal income tax rate. The carryback benefit was offset by
$2.8 million of valuation allowances on various deferred tax assets and $1.8 million of excess tax expense related
to the vesting of stock-based compensation. The effective tax rate for fiscal 2020 was negatively impacted by
$3.1 million of valuation allowances placed on deferred tax assets that were created by net operating loss
carryforwards and other tax credits primarily in Canada, the non-deductible portion of the goodwill impairments that
would have resulted in a $1.8 million reduction of income tax expense, and $1.7 million of other non-deductible
expenses. These negative impacts were partially offset by $1.8 million of research and development and other tax
credits.
In fiscal 2021 and 2020, net loss was $31.2 million and $33.1 million, respectively; or $1.18 and $1.24 per fully
diluted share, respectively.
Utility and Power Infrastructure
Revenue for the Utility and Power Infrastructure segment decreased $1.9 million to $210.1 million in fiscal 2021
compared to $212.0 million in fiscal 2020. The decrease is primarily due lower volume of power delivery and power
generation work, partially offset by a higher volume of LNG utility peak shaving work.
The segment gross margin was 0.7% in fiscal 2021 compared to 3.3% in fiscal 2020. Our results of operations in
fiscal 2021 were materially impacted by increases in the forecasted costs to complete a large capital project. This
project reduced gross profit by $5.8 million in fiscal 2021. The changes in estimate were due to lower than previously
forecasted productivity caused by excessive rain at the project site, the continuing impact of COVID-19, and rework
which led to higher costs and schedule compression. This project was nearly complete at year-end and we are
performing start-up and commissioning work in the first quarter of fiscal 2022. In addition, segment gross margin was
negatively impacted by low volume, which led to the under recovery of construction overhead costs. These negative
impacts were partially offset by good project execution in the remainder of the segment. The fiscal 2020 segment
gross margin was negatively impacted by poor execution in the first and second quarters, including a lower than
previously expected margin on a capital project due to costs to remediate faulty equipment designed by a
subcontractor. In addition, low volume led to the under recovery of construction overhead costs.
Process and Industrial Facilities
Revenue for the Process and Industrial Facilities segment was $199.9 million in fiscal 2021 compared to
$421.9 million in fiscal 2020. The decrease of $222.0 million is primarily due to our strategic exit from the domestic
iron and steel industry in the third quarter of fiscal 2020, lower volume of midstream natural gas projects, and the
completion of a small number of major capital projects. The decrease was partially offset by an increase in refinery
turnaround and maintenance work, primarily in the fourth quarter.
The segment gross margin was 8.8% in fiscal 2021 compared to 8.6% in fiscal 2020. Segment gross margin in fiscal
2021 was positively impacted by strong project execution and the positive impact of a one-time workers’
30
compensation item recorded in the second quarter, but these positive impacts were partially offset by lower revenue
volume, which led to the under recovery of construction overhead costs. The fiscal 2020 segment gross margin was
supported by good project execution on both capital and repair and maintenance iron and steel projects in the first
and second quarters, partially offset by a lower volume of turnaround work, which led to the under recovery of
construction overhead costs.
Storage and Terminal Solutions
Revenue for the Storage and Terminal Solutions segment was $263.4 million in fiscal 2021 compared to
$467.1 million in fiscal 2020, a decrease of $203.7 million. The decrease in segment revenue is primarily a result of
lower volume of crude oil tank and terminal capital work and lower repair and maintenance work.
The segment gross margin was 5.2% in fiscal 2021 compared to 13.1% in fiscal 2020. The fiscal 2021 segment gross
margin was negatively impacted by increases in the costs to complete a large crude oil terminal project, partially
offset by an increase in the estimated recovery of those costs. During the third quarter, we achieved mechanical
completion on the project, demobilized and completed our assessment of unpriced change orders. The project’s
financial impact for fiscal 2021 was a $3.8 million reduction to gross profit. In addition, a settlement on a contract
dispute over the construction of a crude oil terminal negatively impacted gross profit by $2.9 million in the fourth
quarter. 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. Fiscal 2021 gross margin was also negatively impacted by low volume,
which led to the under recovery of construction overhead costs.
The fiscal 2020 segment gross margin was positively impacted by strong project execution on large capital projects
and higher volume than fiscal 2021, which resulted in better recovery of construction overhead costs.
Corporate
Unallocated corporate expenses were $26.7 million during fiscal 2021 compared to $29.2 million in the same period
last year. The decrease is primarily attributable to cost reductions we implemented.
Fiscal 2020 Versus Fiscal 2019
Consolidated
Consolidated revenue was $1.101 billion for the fiscal year ended June 30, 2020, compared to $1.417 billion in fiscal
2019. On a segment basis, revenue decreased for the Process and Industrial Facilities, Storage and Terminal
Solutions, and Utility and Power Infrastructure segments by $232.1 million, $45.7 million, and $37.9 million,
respectively.
Consolidated gross profit was $102.2 million in fiscal 2020 compared to $132.0 million in fiscal 2019. Gross margin
was 9.3% in fiscal 2020 and fiscal 2019. Gross margins in fiscal 2020 are the result of strong project execution, offset
by the under recovery of construction overhead costs due to lower than anticipated revenue volume, particularly in
the fourth quarter. Fiscal 2019 was positively impacted by higher revenue volume, which led to an over recovery of
construction overhead costs.
Consolidated SG&A expenses were $86.3 million in fiscal 2020 compared to $94.0 million in fiscal 2019. The
decrease in fiscal 2020 was primarily attributable to lower incentive compensation due to weaker operating results
in fiscal 2020 and savings from the business improvement plan described in Item 8. Financial Statements, Note 14
- Restructuring Costs.
We recorded non-cash goodwill and other intangible asset impairments of $38.5 million during the second quarter
of fiscal 2020. See Item 8. Financial Statements, Note 4 - Goodwill and Other Intangible Assets for more information
about the impairments. In addition, we recorded $14.0 million of restructuring costs in the third and fourth quarters
of fiscal 2020 due to actions taken under our business improvement plan. See Operational Update in this Results of
Operations section and Item 8. Financial Statements, Note 14 - Restructuring Costs, for more information.
Interest expense was $1.6 million in fiscal 2020 and $1.3 million in fiscal 2019. The increase in interest expense was
primarily due to a higher average debt balance during fiscal 2020, partially offset by lower interest rates in fiscal
2020. Interest income was $1.3 million during fiscal 2020 compared to $1.2 million in fiscal 2019 due to an increase
in our average cash balance during fiscal 2020, partially offset by lower interest rates in fiscal 2020.
31
Our effective tax rate for fiscal 2020 was 9.7% compared to 27.2% in fiscal 2019. The tax benefit for fiscal 2020 was
negatively impacted by a $3.1 million of valuation allowances placed on deferred tax assets that were created by net
operating loss carryforwards and other tax credits primarily in Canada, the non-deductible portion of the goodwill
impairments that would have resulted in a $1.8 million reduction of income tax expense, and $1.7 million of other
non-deductible expenses. These negative impacts were partially offset by $1.8 million of research and development
and other tax credits. The effective tax rate in fiscal 2019 was negatively impacted by $4.5 million of valuation
allowances placed on net operating loss carryforwards and foreign tax credits generated by our branch operations in
Canada, and $1.2 million of non-deductible expenses. These negative impacts were largely offset by the reversal of
$3.5 million of branch liabilities associated with the valuation allowances placed on our Canadian branch net
operating loss carryforwards and foreign tax credits, $2.0 million of research and development and other tax credits
and $0.3 million of excess tax benefits related to the vesting of stock-based compensation. A full analysis of our
provision for income taxes is included in Item 8. Financial Statements and Supplementary Data, Note 6 - Income
Taxes.
In fiscal 2020, net loss was $33.1 million, or $1.24 per fully diluted share, compared to net income of $28.0 million,
or $1.01 per fully diluted share, in fiscal 2019.
Utility and Power Infrastructure
Revenue for the Utility and Power Infrastructure segment decreased $37.9 million to $212.0 million in fiscal 2020
compared to $249.9 million in fiscal 2019. The decrease is primarily due to lower volume of power delivery and
power generation work. The segment gross margin was 3.3% in fiscal 2020 compared to 8.5% in fiscal 2019. The
fiscal 2020 segment gross margin was negatively impacted by poor execution in the first and second quarters and
lower volume throughout the year, which led to the under recovery of construction overhead costs. The segment gross
margin in fiscal 2019 was positively impacted by strong project execution on power generation package work,
partially offset by lower than previously forecasted margins on a limited number of power delivery projects and
proceeds from the settlement of a customer dispute that were less than previously anticipated.
Process and Industrial Facilities
Revenue for the Process and Industrial Facilities segment was $421.9 million in fiscal 2020 compared to
$654.0 million in fiscal 2019. The decrease of $232.1 million is primarily due to our strategic exit from the domestic
iron and steel industry in the third quarter of fiscal 2020, and lower volume of turnaround, refinery maintenance, and
thermal vacuum chamber work.
The segment gross margin was 8.6% in fiscal 2020 compared to 9.0% in fiscal 2019. The fiscal 2020 segment gross
margin was negatively impacted by sharply lower volume and under recovery of overhead costs during the second
half of the year due to the wind down of the domestic iron and steel business. The fiscal 2019 segment gross margin
was negatively impacted by a lower than previously forecasted margin on a thermal vacuum chamber project,
partially offset by good project execution in the remainder of the segment and higher volume, which led to the over
recovery of construction overhead costs.
Storage and Terminal Solutions
Revenue for the Storage and Terminal Solutions segment was $467.1 million in fiscal 2020 compared to
$512.8 million in fiscal 2019, a decrease of $45.7 million. The decrease in segment revenue is primarily a result of
lower volume of crude oil tank and terminal capital work. The segment gross margin was 13.1% in fiscal 2020
compared to 10.6% in fiscal 2019. The fiscal 2020 segment gross margin was positively impacted by strong project
execution on large capital projects. During the first half of fiscal 2019, the segment gross margin was negatively
impacted by the wind down of lower margin work awarded in a highly competitive environment and lower than
previously forecasted margins on a limited number of those projects.
Corporate
Unallocated corporate expenses were $29.2 million during fiscal 2020 compared to $29.6 million in the same period
last year. The decrease is primarily attributable to cost reductions we implemented in the second half of fiscal 2020.
32
LIQUIDITY AND CAPITAL RESOURCES
Overview
We define liquidity as 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 as of June 30, 2021 were cash and cash
equivalents of $83.9 million and cash flows from operations. On September 9, 2021, we entered into a new Credit
Agreement, which had availability of $25.9 million as of the closing date of the agreement. See the ‘‘ABL Credit
Facility’’ section below for more information about our new Credit Agreement.
There continues to be significant uncertainty regarding the near- and intermediate-term business impacts from the
COVID-19 pandemic and its disruption of our markets. However, we continue to maintain a strong balance sheet,
which we believe is sufficient to support our near- to intermediate-term needs. We are taking the following actions:
•
•
•
strategic review of business processes and organizational structure;
proactive management of the cost structure and working capital; and
eliminating all non-critical capital expenditures.
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 cost plus and fixed price customer contracts are billed based on milestones which may require
us to incur significant expenditures prior to collections from our customers;
some fixed price customer contracts allow for significant upfront billings at the beginning of a project,
which temporarily increases liquidity near term;
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 letters of credit or
significant retentions. The timing of collection of retentions is often uncertain;
other changes in working capital; and
capital expenditures.
Other factors that may impact both short and long-term liquidity include:
•
•
•
•
contract disputes, which can be significant;
collection issues, including those caused by weak commodity prices, economic slowdowns or other factors
which can lead to credit deterioration of our customers;
issuances of letters of credit; and
strategic investments in new operations.
Other factors that may impact long-term liquidity include:
•
•
•
borrowing constraints under our credit facility and maintaining compliance with all covenants contained in
the Credit Agreement;
acquisitions and disposals of businesses; and
purchases of shares under our stock buyback program.
33
Cash Flows Used by Operating Activities
Cash flows used by operating activities for the fiscal year ended June 30, 2021 totaled $3.0 million. Major
components of cash flows used by operating activities for the year ending June 30, 2021 are as follows:
Net Cash Used by Operating Activities
(In thousands)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash effect of changes in operating assets and liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(31,224)
25,352
889
1,552
460
$ (2,971)
Cash effect of changes in operating assets and liabilities at June 30, 2021 in comparison to June 30, 2020 include the
following:
•
•
•
•
•
Accounts receivable, net of credit losses recognized during the period, decreased $11.1 million during fiscal
2021, which increased cash flows from operating activities. The variance is primarily attributable to lower
business volume and the timing of billing and collections.
Costs and estimated earnings in excess of billings on uncompleted contracts (‘‘CIE’’) decreased
$28.8 million, which increased cash flows from operating activities. Billings on uncompleted contracts in
excess of costs and estimated earnings (‘‘BIE’’) decreased $8.6 million, which decreased cash flows from
operating activities. CIE and BIE balances can experience significant fluctuations based on business
volume and the timing of when job costs are incurred and the timing of customer billings and payments.
Inventories, income taxes receivable, other current assets, operating right-of-use lease assets and other
assets increased $21.8 million during fiscal 2021, which decreased cash flows from operating activities.
These operating assets can fluctuate based on the timing of inventory builds and draw-downs, accrual and
receipt of income taxes receivable, prepayments of certain expenses, leasing activity, business volume, and
other timing differences.
Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities and other
accrued expenses decreased by $11.7 million during fiscal 2021, which decreased cash flows from
operating activities. These operating liabilities can fluctuate based on the timing of vendor payments,
accruals, leasing activities, business volume, and other timing differences.
Other liabilities increased by $3.6 million, which increased cash flows from operating activities. This
increase was primarily due to deferred payroll tax associated with the CARES Act. See Part II., Item 8.
Financial Statements and Supplementary Data, Note 6 - Income Taxes for more information.
Cash Flows Used for Investing Activities
Investing activities used $2.3 million of cash in the fiscal year ended June 30, 2021 primarily due to $4.4 million of
capital expenditures, partially offset by $2.1 million of proceeds from other asset sales. Capital expenditures consisted
of $2.4 million for facilities, office equipment and software, and $2.0 million for construction, fabrication, and
transportation equipment.
Cash Flows Used by Financing Activities
Financing activities used $12.3 million of cash in the fiscal year ended June 30, 2021 primarily due to the net
repayment of $9.8 million on our senior secured revolving credit facility, $1.6 million paid to repurchase our stock
for payment of withholding taxes due on equity-based compensation, and $1.3 million paid in fees to amend our
former credit agreement.
ABL Credit Facility
On September 9, 2021, we and our primary U.S. and Canada operating subsidiaries entered into an asset-backed
credit agreement (the ‘‘ABL Facility’’) as borrowers with Bank of Montreal, as Administrative Agent, Swing-Line
Lender, a Letter of Credit Issuer and a Lender. The ABL Facility is guaranteed by substantially all of our remaining
34
U.S. and Canadian subsidiaries. The ABL Facility provides for available borrowings of up to $100.0 million, which
may be increased further 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 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. At September 9, 2021, availability under the ABL Facility was
$25.9 million and there were $43.5 million in letters of credit outstanding. The ABL Facility matures and any
outstanding amounts become due and payable on September 9, 2026.
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’’), CDOR rate or a LIBOR rate, plus an applicable margin. The Base
Rate is defined as a fluctuating interest rate equal to the greatest 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%, and (iii) LIBOR rate for one month
period plus 1.00%. Depending on the amount of average availability, the applicable margin is between 1.00% to
1.50% for Base Rate, which includes either U.S. or Canadian prime rate, and between 2.00% and 2.50% for CDOR
and LIBOR rate borrowings. Interest is payable either (i) monthly for Base Rate borrowings or (ii) the last day of
the interest period for LIBOR or CDOR rate borrowings, as set forth in the Credit Agreement. The fee for undrawn
amounts is 0.25% per annum and is due quarterly.
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 lesser of (1) the current borrowing base and (2) 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.
Senior Secured Revolving Credit Facility
The ABL Facility replaced the Fifth Amended and Restated Credit Agreement (the ‘‘Prior Credit Agreement’’), that
was entered into on November 2, 2020, and subsequently amended on May 4, 2021, by and among us and certain
foreign subsidiaries, as Borrowers, various subsidiaries of ours, as Guarantors, JPMorgan Chase Bank, N.A., as
Administrative Agent, Sole Lead Arranger and Sole Book Runner, and the other Lenders party thereto. The Prior
Credit Agreement provided for a three-year senior secured revolving credit facility of $200.0 million that expired
November 2, 2023.
We had no borrowings and $41.3 million of letters of credit outstanding under the Prior Credit Agreement as of
June 30, 2021. We had $9.2 million of borrowings and $34.5 million of letters of credit outstanding under the Prior
Credit Agreement as of June 30, 2020.
Each revolving borrowing under the Prior Credit Agreement bore interest at a rate per annum equal to a base rate,
plus a margin of 1.00% to 3.50%. The unused credit facility fee was between 0.35% and 0.50% based on the Leverage
Ratio as defined in the Prior Credit Agreement.
The Prior Credit Agreement contained customary financial, negative and affirmative covenants and limited our
borrowing availability based on our EBITDA, as it was defined in the Prior Credit Agreement. The Prior Credit
Agreement also limited our ability to make acquisitions, repurchase shares, make capital expenditures and dispose
of assets.
Dividend Policy
We have never paid cash dividends on our common stock and the terms of our Credit Agreement limit dividends to
stock dividends only. Any future dividend payments will depend on the terms of our Credit Agreement, our financial
condition, capital requirements and earnings as well as other relevant factors.
35
Treasury Shares
The terms of our Credit Agreement limit share repurchases to $2.5 million per fiscal year provided that that we do
not violate our Fixed Charge Coverage Ratio financial covenant. 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 fourth quarter of fiscal 2021 and have no current plans
to repurchase stock in the near-term.
As of June 30, 2021, there were 1,349,037 shares available for repurchase under the Stock Buyback Program. We had
1,338,779 treasury shares as of June 30, 2021 and intend to utilize these treasury shares in connection with equity
awards under the our stock incentive plans and for sales to the Employee Stock Purchase Plan.
Off-Balance Sheet Arrangements
As of June 30, 2021, the following off-balance sheet arrangements were in place to support our ordinary course
obligations:
Expiration Period
Less than 1
Year
1–3 Years
More than 5
Years
3–5 Years
(In thousands)
Letters of credit(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,314
96,268
Surety bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $137,582
$ —
536
$536
$—
20
$20
$—
—
$—
Total
$ 41,314
96,824
$138,138
(1) All letters of credit issued under our senior secured revolving credit facility support our workers’ compensation insurance programs or
certain construction contracts. The letters of credit that support our workers’ compensation programs are expected to renew annually through
the term of our credit facility. The letters of credit that support construction contracts carry expiration dates into calendar year 2022.
Contractual Obligations
Contractual obligations at June 30, 2021 are summarized below:
Contractual Obligations by Expiration Period
Less than 1
Year
1-3 Years
More than 5
Years
3-5 Years
(In thousands)
Total
Operating leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total contractual obligations . . . . . . . . . . . . . . . . . . . . . . . . .
$6,548
2,951
$9,499
$ 8,284
3,408
$6,009
—
$11,224
—
$32,065
6,359
$11,692
$6,009
$11,224
$38,424
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
General Information about our Contracts with Customers
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 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.
Step 1: Contract Identification
We do not recognize revenue unless we have identified a contract with a customer. A contract with a customer exists
when it has approval and commitment from both parties, the rights and obligations of the parties are identified,
36
payment terms are identified, the contract has commercial substance, and collectibility is probable. We also evaluate
whether a contract should be combined with other contracts and accounted for as a single contract. This evaluation
requires judgment and could change the timing of the amount of revenue and profit recorded for a given period.
Step 2: Identify Performance Obligations
Next, we identify each performance obligation in the contract. A performance obligation is a promise to provide a
distinct good or service or a series of distinct goods or services to the customer. Revenue is recognized separately
for each performance obligation in the contract. Many of our contracts have one clearly identifiable performance
obligation. However, many of our contracts provide the customer an integrated service that includes two or more of
the following services: engineering, procurement, fabrication, construction, repair and maintenance services. For
these contracts, we do not consider the integrated services to be distinct within the context of the contract when the
separate scopes of work combine into a single commercial objective or capability for the customer. Accordingly, we
generally identify one performance obligation in our contracts. The determination of the number of performance
obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded
for a given period.
Step 3: Determine Contract Price
After determining the performance obligations in the contract, we determine the contract price. The contract price is
the amount of consideration we expect to receive from the customer for completing the performance obligation(s).
In a fixed-price contract, the contract price is a single lump-sum amount. In reimbursable and time and materials
based contracts, the contract price is determined by the agreed upon rates or reimbursements for time and materials
expended in completing the performance obligation(s) in the contract.
A number of our contracts contain various cost and performance incentives and penalties that can either increase or
decrease the contract price. These variable consideration amounts are generally earned or incurred based on certain
performance metrics, most commonly related to project schedule or cost targets. We estimate variable consideration
at the most likely amount of additional consideration to be received (or paid in the case of penalties), provided that
meeting the variable condition is probable. We include estimated amounts of variable consideration in the contract
price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and
determination of whether to include estimated amounts in the contract price are based largely on an assessment of
our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.
We reassess the amount of variable consideration each accounting period until the uncertainty associated with the
variable consideration is resolved. Changes in the assessed amount of variable consideration are accounted for
prospectively as a cumulative adjustment to revenue recognized in the current period.
Step 4: Assign Contract Price to Performance Obligations
After determining the contract price, we assign such price to the performance obligation(s) in the contract. If a
contract has multiple performance obligations, we assign the contract price to each performance obligation based on
the stand-alone selling prices of the distinct services that comprise each performance obligation.
Step 5: Recognize Revenue as Performance Obligations are Satisfied
We record revenue for contracts with our customers as we satisfy the contracts’ performance obligations. We
recognize revenue on performance obligations associated with fixed-price contracts for engineering, procurement,
fabrication and construction services over time since these services create or enhance assets the customer controls as
they are being created or enhanced. We measure progress of satisfying these performance obligations by using the
percentage-of-completion method, which is based on costs incurred to date compared to the total estimated costs at
completion, since it best depicts the transfer of control of assets being created or enhanced to the customer.
We recognize revenue over time for reimbursable and time and material based repair and maintenance contracts since
the customer simultaneously receives and consumes the benefit of those services as we perform work under the
contract. As a practical expedient allowed under the revenue accounting standards, we record revenue for these
contracts in the amount to which we have a right to invoice for the services performed provided that we have a right
to consideration from the customer in an amount that corresponds directly with the value of the performance
completed to date.
37
Costs incurred may include direct labor, direct materials, subcontractor costs and indirect costs, such as salaries and
benefits, supplies and tools, equipment costs and insurance costs. Indirect costs are charged to projects based upon
direct costs and overhead allocation rates per dollar of direct costs incurred or direct labor hours worked. Typically,
customer contracts will include standard warranties that provide assurance that products and services will function
as expected. We do not sell separate warranties.
We have numerous contracts that are in various stages of completion which require estimates to determine the
forecasted costs at completion. Due to the nature of the work left to be performed on many of our contracts, the
estimation of total cost at completion for fixed-price contracts is complex, subject to many variables and requires
significant judgment. Estimates of total cost at completion are made each period and changes in these estimates are
accounted for prospectively as cumulative adjustments to revenue recognized in the current period. If estimates of
costs to complete fixed-price contracts indicate a loss, a provision is made through a contract write-down for the total
loss anticipated.
Change Orders
Contracts are often modified through change orders, which are changes to the agreed upon scope of work. Most of
our change orders, which may be priced or unpriced, are for goods or services that are not distinct from the existing
contract due to the significant integration of services provided in the context of the contract and are accounted for
as if they were part of that existing contract. The effect of a change order on the contract price and our measure of
progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative
catch-up basis. For unpriced change orders, we estimate the increase or decrease to the contract price using the
variable consideration method described in the Step 3: Determine Contract Price paragraph above. Unpriced change
orders are more fully discussed in Note 7 - Commitments and Contingencies of the Notes to Financial Statements.
Claims
Sometimes we seek claims for amounts in excess of the contract price for delays, errors in specifications and designs,
contract terminations, change orders in dispute or other causes of additional costs incurred by us. Recognition of
amounts as additional contract price related to claims is appropriate only if there is a legal basis for the claim. The
determination of our legal basis for a claim requires significant judgment. We estimate the change to the contract
price using the variable consideration method described in the Step 3: Determine Contract Price paragraph above.
Claims are more fully discussed in Note 7 - Commitments and Contingencies of the Notes to Financial Statements.
Costs and estimated earnings in excess of billings on uncompleted contracts included revenue for unpriced change
orders and claims of $14.6 million at June 30, 2021 and $14.5 million at June 30, 2020. The amounts ultimately
realized may be significantly different than the recorded amounts resulting in a material adjustment to future earnings.
Generally we expect collection of amounts related to unpriced change orders and claims within twelve months.
However, customers may not pay these amounts until final resolution of related claims, which may extend beyond
one year.
Goodwill
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.
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. We define ‘‘headroom’’ as the percentage
difference between the fair value of a reporting unit and its carrying value. The goodwill impairment test involves
comparing management’s estimate of the fair value of a reporting unit with its carrying value, including goodwill.
If the fair value of a reporting unit exceeds its carrying value, then goodwill is not impaired. If the fair value of a
reporting unit is less than its carrying value, then goodwill is impaired to the extent of the difference, but the
impairment may not exceed the balance of goodwill assigned to that reporting unit.
We utilize a discounted cash flow analysis, referred to as an income approach, and market multiples, referred to as
a market approach, to determine the estimated fair value of our reporting units. For the income approach, significant
38
judgments and assumptions including forecasted project awards, discount rate, anticipated revenue growth rate, gross
margins, operating expenses, working capital needs and capital expenditures are inherent in the fair value estimates,
which are based on our operating and capital budgets and on our strategic plan. 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.
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. As a test for reasonableness,
we also consider the combined fair values of our reporting units to our market capitalization.
We performed our annual goodwill impairment test as of May 31, 2021, which resulted in no impairment. The fiscal
2021 test indicated that four reporting units with a combined total of $37.7 million of goodwill as of June 30, 2021
were at higher risk of future impairment than others. If our view of project opportunities or gross margins
deteriorates, particularly for the higher risk reporting units, then we may be required to record a material impairment
of goodwill.
We considered the amount of headroom for each reporting unit when determining whether an impairment existed.
The amount of headroom varies by reporting unit. Our significant assumptions, including revenue growth rates, gross
margins, discount rate and other factors may change in the future based on the changing economic and competitive
environment in which we operate. Assuming that all other components of our fair value estimate remain unchanged,
a change in the following assumptions would have the following effect on headroom:
Headroom Sensitivity Analysis
Headroom if
Revenue Growth
Rate
Declines by 100
Basis Points
Headroom if
Gross Margin
Declines by 100
Basis Points
Baseline
Headroom
Headroom if
Discount Rate
Increases by 100
Basis Points
Goodwill as of
June 30, 2021
(in thousands)
Reporting Unit 1 . . . . . . . . . . . . . . .
Reporting Unit 2 . . . . . . . . . . . . . . .
Reporting Unit 3 . . . . . . . . . . . . . . .
Reporting Unit 4 . . . . . . . . . . . . . . .
All other reporting units . . . . . . . . .
$16,821
$14,233
$ 3,946
$ 2,659
$22,977
40%
6%
12%
24%
33%
1%
3%
17%
23%
-5%
-52%
0%
30%
-4%
-6%
15%
64% to 114% 56% to 105% 10% to 75% 43% to 99%
Income Taxes
We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances based
on our judgments and estimates are established when necessary to reduce deferred tax assets to the amount expected
to be realized in future operating results. We believe that realization of deferred tax assets in excess of the valuation
allowance is more likely than not. Our estimates are based on facts and circumstances in existence as well as
interpretations of existing tax regulations and laws applied to the facts and circumstances, with the help of
professional tax advisors. Therefore, we estimate and provide for amounts of additional income taxes that may be
assessed by the various taxing authorities.
Loss Contingencies
Various legal actions, claims and other contingencies arise in the normal course of our business. Contingencies are
recorded in the consolidated financial statements, or are otherwise disclosed, in accordance with ASC 450-20, ‘‘Loss
Contingencies’’. Specific reserves are provided for loss contingencies to the extent we conclude that a loss is both
probable and estimable. 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.
39
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
We have subsidiaries with operations in Canada and South Korea, which use the Canadian Dollar and South Korean
Won, respectively, as their functional currencies. We also have a subsidiary with operations in Australia, but its
functional currency is the U.S. Dollar since its sales are primarily denominated in U.S. Dollars.
Historically, movements in the Canadian Dollar to U.S. Dollar exchange rate have not significantly impacted our
results. Also, we do not expect exchange rate fluctuations in our South Korean and Australian operations to materially
impact our financial results since these operations represent an insignificant portion of our consolidated revenue and
expenses. However, further growth in our Canadian, South Korean and/or Australian operations and/or significant
fluctuations in the Canadian Dollar, South Korean Won and/or Australian Dollar to U.S. Dollar exchange rates could
impact our financial results in the future.
Management has not entered into derivative instruments to hedge foreign currency risk, but periodically evaluates the
materiality of our foreign currency exposure. To mitigate our risk, on occasion we convert Canadian Dollar balances
into U.S. Dollars to settle U.S. Dollar amounts owed by our Canadian operations. A 10% unfavorable change in the
Canadian Dollar against the U.S. Dollar would not have had a material impact on our financial results for the fiscal
year ended June 30, 2021.
Commodity Price Risk
We have no direct commodity exposure, but we do have exposure to materials derived from certain commodities
including steel plate, steel pipe, and copper, which are key materials we use. We mitigate these risks primarily by
procuring materials upon contract execution to ensure that our purchase price approximates the costs included in the
project estimate, and also by negotiating contract escalation clauses to cover unexpected costs due to fluctuations in
materials costs.
The ongoing COVID-19 pandemic has resulted in disruptions to global supply chains, which have led to higher prices
for some of the materials we need to run our business. We have been proactive with managing our procurement
processes to help reduce the impacts of rising materials prices on our business and to help ensure we continue to have
the materials we need available. However, rising prices and the potential for materials shortages have interjected
additional risk into bidding and executing work profitably.
The timing of normalization of the global supply chains is uncertain and will depend on several factors, including
the speed of recovery from the pandemic, producer capacity, the level of imports, worldwide demand, tariffs on
imported goods and other market conditions.
40
Item 8.
Financial Statements and Supplementary Data
Financial Statements of the Company
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the Fiscal Years Ended June 30, 2021, June 30, 2020, and
June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended June 30, 2021,
June 30, 2020, and June 30, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of June 30, 2021 and June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2021, June 30, 2020,
and June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended June 30,
2021, June 30, 2020, and June 30, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
43
47
48
49
50
51
52
77
78
Financial Statement Schedules
The financial statement schedule is filed as a part of this report under Schedule II – Valuation and Qualifying
Accounts for the three fiscal years ended June 30, 2021, June 30, 2020 and June 30, 2019 immediately following
Quarterly Financial Data (Unaudited). All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements, or notes thereto, included herein.
41
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Matrix Service Company and its wholly-owned subsidiaries (the ‘‘Company’’) are responsible
for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles. Internal control over financial reporting includes policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial
statements.
All internal control systems, no matter how well designed, have inherent limitations and cannot provide absolute
assurance that all objectives will be met. Internal control over financial reporting is a process that involves diligence
and is subject to lapses in judgment and human error. Internal control over financial reporting can also be
circumvented by collusion or management override of controls. Because of these limitations, there is a risk that
material misstatements may not be prevented or detected on a timely basis.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as
of June 30, 2021. In making this assessment, the Company’s management used the criteria established in Internal
Control—Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (‘‘COSO’’) in Internal Control-Integrated Framework.
Management’s assessment included an evaluation of such elements as the design and operating effectiveness of key
financial
reporting controls, process documentation, accounting policies, overall control environment and
information systems control environment. Based on this assessment, the Company’s management has concluded that
the Company’s internal control over financial reporting as of June 30, 2021 was effective.
Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on the
effectiveness of the Company’s internal control over financial reporting as of June 30, 2021. Deloitte & Touche LLP’s
report on the Company’s internal control over financial reporting is included herein.
John R. Hewitt
President and Chief Executive Officer
Kevin S. Cavanah
Vice President and Chief Financial Officer
September 13, 2021
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Matrix Service Company
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Matrix Service Company and subsidiaries (the
‘‘Company’’) as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2021
based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2021, of the Company
and our report dated September 13, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Tulsa, Oklahoma
September 13, 2021
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Matrix Service Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Matrix Service Company and subsidiaries
(the ‘‘Company’’) as of June 30, 2021 and 2020, the related consolidated statements of income, comprehensive
income, cash flows, and changes in stockholders’ equity for each of the three years in the period ended June 30, 2021
and the related notes and the schedule listed in the Index at Item 8 (collectively referred to as the ‘‘financial
statements’’). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2021, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated September 13, 2021 expressed an unqualified
opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue – Fixed Price Contracts – Refer to Notes 1 and 2 to the financial statements
Critical Audit Matter Description
The Company enters into contracts with customers to provide engineering, procurement, and fabrication and
construction services, usually provided in association with capital projects, which commonly are fixed price contracts
and are billed based on project milestones. Revenue on performance obligations associated with fixed price contracts
is recognized over time since these services create or enhance assets the customer controls as they are being created
or enhanced. The Company measures progress of satisfying these performance obligations by using the percentage-
of-completion method, which is based on costs incurred to date compared to the total estimated costs at completion.
Due to the nature of work left to be performed on many of the Company’s contracts, the estimation of total cost at
completion for fixed price contracts is complex, subject to many variables and requires significant judgment. For the
fiscal year ended June 30, 2021, revenue totaled $673.4 million, of which $444.0 million related to fixed price
contracts.
44
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 one selected fixed price contract.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to estimated total costs at completion for fixed price contracts included the following,
among others:
• We tested the effectiveness of controls over the recognition of revenue for fixed price contracts, including
management’s controls over estimates of total costs at completion.
• 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:
○
○
Comparing management’s estimates to documents such as management’s work plans, customer
purchase orders, third-party invoices from suppliers, and subcontractor agreements.
Developing independent estimates of total costs to completion and compared our estimates to
management’s estimates. 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 one selected 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
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of management’s estimate of the fair
value of each reporting unit to its carrying value. The estimated fair value of each reporting unit was derived primarily
by utilizing a discounted cash flow analysis based on the Company’s operating and capital budgets and strategic plan.
Significant judgments and assumptions including the revenue growth rate, forecasted gross margins, and discount rate
are inherent in the fair value estimates. 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 additional impairment charges in the
financial statements. The Company performed its annual goodwill impairment test as of May 31, 2021, which
resulted in no impairment. The fiscal 2021 test indicated that four reporting units with a combined total of
$37.7 million of goodwill as of June 30, 2021 were at higher risk of future impairment than others because their
estimated fair values exceed their carrying values by 6% to 40%. The Company’s total goodwill was $60.6 million
as of June 30, 2021.
We identified goodwill for three of the four identified reporting units with a combined total of $35.0 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,
45
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 three identified reporting units, such as controls related to
management’s selection of the revenue growth rate and discount rate and forecasts of gross margins.
• 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.
• We evaluated the reasonableness of management’s revenue growth rate and forecasted gross margins by
comparing the forecasts to:
○
○
○
○
Historical revenue growth and gross margins.
Internal communications to management and the Board of Directors,
estimates prepared or used by management for other accounting estimates.
including other forward
Remaining performance obligations.
Information included in Company press releases as well as in analyst and industry reports for the
Company and certain of its peer companies and in industry outlooks.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation
methodology and (2)
including testing the source information underlying the
determination of the discount rate, testing the mathematical accuracy of the calculation, and developing a
range of independent estimates and comparing those to the discount rate selected by management.
the discount
rate,
Tulsa, Oklahoma
September 13, 2021
We have served as the Company’s auditor since 2006.
46
Matrix Service Company
Consolidated Statements of Income
(In thousands, except per share data)
Fiscal Years Ended
June 30,
2020
June 30,
2019
$1,100,938
998,762
$1,416,680
1,284,729
June 30,
2021
$673,398
640,633
32,765
69,756
—
6,756
102,176
86,276
38,515
14,010
(43,747)
(36,625)
(1,559)
126
1,917
(43,263)
(12,039)
(1,597)
1,270
308
(36,644)
(3,570)
131,951
94,021
—
—
37,930
(1,296)
1,167
611
38,412
10,430
27,982
1.04
1.01
26,891
27,587
$
$
$
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible asset impairment. . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income tax expense . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for federal, state and foreign income taxes . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (31,224)
$ (33,074)
Basic earnings (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per common share . . . . . . . . . . . . . . . . . . . . . . .
$
$
(1.18)
(1.18)
$
$
(1.24)
(1.24)
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,451
26,451
26,621
26,621
See accompanying notes
47
Matrix Service Company
Consolidated Statements of Comprehensive Income
(In thousands)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss) (net of tax expense
(benefit) of $223, $(88) and $27 for the fiscal years ended
June 30, 2021, 2020 and 2019, respectively) . . . . . . . . . . . . . . . . .
June 30,
2021
Fiscal Years Ended
June 30,
2020
June 30,
2019
$(31,224)
$(33,074)
$27,982
1,624
(622)
(340)
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(29,600)
$(33,696)
$27,642
See accompanying notes
48
Matrix Service Company
Consolidated Balance Sheets
(In thousands)
Current assets:
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowances (2021 - $898; 2020 - $905). . . . . . . . . . . . . . . . .
Costs and estimated earnings in excess of billings on uncompleted contracts. . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, at cost:
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total property, plant and equipment - at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities:
Liabilities and stockholders’ equity
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings on uncompleted contracts in excess of costs and estimated earnings. . . . . . . .
Accrued wages and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under senior secured revolving credit facility . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’ equity:
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares
issued as of June 30, 2021 and June 30, 2020; 26,549,438 and 26,141,528 shares
outstanding as of June 30, 2021 and June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2021
June 30,
2020
$ 83,878
148,030
30,774
7,342
16,965
4,230
291,219
41,633
94,453
50,510
42,706
493
229,795
(160,388)
69,407
22,412
60,636
6,614
5,295
11,973
$ 467,556
$ 100,036
160,671
59,548
6,460
3,919
4,526
335,160
42,695
94,154
55,864
39,356
4,427
236,496
(155,748)
80,748
21,375
60,369
8,837
5,988
4,833
$ 517,310
$ 60,920
53,832
21,008
6,568
5,747
5,327
153,402
34
20,771
—
7,810
182,017
$ 73,094
63,889
16,205
7,301
7,568
7,890
175,947
61
19,997
9,208
4,208
209,421
279
137,575
175,178
(6,749)
306,283
279
138,966
206,402
(8,373)
337,274
Less treasury stock, at cost — 1,338,779 and 1,746,689 shares as of June 30, 2021
and June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20,744)
285,539
$ 467,556
(29,385)
307,889
$ 517,310
See accompanying notes
49
Matrix Service Company
Consolidated Statements of Cash Flows
(In thousands)
Operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities, net of effects from disposals:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible asset impairment (Note 4) . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease, fixed asset, and other intangible asset impairments due to
restructuring (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposal of business (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for uncollectible accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities increasing (decreasing) cash, net of
effects from disposals:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and estimated earnings in excess of billings on uncompleted contracts . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings on uncompleted contracts in excess of costs and estimated earnings . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided (used) by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from disposal of business (Note 3). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used by investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Advances under senior secured revolving credit facility . . . . . . . . . . . . . . . . . . . .
Repayments of advances under senior secured revolving credit facility . . . . . . . .
Payment of debt amendment fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open market purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuances of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock under employee stock purchase plan . .
Repurchase of common stock for payment of statutory taxes due on equity-
based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of principal portion of long-term liability . . . . . . . . . . . . . . . . . . . . . .
Net cash used by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental disclosure of cash flow information:
Cash paid during the period for:
June 30,
2021
Fiscal Years Ended
June 30,
2020
June 30,
2019
$ (31,224)
$ (33,074)
$ 27,982
17,858
—
8,156
454
889
—
(1,201)
85
460
11,109
28,774
(882)
(21,916)
(12,387)
(8,610)
5,464
(2,971)
19,124
38,515
9,877
5,215
(3,630)
—
(767)
1,158
(7)
56,603
36,535
1,557
11,029
(38,915)
(41,737)
(17,398)
44,085
18,224
—
11,908
—
2,061
(427)
(854)
5
701
(15,374)
(19,809)
(2,872)
(12,246)
32,651
(14,983)
14,427
41,394
(4,354)
—
2,090
$ (2,264)
(18,539)
—
1,423
$ (17,116)
(19,558)
3,885
1,225
$(14,448)
$
1,125
(10,913)
(1,275)
—
349
299
(1,554)
(355)
(12,324)
1,401
(16,158)
100,036
$ 83,878
$ 18,567
(14,357)
—
(17,045)
—
320
(3,524)
—
(16,039)
(609)
10,321
89,715
$100,036
$ 16,225
(10,896)
—
(5,190)
128
311
(1,685)
—
(1,107)
(181)
25,658
64,057
$ 89,715
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash investing and financing activities:
Purchases of property, plant and equipment on account . . . . . . . . . . . . . . . . . .
$
$
$
451
1,834
106
$
$
$
6,394
2,148
$ 3,309
$ 1,705
48
$ 2,686
See accompanying notes
50
Matrix Service Company
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share data)
Balances, July 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . .
Treasury Shares sold to Employee Stock Purchase
Plan (15,812 shares) . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options (12,500 shares) . . . . . . . .
Issuance of deferred shares (314,711 shares) . . . . . .
Treasury shares repurchased to satisfy tax
withholding obligations (79,111 shares) . . . . . . . .
Open market purchases of treasury shares (310,532
shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . .
Balances, June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . .
Treasury Shares sold to Employee Stock Purchase
Plan (20,733 shares) . . . . . . . . . . . . . . . . . . . . . .
Issuance of deferred shares (542,279 shares) . . . . . .
Treasury shares repurchased to satisfy tax
withholding obligations (181,081 shares) . . . . . . .
Open market purchases of treasury shares
(1,047,606 shares) . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . .
Balances, June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . .
Treasury Shares Sold to Employee Stock Purchase
Plan (29,171 shares) . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options (34,150 shares) . . . . . . . .
Issuance of deferred shares (515,218 shares) . . . . . .
Treasury shares repurchased to satisfy tax
withholding obligations (170,629 shares) . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . .
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
$279
—
—
$132,198 $211,494 $(17,717)
—
—
— 27,982
—
—
$(7,411)
—
(340)
Total
$318,843
27,982
(340)
—
—
—
—
—
—
279
—
—
—
—
—
—
—
279
—
—
—
—
—
—
—
38
(126)
(6,306)
—
—
—
273
254
6,306
—
— (1,685)
—
11,908
— (5,190)
—
—
—
—
—
—
—
—
137,712
239,476
— (33,074)
—
—
(17,759)
—
—
(7,751)
—
(622)
(19)
(8,604)
—
—
339
8,604
—
— (3,524)
—
9,877
— (17,045)
—
—
—
—
—
—
—
138,966
206,402
— (31,224)
—
—
(29,385)
—
—
(8,373)
—
1,624
(207)
(257)
(9,083)
—
8,156
—
—
—
506
606
9,083
— (1,554)
—
—
—
—
—
—
—
311
128
—
(1,685)
(5,190)
11,908
351,957
(33,074)
(622)
320
—
(3,524)
(17,045)
9,877
307,889
(31,224)
1,624
299
349
—
(1,554)
8,156
Balances, June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . .
$279
$137,575 $175,178 $(20,744)
$(6,749)
$285,539
See accompanying notes
51
Matrix Service Company
Notes to Consolidated Financial Statements
Note 1—Summary of Significant Accounting Policies
Organization and Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States and include the accounts of Matrix Service Company and its subsidiaries (‘‘Matrix’’, the
‘‘Company’’ or ‘‘we’’, ‘‘our’’, and ‘‘us’’ are to Matrix Service Company and its subsidiaries), all of which are wholly
owned. Intercompany transactions and balances have been eliminated in consolidation.
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.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. We believe the most significant estimates and
judgments are associated with revenue recognition, the recoverability tests that must be periodically performed with
respect to our goodwill and other intangible assets, valuation reserves on our accounts receivable and deferred tax
including liabilities associated with litigation and with the
assets, and the estimation of loss contingencies,
self-insured retentions on our insurance programs. Actual results could materially differ from those estimates.
Credit Losses
Adoption of Credit Losses Standard
On June 16, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, which changed how we
account for our allowance for uncollectible accounts. The amendments in this update require a financial asset (or a
group of financial assets) to be presented at the net amount expected to be collected. The Consolidated Statements
of Income reflect any increases or decreases of expected credit losses that have taken place during the period.
The measurement of expected credit losses is based on relevant information about past events, including historical
experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported
amount.
Previous GAAP delays the recognition of the full amount of credit losses until the loss is probable of occurring.
The amendments in this update eliminate the probable initial recognition threshold and, instead, reflect our current
estimate of all expected credit losses. In addition, current guidance limits the information we may consider in
measuring a credit loss to our past events and current conditions. The amendments in this update broaden the
information we may consider in developing our expected credit loss estimate to include forecasted information.
We adopted the standard on July 1, 2020 with no material impact to our estimate of the allowance for uncollectible
accounts.
Change in Reportable Segments
Due to changing markets facing our clients and to better align our financial reporting with our long-term strategic
growth areas, we began reporting our financial results under new reportable segments effective July 1, 2020. The new
reportable segments along with a description of each are as follows:
•
•
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 construction and maintenance services to a variety of power generation facilities, including natural
gas fired facilities in simple or combined cycle configuration and provide engineering, fabrication, and
construction services for LNG utility peak shaving facilities.
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,
52
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
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 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 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.
All prior period segment information has been restated to conform with our new reportable segments. In addition,
beginning July 1, 2020, we separately report corporate selling, general and administrative expenses and other
corporate expenses that were previously allocated to the segments.
Revenue Recognition
General Information about our Contracts with Customers
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 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.
Step 1: Contract Identification
We do not recognize revenue unless we have identified a contract with a customer. A contract with a customer exists
when it has approval and commitment from both parties, the rights and obligations of the parties are identified,
payment terms are identified, the contract has commercial substance, and collectibility is probable. We also evaluate
whether a contract should be combined with other contracts and accounted for as a single contract. This evaluation
requires judgment and could change the timing of the amount of revenue and profit recorded for a given period.
Step 2: Identify Performance Obligations
Next, we identify each performance obligation in the contract. A performance obligation is a promise to provide a
distinct good or service or a series of distinct goods or services to the customer. Revenue is recognized separately
for each performance obligation in the contract. Many of our contracts have one clearly identifiable performance
obligation. However, many of our contracts provide the customer an integrated service that includes two or more of
the following services: engineering, procurement, fabrication, construction, repair and maintenance services.
For these contracts, we do not consider the integrated services to be distinct within the context of the contract when
the separate scopes of work combine into a single commercial objective or capability for the customer. Accordingly,
we generally identify one performance obligation in our contracts. The determination of the number of performance
obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded
for a given period.
Step 3: Determine Contract Price
After determining the performance obligations in the contract, we determine the contract price. The contract price is
the amount of consideration we expect to receive from the customer for completing the performance obligation(s).
In a fixed-price contract, the contract price is a single lump-sum amount. In reimbursable and time and materials
based contracts, the contract price is determined by the agreed upon rates or reimbursements for time and materials
expended in completing the performance obligation(s) in the contract.
53
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
A number of our contracts contain various cost and performance incentives and penalties that can either increase or
decrease the contract price. These variable consideration amounts are generally earned or incurred based on certain
performance metrics, most commonly related to project schedule or cost targets. We estimate variable consideration
at the most likely amount of additional consideration to be received (or paid in the case of penalties), provided that
meeting the variable condition is probable. We include estimated amounts of variable consideration in the contract
price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and
determination of whether to include estimated amounts in the contract price are based largely on an assessment of
our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.
We reassess the amount of variable consideration each accounting period until the uncertainty associated with the
variable consideration is resolved. Changes in the assessed amount of variable consideration are accounted for
prospectively as a cumulative adjustment to revenue recognized in the current period.
Step 4: Assign Contract Price to Performance Obligations
After determining the contract price, we assign such price to the performance obligation(s) in the contract. If a
contract has multiple performance obligations, we assign the contract price to each performance obligation based on
the stand-alone selling prices of the distinct services that comprise each performance obligation.
Step 5: Recognize Revenue as Performance Obligations are Satisfied
We record revenue for contracts with our customers as we satisfy the contracts’ performance obligations.
We recognize revenue on performance obligations associated with fixed-price contracts for engineering,
procurement, fabrication and construction services over time since these services create or enhance assets the
customer controls as they are being created or enhanced. We measure progress of satisfying these performance
obligations by using the percentage-of-completion method, which is based on costs incurred to date compared to the
total estimated costs at completion, since it best depicts the transfer of control of assets being created or enhanced
to the customer.
We recognize revenue over time for reimbursable and time and material based repair and maintenance contracts since
the customer simultaneously receives and consumes the benefit of those services as we perform work under the
contract. As a practical expedient allowed under the revenue accounting standards, we record revenue for these
contracts in the amount to which we have a right to invoice for the services performed provided that we have a right
to consideration from the customer in an amount that corresponds directly with the value of the performance
completed to date.
Costs incurred may include direct labor, direct materials, subcontractor costs and indirect costs, such as salaries and
benefits, supplies and tools, equipment costs and insurance costs. Indirect costs are charged to projects based upon
direct costs and overhead allocation rates per dollar of direct costs incurred or direct labor hours worked. Typically,
customer contracts will include standard warranties that provide assurance that products and services will function
as expected. We do not sell separate warranties.
We have numerous contracts that are in various stages of completion which require estimates to determine the
forecasted costs at completion. Due to the nature of the work left to be performed on many of our contracts, the
estimation of total cost at completion for fixed-price contracts is complex, subject to many variables and requires
significant judgment. Estimates of total cost at completion are made each period and changes in these estimates are
accounted for prospectively as cumulative adjustments to revenue recognized in the current period. If estimates of
costs to complete fixed-price contracts indicate a loss, a provision is made through a contract write-down for the total
loss anticipated.
Change Orders
Contracts are often modified through change orders, which are changes to the agreed upon scope of work. Most of
our change orders, which may be priced or unpriced, are for goods or services that are not distinct from the existing
contract due to the significant integration of services provided in the context of the contract and are accounted for
54
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
as if they were part of that existing contract. The effect of a change order on the contract price and our measure of
progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative
catch-up basis. For unpriced change orders, we estimate the increase or decrease to the contract price using the
variable consideration method described in the Step 3: Determine Contract Price paragraph above. Unpriced change
orders are more fully discussed in Note 7 - Commitments and Contingencies.
Claims
Sometimes we seek claims for amounts in excess of the contract price for delays, errors in specifications and designs,
contract terminations, change orders in dispute or other causes of additional costs incurred by us. Recognition of
amounts as additional contract price related to claims is appropriate only if there is a legal basis for the claim. The
determination of our legal basis for a claim requires significant judgment. We estimate the change to the contract
price using the variable consideration method described in the Step 3: Determine Contract Price paragraph above.
Claims are more fully discussed in Note 7 - Commitments and Contingencies.
Cash and Cash Equivalents
We include as cash equivalents all investments with original maturities of three months or less which are readily
convertible into cash. We have cash on deposit at June 30, 2021 with banks in the United States, Canada, South Korea
and Australia in excess of Federal Deposit Insurance Corporation (‘‘FDIC’’), Canada Deposit Insurance Corporation
(‘‘CDIC’’), Korea Deposit Insurance Corporation (‘‘KDIC’’) and Financial Claims Scheme (‘‘FCS’’) protection
limits, respectively. The United States Dollar equivalent of Canadian, South Korean and Australian deposits totaled
$14.1 million as of June 30, 2021.
Accounts Receivable
Accounts receivable are carried on a gross basis, less the allowance for credit losses. Our customers consist primarily
of major integrated oil companies, independent refiners and marketers, power companies, petrochemical companies,
pipeline companies, mining companies, contractors and engineering firms. We are exposed to the risk of individual
customer defaults or depressed cycles in our customers’ industries. To mitigate this risk many of our contracts require
payment as projects progress or advance payment in some circumstances. In addition, in most cases we can place
liens against the property, plant or equipment constructed or terminate the contract if a material contract default
occurs. We estimate the allowance for credit losses based on existing economic conditions, the financial condition
of our customers and the amount and age of past due accounts. Accounts are written off against the allowance for
credit losses only after all reasonable collection attempts have been exhausted.
Retentions
Contract retentions collectible beyond one year are included in Other assets in the Consolidated Balance Sheets.
Accounts payable retentions are generally settled within one year.
Loss Contingencies
Various legal actions, claims and other contingencies arise in the normal course of our business. Contingencies are
recorded in the consolidated financial statements, or are otherwise disclosed, in accordance with ASC 450-20, ‘‘Loss
Contingencies’’. Specific reserves are provided for loss contingencies to the extent we conclude that a loss is both
probable and estimable. 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
Inventories consist primarily of steel plate and pipe and aluminum coil and extrusions. Cost is determined primarily
using the average cost method and inventories are stated at the lower of cost or net realizable value.
55
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Depreciation
Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets.
Depreciable lives are as follows: buildings—40 years, construction equipment—3 to 15 years, transportation
equipment—3 to 5 years, and office equipment and software—3 to 10 years. Leasehold improvements are amortized
over the shorter of the useful life of the asset or the lease term.
Leases
We enter into lease arrangements for real estate, construction equipment and information technology equipment in
the normal course of business. We determine if an arrangement is or contains a lease at inception of the arrangement.
An arrangement is determined to be a lease if it conveys the right to control the use of identified property and
equipment for a period of time in exchange for consideration. Operating lease right-of-use assets are recognized as
the present value of future lease payments over the lease term as of the commencement date, plus any lease payments
made prior to commencement, and less any lease incentives received. Operating lease liabilities are recognized as the
present value of the future lease payments over the lease term as of the commencement date. Operating lease expense
is recognized based on the undiscounted future lease payments over the remaining lease term on a straight-line basis.
Lease expense related to short-term leases is recognized on a straight-line basis over the lease term.
Determinations with respect to lease term (including any renewals and terminations), incremental borrowing rate
used to discount lease payments, variable lease expense and future lease payments require the use of judgment based
on the facts and circumstances related to each lease. We consider various factors, including economic incentives,
intent, past history and business need, to determine the likelihood that a renewal option will be exercised.
Right-of-use assets are evaluated for impairment in accordance with our policy for impairment of long-lived assets.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment when events or changes in circumstances indicate, in management’s
judgment, that the carrying value of such assets used in operations may not be recoverable. The determination of
whether an impairment has occurred is based on management’s estimate of undiscounted future cash flows
attributable to the assets as compared to the carrying value of the assets. If an impairment has occurred, the amount
of the impairment recognized is determined by estimating the fair value of the assets and, to the extent the carrying
value exceeds the fair value of the assets, recording a loss provision.
For assets identified to be disposed of in the future, the carrying value of the assets are compared to the estimated
fair value less the cost of disposal to determine if an impairment has occurred. Until the assets are disposed of, an
estimate of the fair value is redetermined when related events or circumstances change.
Goodwill
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.
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. We define ‘‘headroom’’ as the percentage
difference between the fair value of a reporting unit and its carrying value. The goodwill impairment test involves
comparing management’s estimate of the fair value of a reporting unit with its carrying value, including goodwill.
If the fair value of a reporting unit exceeds its carrying value, then goodwill is not impaired. If the fair value of a
reporting unit is less than its carrying value, then goodwill is impaired to the extent of the difference, but the
impairment may not exceed the balance of goodwill assigned to that reporting unit.
We utilize a discounted cash flow analysis, referred to as an income approach, and market multiples, referred to as
a market approach, to determine the estimated fair value of our reporting units. For the income approach, significant
56
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
judgments and assumptions including forecasted project awards, discount rate, anticipated revenue growth rate, gross
margins, operating expenses, working capital needs and capital expenditures are inherent in the fair value estimates,
which are based on our operating and capital budgets and on our strategic plan. 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.
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. As a test for reasonableness,
we also consider the combined fair values of our reporting units to our market capitalization.
Other Intangible Assets
Intangible assets that have finite useful lives are amortized by the straight-line method over their useful lives ranging
from 6 years to 15 years. A finite intangible asset is considered impaired when its carrying amount is not recoverable
and exceeds the asset’s fair value. The carrying amount is deemed unrecoverable if it is greater than the sum of
undiscounted cash flows expected to result from use and eventual disposition of the asset. An impairment loss is equal
to the excess of the carrying amount over the fair value of the asset. If quoted market prices are not available, the
fair values of the intangible assets are based on present values of expected future cash flows or royalties avoided
using discount rates commensurate with the risks involved.
Insurance Reserves
We maintain insurance coverage for various aspects of our operations. However, we retain exposure to potential
losses through the use of deductibles, coverage limits and self-insured retentions. We establish reserves for claims
using a combination of actuarially determined estimates and case-by-case evaluations of the underlying claim data
and update our evaluations as further information becomes known. Judgments and assumptions are inherent in our
reserve accruals; as a result, changes in assumptions or claims experience could result in changes to these estimates
in the future. If actual results of claim settlements are different than the amounts estimated we may be exposed to
future gains and losses that could be material.
Stock-Based Compensation
We have issued stock options, nonvested deferred share awards and cash-settled restricted share units under our
long-term incentive compensation plans. The fair value of these awards is calculated at grant date. The fair value of
time-based, nonvested deferred shares and cash-settled restricted share units is the value of our common stock at the
grant date. The fair value of market-based nonvested deferred shares is based on several factors, including the
probability that the market condition specified in the grant will be achieved, which is calculated using a Monte Carlo
model. The fair value of stock options is determined based on the Black-Scholes option pricing model. Cash-settled
restricted share units must be settled in cash and are accounted for as liability-type awards and are remeasured at the
end of each reporting period at fair value until settlement. For all awards, expense is recognized over the requisite
service period with forfeitures recorded as they occur.
Income Taxes
We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances based
on our judgments and estimates are established when necessary to reduce deferred tax assets to the amount expected
to be realized in future operating results. We believe that realization of deferred tax assets in excess of the valuation
allowance is more likely than not. Our estimates are based on facts and circumstances in existence as well as
interpretations of existing tax regulations and laws applied to the facts and circumstances, with the help of
professional tax advisors. Therefore, we estimate and provide for amounts of additional income taxes that may be
assessed by the various taxing authorities.
57
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Foreign Currency
The functional currencies of our operations in Canada, South Korea and Australia are the Canadian Dollar, South
Korean Won and U.S. Dollar, respectively. The functional currency of our Australian operations is the U.S. Dollar
since its sales are primarily denominated in that currency. 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. Transaction gains and losses
are reported as a component of Other income (expense) in the Consolidated Statements of Income.
Note 2 – Revenue
Remaining Performance Obligations
We had $365.6 million of remaining performance obligations yet to be satisfied as of June 30, 2021. We expect to
recognize approximately $297.6 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 payment, 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 reported on a net basis at the end of each period 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:
June 30,
2021
June 30,
2020
(In thousands)
Change
Costs and estimated earnings in excess of billings on uncompleted contracts . .
Billings on uncompleted contracts in excess of costs and estimated earnings . .
$ 30,774
(53,832)
$ 59,548
(63,889)
$(28,774)
10,057
Net contract liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(23,058) $ (4,341) $(18,717)
The difference between the beginning and ending balances of our CIE and BIE primarily results from the timing of
revenue recognized relative to its billings. The amount of revenue recognized during the fiscal year ended June 30,
2021 that was included in the prior period BIE balance was $58.6 million. This revenue consists primarily of work
performed during the period on contracts with customers that had advance billings.
Progress billings in accounts receivable at June 30, 2021 and June 30, 2020 included retentions to be collected within
one year of $19.9 million and $37.3 million, respectively. Contract retentions collectible beyond one year are
included in other assets in the Consolidated Balance Sheets and totaled $3.1 million as of June 30, 2021 and
$1.6 million as of June 30, 2020.
Disaggregated Revenue
Revenue disaggregated by reportable segment is presented in Note 13 - Segment Information. The following series
of tables presents revenue disaggregated by geographic area where the work was performed and by contract type:
58
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Geographic Disaggregation:
June 30,
2021
Fiscal Years Ended
June 30,
2020
(In thousands)
June 30,
2019
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other international. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$604,739
61,703
6,956
$1,020,083
70,133
10,722
$1,367,844
41,410
7,426
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$673,398
$1,100,938
$1,416,680
Contract Type Disaggregation:
June 30,
2021
Fiscal Years Ended
June 30,
2020
(In thousands)
June 30,
2019
Fixed-price contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time and materials and other cost reimbursable contracts . . . . . . . . . . . . .
$444,042
229,356
$ 685,559
415,379
$ 748,007
668,673
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$673,398
$1,100,938
$1,416,680
Typically, we assume more risk with fixed-price contracts since increases in cost 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.
Other
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. The changes in estimate were due to lower than previously forecasted productivity caused by excessive
rain at the project site, the continuing impact of COVID-19, and rework which led to higher costs and schedule
compression. This project was nearly complete at year-end and we are performing start-up and commissioning work
in the first quarter of fiscal 2022.
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.
Note 3—Disposals
Sale of Process Heating Business
In August 2018, we sold non-core assets associated with a business that marketed process heating equipment for
$3.9 million in cash, including $0.2 million of customary final post-closing adjustments paid in October 2018. We
recognized a gain of $0.4 million on the sale, which was included in Other in the Consolidated Statements of Income.
The revenue and operating results of the business, which were included in the Process and Industrial Facilities
segment, were not material.
59
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Note 4—Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill by segment are as follows:
Net balance at June 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . .
Disposal of business (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustment (2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net balance at June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustment (2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net balance at June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net balance at June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . .
Utility and Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
(In thousands)
$ 31,848
—
(8)
31,840
(24,900)
(35)
6,905
79
$37,612
(2,775)
5
34,842
(7,981)
(15)
26,846
32
$26,702
—
(16)
26,686
—
(68)
26,618
156
Total
$ 96,162
(2,775)
(19)
93,368
(32,881)
(118)
60,369
267
$ 6,984
$26,878
$26,774
$ 60,636
(1)
(2)
In August 2018, we disposed of a business that marketed process heating equipment. See Note 3 - Acquisitions and Disposals for more
information about the disposal. The business disposed of constituted its own reporting unit and the amount of goodwill written off was all
of the goodwill assigned to that reporting unit. None of the goodwill was considered impaired since we recorded a gain on the disposal.
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.
We performed our annual goodwill impairment test as of May 31, 2021, which resulted in no impairment. The fiscal
2021 test indicated that four reporting units with a combined total of $37.7 million of goodwill as of June 30, 2021
were at higher risk of future impairment than others. 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.
In the second quarter of fiscal 2020, we concluded that a goodwill impairment indicator existed in the Utility and
Power Infrastructure segment based on the recent history of depressed gross margins and the second quarter’s
downward acceleration of revenue and gross margin. Accordingly, we performed an interim impairment test as of
December 31, 2019, reflecting updated revenue and gross margin assumptions, and concluded that the reporting
unit’s $24.9 million of goodwill was fully impaired. Additionally, we concluded that a goodwill impairment indicator
existed for a Process and Industrial Facilities segment reporting unit based on several second quarter events. These
events included the deterioration of our relationship with a significant customer in the iron and steel industry in the
second quarter. As a result, the customer canceled other previously awarded work and we received no subsequent
business from this customer. Accordingly, we performed an interim impairment test as of December 31, 2019 and
concluded that the reporting unit’s $8.0 million of goodwill was fully impaired.
The estimated fair value of each reporting unit was derived primarily by utilizing a discounted cash flow analysis.
The key assumptions used are described in Note 1 - Summary of Significant Accounting Policies.
Other Intangible Assets
In the fourth quarter of fiscal 2020, we fully impaired a customer relationship intangible asset with a net book value
of $1.2 million. The customer relationship primarily related to services which were impacted by our performance
improvement plan (see Note 14 - Restructuring Costs). As a result, the customer relationship intangible asset was no
longer recoverable. As of June 30, 2020, this intangible asset had a remaining useful life of approximately 2 years,
a gross carrying amount of $6.3 million and accumulated amortization of $5.1 million. The impairment is included
in restructuring costs in the Consolidated Statements of Income.
Also in the fourth quarter of fiscal 2020, we fully impaired a customer relationship intangible asset with a net book
value of $0.4 million in connection with the closure of an underperforming operating unit. The closure was part of
60
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
our performance improvement plan (see Note 14 - Restructuring Costs). As of June 30, 2020, this intangible asset
had a remaining useful life of approximately 4 years, a gross carrying amount of $0.9 million and accumulated
amortization of $0.5 million. The impairment is included in the restructuring costs caption in the Consolidated
Statements of Income.
In the second quarter of fiscal 2020, in connection with the factors disclosed for the Process and Industrial Facilities
segment goodwill impairment above, we fully impaired a customer relationship with a net book value of $5.6 million.
As of December 31, 2019, this intangible asset had a remaining useful life of 9 years, a gross carrying amount of
$9.4 million and accumulated amortization of $3.8 million. The impairment is included within the goodwill and other
intangible asset impairment caption in the Consolidated Statements of Income.
Information on the carrying value of other intangible assets is as follows:
Intellectual property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer based . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer based . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Useful Life
(Years)
10 to 15
6 to 15
Useful Life
(Years)
10 to 15
6 to 15
Gross
Carrying
Amount
$ 2,483
17,354
$19,837
Gross
Carrying
Amount
$ 2,579
21,840
$24,419
At June 30, 2021
Accumulated
Amortization
Net Carrying
Amount
(In thousands)
$ (2,031)
(11,192)
$(13,223)
At June 30, 2020
$ 452
6,162
$6,614
Accumulated
Amortization
Net Carrying
Amount
(In thousands)
$ (1,956)
(13,626)
$(15,582)
$ 623
8,214
$8,837
Amortization expense totaled $2.3 million, $3.4 million, and $3.3 million in fiscal 2021, 2020, and 2019,
respectively.
We estimate that future amortization of other intangible assets will be as follows (in thousands):
For year ending:
June 30, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2026. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total estimated amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,819
1,729
1,415
1,096
555
$6,614
Note 5—Debt
ABL Credit Facility
On September 9, 2021, we and our primary U.S. and Canada operating subsidiaries entered into an asset-backed
credit agreement (the ‘‘ABL Facility’’) as borrowers with Bank of Montreal, as Administrative Agent, Swing-Line
Lender, a Letter of Credit Issuer and a Lender. The ABL Facility is guaranteed by substantially all of our remaining
U.S. and Canadian subsidiaries. The ABL Facility provides for available borrowings of up to $100.0 million, which
may be increased further 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 secured by a first lien on
all our assets and the assets of our co-borrowers and guarantors under the ABL Facility.
61
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
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. At September 9, 2021, availability under the ABL Facility was
$25.9 million and there were $43.5 million in letters of credit outstanding. The ABL Facility matures and any
outstanding amounts become due and payable on September 9, 2026.
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’’), CDOR rate or a LIBOR rate, plus an applicable margin. The Base
Rate is defined as a fluctuating interest rate equal to the greatest 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%, and (iii) LIBOR rate for one month
period plus 1.00%. Depending on the amount of average availability, the applicable margin is between 1.00% to
1.50% for Base Rate, which includes either U.S. or Canadian prime rate, and between 2.00% and 2.50% for CDOR
and LIBOR rate borrowings. Interest is payable either (i) monthly for Base Rate borrowings or (ii) the last day of
the interest period for LIBOR or CDOR rate borrowings, as set forth in the Credit Agreement. The fee for undrawn
amounts is 0.25% per annum and is due quarterly.
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 lesser of (1) the current borrowing base and (2) 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.
Senior Secured Revolving Credit Facility
The ABL Facility replaced the Fifth Amended and Restated Credit Agreement (the ‘‘Prior Credit Agreement’’), that
was entered into on November 2, 2020, and subsequently amended on May 4, 2021, by and among us and certain
foreign subsidiaries, as Borrowers, various subsidiaries of ours, as Guarantors, JPMorgan Chase Bank, N.A., as
Administrative Agent, Sole Lead Arranger and Sole Book Runner, and the other Lenders party thereto. The Prior
Credit Agreement provided for a three-year senior secured revolving credit facility of $200.0 million that expired
November 2, 2023.
We had no borrowings and $41.3 million of letters of credit outstanding under the Prior Credit Agreement as of
June 30, 2021. We had $9.2 million of borrowings and $34.5 million of letters of credit outstanding under the Prior
Credit Agreement as of June 30, 2020.
Each revolving borrowing under the Prior Credit Agreement bore interest at a rate per annum equal to a base rate,
plus a margin of 1.00% to 3.50%. The unused credit facility fee was between 0.35% and 0.50% based on the Leverage
Ratio as defined in the Prior Credit Agreement.
The Prior Credit Agreement contained customary financial, negative and affirmative covenants and limited our
borrowing availability based on our EBITDA, as it was defined in the Prior Credit Agreement. The Prior Credit
Agreement also limited our ability to make acquisitions, repurchase shares, make capital expenditures and dispose
of assets.
Note 6—Income Taxes
Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the ‘‘CARES Act’’) was
signed into law. The purpose of the CARES Act was to provide $2.2 trillion in funding to fight the COVID-19
pandemic and provide economic relief in the form of tax relief, government loans and grants. The CARES Act
contains the following key provisions which affect income taxes:
•
Eliminates the 80% of taxable income limitations by allowing corporations to fully utilize net operating loss
carryforwards to offset taxable income in 2018, 2019, or 2020 and reinstating it for tax years after 2020;
62
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
•
•
•
•
Allows net operating losses generated in 2018, 2019 or 2020 to be carried back five years;
Increases the net interest expense deduction limit to 50% of adjusted taxable income from 30% for the 2019
and 2020 tax years;
Allows taxpayers with alternative minimum tax credits to claim a refund for the entire amount of the credit
instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cuts
and Jobs Act; and
Allows entities to deduct more of their charitable cash contributions made during calendar year 2020 by
increasing the taxable income limitation to 25% from 10%.
Through provisions in the CARES Act, we have an income tax benefit of $5.2 million from the ability to carryback
the fiscal 2021 federal net operating loss to a period with a higher statutory federal income tax rate. We estimate that
we will receive a $13.0 million tax refund in connection with the carryback of the fiscal 2021 net operating loss,
which is included in income taxes receivable in the Consolidated Balance Sheets.
We have deferred $11.1 million of U.S. payroll tax as of June 30, 2021 through provisions of the CARES Act. The
deferred payroll taxes are included within other accrued expenses and other liabilities in the Consolidated Balance
Sheets. We must repay half of the deferred payroll tax by December 31, 2021 and the remainder by December 31,
2022.
Sources of pretax income (loss)
June 30,
2021
Fiscal Years Ended
June 30,
2020
(In thousands)
June 30,
2019
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(38,867)
(4,396)
$(32,660)
(3,984)
$46,032
(7,620)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(43,263)
$(36,644)
$38,412
Components of the provision for income tax expense (benefit)
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2021
Fiscal Years Ended
June 30,
2020
(In thousands)
June 30,
2019
$(13,154)
465
(239)
(12,928)
$ (376)
412
23
$ 6,085
2,390
(97)
59
8,378
774
(291)
406
889
(5,000)
(1,091)
2,462
(3,629)
(528)
451
2,129
2,052
$(12,039)
$(3,570)
$10,430
63
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Reconciliation between the expected income tax provision applying the domestic federal statutory tax rate and
the reported income tax provision
Expected provision (benefit) for federal income taxes at the statutory rate . .
State income taxes, net of federal benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of non-deductible goodwill(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges without tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reversal of branch liability(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax expense (benefit) on stock-based compensation. . . . . . . . . . . . . . .
Research and development and other tax credits . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax differential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal rate differential net operating loss carryback(3) . . . . . . . . . . . . . . . . . .
Change in uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for federal, state and foreign income taxes . . . . . . . . . . . .
June 30,
2021
$ (9,085)
(1,240)
—
961
2,797
—
1,826
(1,707)
(96)
(5,223)
(7)
(265)
$(12,039)
Fiscal Years Ended
June 30,
2020
(In thousands)
$(7,695)
(768)
1,813
1,707
3,062
—
230
(1,724)
(132)
—
20
(83)
$(3,570)
June 30,
2019
$ 8,067
2,288
—
1,233
4,512
(3,546)
(296)
(1,972)
(248)
—
22
370
$10,430
(1)
(2)
In fiscal 2020, we impaired $32.9 million of goodwill, which included $8.6 million of non-deductible goodwill. See Note 4 - Goodwill and
Other Intangible Assets for more information about the impairments.
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 recent history of cumulative losses for a subsidiary. In fiscal 2020, we placed $3.1 million of valuation allowances on net operating loss
carryforwards and foreign tax credits primarily related to Canada. In fiscal 2019, we placed $4.5 million of valuation allowances on net
operating loss carryforwards and foreign tax credits generated by branch operations in Canada, which will likely not be utilized prior to their
expiration. These valuation allowances were largely offset by the reversal $3.5 million of branch liabilities associated with the Canadian net
operating loss carryforwards and foreign tax credits.
(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.
Significant components of our deferred tax assets and liabilities
Deferred tax assets:
Warranty reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid-time-off accrual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss benefit and credit carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense on nonvested deferred shares. . . . . . . . . . . . . . . . . . . . . . . . .
Accrued losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book over tax amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred FICA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2021
June 30,
2020
(In thousands)
$
206
231
747
1,229
146
14,966
(11,104)
690
27
1,895
64
725
3,765
1,920
665
$ 16,172
$
206
233
669
1,221
207
10,354
(7,763)
1,447
—
3,231
96
1,381
5,195
—
843
$17,320
64
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
June 30,
2021
June 30,
2020
(In thousands)
Deferred tax liabilities:
Tax over book depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch future liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable holdbacks and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,315
—
596
10,911
$ 5,261
$11,313
74
6
11,393
$ 5,927
As reported in the Consolidated Balance Sheets:
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2021
June 30,
2020
(In thousands)
$5,295
(34)
$5,261
$5,988
(61)
$5,927
Operating loss and tax credit carryforwards
We have state net operating loss carryforwards, state tax credit carryforwards, federal foreign tax credit
carryforwards, foreign net operating loss carryforwards and foreign tax credit carryforwards. The valuation allowance
at June 30, 2021 and June 30, 2020 reduces the recognized tax benefit of these carryforwards to an amount that is
more likely than not to be realized. These carryforwards will generally expire as shown below:
Operating Loss Carryforwards
Expiration Period
Amount (in thousands)
State net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 2025 to indefinite
June 2029 to June 2041
$57,786
$33,242
Tax Credit Carryforwards
Expiration Period
Amount (in thousands)
State tax credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal tax credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 2033 to indefinite
June 2041
June 2023 to June 2025
June 2035 to June 2041
$ 578
$1,087
$ 655
$ 687
Other
In general, it is our practice and intention to reinvest the earnings of our foreign subsidiaries in our foreign operations.
We do not provide for outside basis differences under the indefinite reinvestment assertion of ASC 740-30.
We file tax returns in multiple domestic and foreign taxing jurisdictions. With a few exceptions, we are no longer
subject to examination by taxing authorities through fiscal 2016. At June 30, 2021, we updated our evaluation of our
open tax years in all known jurisdictions. As of June 30, 2021, we have a $0.3 million liability for unrecognized tax
positions and the payment of related interest and penalties. We treat the related interest and penalties as income tax
expense. Due to the uncertainties related to these tax matters, we are unable to make a reasonably reliable estimate
as to when cash settlement with a taxing authority will occur.
Note 7—Commitments and Contingencies
Insurance Reserves
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.
65
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
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
As of June 30, 2021 and June 30, 2020, costs and estimated earnings in excess of billings on uncompleted contracts
included revenue for unpriced change orders and claims of $14.6 million and $14.5 million, respectively. The
amounts ultimately realized may be significantly different than the recorded amounts resulting in a material
adjustment to future earnings. Generally we expect collection of amounts related to unpriced change orders and
claims within twelve months. However, customers may not pay these amounts until final resolution of related claims,
which may extend beyond one year.
Other
During the fourth quarter of fiscal 2021, we settled a contract dispute over the construction of a crude oil terminal,
which resulted in a reduction of gross profit of $2.9 million. 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 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
receivable balance at June 30, 2021 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 and our subsidiaries are participants in various legal actions. It is the opinion of management that none of the
other known legal actions, including a contract dispute with a customer involving the construction of a crude
terminal, will have a material impact on our financial position, results of operations or liquidity.
Note 8— Leases
We enter into lease arrangements for real estate, construction equipment and information technology equipment in
the normal course of business. Real estate leases accounted for approximately 94% of all right-of-use assets as of
June 30, 2021. Most real estate and information technology equipment leases generally have fixed payments that
follow an agreed upon payment schedule and have remaining lease terms ranging from less than a year to 15 years.
Construction equipment leases generally have ‘‘month-to-month’’ lease terms that automatically renew as long as the
equipment remains in use.
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.
66
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
The components of lease expense in the Consolidated Statements of Income are as follows:
Lease expense
Location of Expense in Consolidated Statements of Income
Fiscal Years Ended
June 30, 2021 June 30, 2020
(in thousands)
Operating lease expense . . . . . Cost of revenue and selling, general and administrative
$ 8,386
$12,274
Short-term lease expense(1) . . . Cost of revenue
Total lease expense . . . . . . . . .
expenses
25,912
37,371
$34,298
$49,645
(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:
Maturity Analysis:
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future operating lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net present value of future lease payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion of operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2021
(in thousands)
$ 6,548
4,684
3,600
3,143
2,866
11,224
32,065
(5,547)
26,518
5,747
Non-current operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,771
The following is a summary of the weighted average remaining operating lease term and weighted average discount
rate as of June 30, 2021:
Weighted-average remaining lease term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.3 years
5.3%
Supplemental cash flow information related to leases is as follows:
Fiscal Year Ended
June 30, 2021
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use assets obtained in exchange for lease liabilities: . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,922
$8,342
Note 9—Stockholders’ Equity
Preferred Stock
We have 5.0 million shares of preferred stock authorized, none of which was issued or outstanding at June 30, 2021
or June 30, 2020.
67
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Treasury Shares
The terms of our Credit Agreement limit share repurchases to $2.5 million per fiscal year provided that that we do
not violate our Fixed Charge Coverage Ratio financial covenant (see Note 5 - Debt for more information about our
Credit Agreement). 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
fiscal 2021 and have no current plans to repurchase stock in the near-term. There were 1,349,037 shares available
for repurchase under the November 2018 Program as of June 30, 2021.
In addition to the stock buyback program, we may withhold shares of common stock to satisfy the tax withholding
obligations upon vesting of an employee’s deferred shares. We withheld 170,629 and 181,081 shares of common
stock during fiscal 2021 and 2020, respectively, to satisfy these obligations. These shares were returned to our pool
of treasury shares. We have 1,338,779 treasury shares as of June 30, 2021 and intend to utilize these treasury shares
in connection with equity awards under our incentive plans and for sales to the Employee Stock Purchase Plan.
Note 10—Stock-Based Compensation
Total stock-based compensation expense for the fiscal years ended June 30, 2021, June 30, 2020, and June 30, 2019
was $8.2 million, $9.9 million and $11.9 million, respectively. Measured but unrecognized stock-based compensation
expense at June 30, 2021 was $8.6 million, all of which related to nonvested deferred shares which are expected to
be recognized as expense over a weighted average period of 1.6 years. We recognized excess tax expense of
$1.8 million and $0.2 million related to stock-based compensation vesting for the fiscal years ended June 30, 2021
and 2020, respectively. We recognized excess tax benefits of $0.3 million for the fiscal year ended June 30, 2019
related to stock-based compensation vesting.
Plan Information
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. The 2018 Plan was preceded by the 2016 Stock Incentive Plan
(‘‘2016 Plan’’), which was frozen upon approval of the 2018 Plan with the exception of normal vesting, forfeiture
and other activity associated with awards previously granted under the 2016 Plan. Shares awarded under either the
2018 Plan or 2016 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. The 2016 Plan was preceded by the 2012
Stock Incentive Plan (‘‘2012 Plan’’) and the 2004 Stock Incentive Plan (‘‘2004 Plan’’), which were frozen upon
approval of the 2016 Plan and 2012 Plan, respectively, with the exception of normal vesting, forfeiture and other
activity associated with awards previously granted under the 2012 Plan and 2004 Plan. There are no outstanding
awards under the 2012 Plan, but there were stock option awards outstanding under the 2004 Plan as of June 30, 2021
- see Stock Options section below.
Awards totaling 1,725,000 shares have been authorized under the 2020 Plan. There were 1,769,487 shares available
for grant under the 2020 Plan as of June 30, 2021.
Stock Options
Stock options are granted at the market value of our common stock on the grant date and expire after 10 years. Our
policy is to issue shares upon the exercise of stock options from its treasury shares, if available. We did not award
any new stock options in fiscal years 2021, 2020, or 2019. The options outstanding as of June 30, 2021 expire on
November 17, 2021.
68
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Stock option activity and related information for the fiscal year ended June 30, 2021 is as follows:
Number of
Options
Outstanding at June 30, 2020 . . . . . . . . . . . . . .
53,700
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at June 30, 2021 . . . . . . . . . . . . . .
Vested at June 30, 2021 . . . . . . . . . . . . . . . . . . .
Exercisable at June 30, 2021 . . . . . . . . . . . . . . .
—
(34,150)
—
19,550
19,550
19,550
Weighted-Average
Remaining
Contractual Life
(Years)
1.4
0.4
0.4
0.4
Weighted-Average
Exercise Price
$10.19
—
$10.19
—
$10.19
$10.19
$10.19
Aggregate
Intrinsic Value
(In thousands)
$—
$—
$82
$—
$ 6
$ 6
$ 6
The total intrinsic value of stock options exercised was $0.1 million during fiscal year 2021 and fiscal 2019. No stock
options were exercised in fiscal 2020.
Nonvested Deferred Shares
We have issued nonvested deferred shares under the following types of arrangements:
•
Time-based awards—Employee awards generally vest in four equal annual installments beginning one year
after the grant date. Beginning in fiscal 2019, the award agreements contain a provision that accelerates the
vesting for retirement eligible participants and participants that become retirement eligible during the
vesting period and who elect to retire more than one year after the date of the award. The award is forfeited
if retirement occurs before the first anniversary of the award. Settlement still occurs on the normal vesting
schedules. Director awards vest one year after the grant date.
• 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. The payout can range from zero to 200% of the original award depending on the
Company’s relative total shareholder return during the performance period. These awards are settled in
stock. As of June 30, 2021, there are approximately 147,000, 174,000, and 369,000 performance units that
are scheduled to vest in fiscal 2022, fiscal 2023, and fiscal 2024, respectively, assuming target performance.
All awards under the 2020 Plan vest upon the death or disability of the participant or upon a change of control of
the Company, provided that the successor company fails to assume or replace the awards in connection with that
change of control event. If the successor company does assume the awards, then vesting of the awards will be
accelerated in the event of an involuntary termination or other material adverse event that occurs in connection with
or following the change of control. All awards prior to the 2020 Plan vest upon the death or disability of the
participant or upon a change of control of the Company.
The grant date fair value of the time-based awards is determined by the market value of our common stock on the
grant date. The grant date fair value of stock options is determined based on the Black-Scholes option pricing model.
The grant date fair value of the market-based awards is calculated using a Monte Carlo model. For the fiscal 2021
grant, the model estimated the fair value of the award based on approximately 100,000 simulations of the future
prices of our common stock compared to the future prices of the common stock of its peer companies based on
historical volatilities. The model also took into account the expected dividends over the performance period of those
peer companies which pay cash dividends.
69
Matrix Service Company
Nonvested deferred share activity for the fiscal year ended June 30, 2021 is as follows:
Notes to Consolidated Financial Statements (continued)
Nonvested shares at June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance shares earned in excess of target . . . . . . . . . . . . . . . . . . . . . . . . .
Shares vested and released. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
1,234,918
665,597
15,314
(515,218)
(119,904)
Nonvested shares at June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,280,707
Weighted Average Grant
Date Fair Value per Share
$20.89
$10.60
$ —
$16.99
$20.67
$17.07
There were 490,322 and 602,148 deferred shares granted in fiscal 2020 and 2019 with average grant date fair values
of $21.79 and $25.10 per share, respectively. There were 542,279 and 314,711 deferred shares that vested and were
released in fiscal 2020 and 2019 with weighted average fair values of $19.43 and $16.23 per share, respectively.
Cash-Settled Restricted Share Units
In fiscal 2021, we granted 238,848 cash-settled restricted share units with a grant date fair value of $2.3 million. No
cash-settled restricted share units were granted in fiscal years 2020 and 2019 and no settlements have occurred. 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. The award must be settled in cash and is accounted for as a liability-type award. The expense
is recognized over the requisite service period with remeasurement at the end of each reporting period at fair value
until settlement. The requisite service period is based on the vesting provisions of the awards which generally occur
in four equal annual installments beginning one year after the grant date. These awards contain the same retirement
provisions described for time-based awards in the nonvested deferred shares section above. We recognized
$1.0 million of expense in fiscal 2021 for cash-settled restricted share units, which was included in selling, general
and administrative expenses and cost of revenue in the Consolidated Statements of Income. As of June 30, 2021, the
liability for cash-settled restricted share units was $1.0 million and is included in accrued wages and benefits in the
Consolidated Balance Sheets.
Note 11—Earnings per Common Share
Basic earnings per share (‘‘EPS’’) is calculated based on the weighted average shares outstanding during the period.
Diluted earnings per share includes the dilutive effect of employee and director stock options and nonvested deferred
shares. Stock options are considered dilutive whenever the exercise price is less than the average market price of the
stock during the period and antidilutive whenever the exercise price exceeds the average market price of the common
stock during the period. Nonvested deferred shares are considered dilutive (antidilutive) whenever the average market
value of the shares during the period exceeds (is less than) the sum of the related average unamortized compensation
expense during the period plus the related hypothetical estimated excess tax benefit that will be realized when the
shares vest. Stock options and nonvested deferred shares are considered antidilutive in the event we report a net loss.
The computation of basic and diluted EPS is as follows:
Basic EPS:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(31,224)
$(33,074)
$27,982
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,451
26,621
26,891
Basic earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(1.18)
$
(1.24)
$
1.04
June 30,
2021
Fiscal Years Ended
June 30,
June 30,
2019
2020
(In thousands, except per share data)
70
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Diluted EPS:
Weighted average shares outstanding—basic . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive nonvested deferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2021
Fiscal Years Ended
June 30,
June 30,
2019
2020
(In thousands, except per share data)
26,451
—
—
26,451
26,621
—
—
26,621
26,891
28
668
27,587
Diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (1.18)
$ (1.24)
$
1.01
The following securities are considered antidilutive and have been excluded from the calculation of diluted earnings
(loss) per share:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested deferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total antidilutive securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
399
402
Note 12—Employee Benefit Plans
Defined Contribution Plans
June 30,
2021
June 30,
2019
Fiscal Years Ended
June 30,
2020
(In thousands of shares)
19
662
681
—
160
160
We sponsor defined contribution savings plans for all eligible employees meeting length of service requirements.
Under the primary plan, participants may contribute an amount up to 25% of pretax annual compensation subject to
certain limitations. We match 100% of the first 3% of employee contributions and 50% of the next 2% of employee
contributions. Our matching contributions vest immediately.
Our matching contributions were $5.4 million in the fiscal year ended June 30, 2021, and $6.2 million in each of the
fiscal years ended June 30, 2020 and June 30, 2019.
Multiemployer Pension Plans
We contribute to a number of multiemployer defined benefit pension plans in the U.S. and Canada under the terms
of collective-bargaining agreements that cover our union-represented employees, who are represented by more than
90 local unions. The related collective-bargaining agreements between those organizations and us, which specify the
rate at which we must contribute to the multi-employer defined pension plan, expire at different times between 2021
and 2024. Benefits under these plans are generally based on compensation levels and years of service.
For us, the financial risks of participating in multiemployer plans are different from single-employer plans in the
following respects:
•
•
•
Assets contributed to the multiemployer plan by one employer may be used to provide benefits to
employees of other participating employers.
If a participating employer discontinues contributions to a plan, the unfunded obligations of the plan may
be borne by the remaining participating employers.
If a participating employer chooses to stop participating in a plan, a withdrawal liability may be created
based on the unfunded vested benefits for all employees in the plan.
Under federal legislation regarding multiemployer pension plans, in the event of a withdrawal from a plan or plan
termination, companies are required to continue funding their proportionate share of such plan’s unfunded vested
benefits. We are a participant in multiple union sponsored multiemployer plans, and, as a plan participant, our
potential obligation could be significant. The amount of the potential obligation is not currently ascertainable because
the information required to determine such amount is not identifiable or readily available.
71
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Our participation in significant plans for the fiscal year ended June 30, 2021 is outlined in the table below. The
‘‘EIN/Pension Plan Number’’ column provides the Employer Identification Number (‘‘EIN’’) and the three digit plan
number. The zone status is based on the latest information that the Company received from the plan and is certified
by the plan’s actuary. Plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are
generally less than 80 percent funded, and plans in the green zone are generally at least 80 percent funded. The
‘‘FIP/RP Status Pending/Implemented’’ column indicates plans for which a financial improvement plan (‘‘FIP’’) or
a rehabilitation plan (‘‘RP’’) is either pending or has been implemented. 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.
Pension Fund
EIN/Pension
Plan Number
Pension
Protection Act
Zone Status
2021
2020
FIP/RP
Status
Pending or
Implemented
Company Contributions
Fiscal Year
2020
(In thousands)
2019
2021
Yellow
Described
below (1)
Implemented
$ 4,003
$ 6,634
$12,434
Implemented
1,958
1,560
2,180
Boilermaker-Blacksmith
National Pension Trust
Joint Pension Fund Local
Union 164 IBEW
Joint Pension Fund of Local
Union No 102 IBEW
IBEW Local 456 Pension
Plan
Local 351 IBEW Pension
Plan
Steamfitters Local Union No
420 Pension Plan
IBEW Local Union 98
Pension Plan
Indiana Laborers Pension
Fund
Iron Workers Mid-America
Pension Plan, Local 395
Pipefitters Retirement Fund,
Local 597
Iron Workers Pension Plan
of Western Pennsylvania,
Local 3
Iron Workers Pension Plan,
Local 55
National Electrical Benefit
Fund, IBEW locals 71, 126,
488, and 1319
Connecticut Plumbers and
Pipefitters Pension Fund,
Local 777
Northwestern Ohio Plumbers
and Pipefitters Pension,
Local 50
Ohio Carpenters’ Pension
Fund, Locals 1090 and 351
IBEW Local 654 Pension
Plan
48-6168020/001
22-6031199/001
22-1615726/001
22-6238995/001
22-3417366/001
23-2004424/001
23-1990722/001
35-6027150/001
36-6488227/001
Yellow
Described
below (1)
Described
below (1)
Green
Described
below (1)
Described
below (1)
Red
Described
below (1)
Described
below (1)
62-6105084/001
Green
25-1283169/001
34-6682351/001
53-0181657/001
Described
below (1)
Described
below (1)
Described
below (1)
34-6502487/001
34-6574360/001
23-6538183/001
Described
below (1)
Described
below (1)
Described
below (1)
Green
Green
Green
Red
Red
Green
Green
Green
NA
NA
NA
Implemented
Implemented
NA
NA
NA
Described
below (1)
Implemented
Green
Green
Green
NA
NA
NA
NA
Red
Implemented
Surcharge
Imposed
No
No
No
No
No
Yes
Yes
No
No
No
No
No
1,341
1,227
1,610
595
479
442
195
20
—
—
—
—
427
574
1,709
2,025
1,523
352
639
828
1,604
3,349
840
835
2,596
3,469
500
2,317
2,951
4,333
1,865
2,674
5,893
No
—
—
—
2,504
1,161
3,042
2,962
No
Yes
No
06-6050353/001
Green
Green
—
3,307
No
NA
Contributions to other multiemployer plans
Total contributions made
Green
818
3,653
$15,369
1,021
8,000
$37,403
1,006
13,703
$64,386
(1)
For the Local 164 IBEW Pension Plan, Local IBEW 102 IBEW Pension Plan, Local 351 IBEW Pension Plan, Steamfitters Local Union
No. 420 Pension Plan, Indiana Laborers Pension Fund, Local 395 Iron Workers Mid-America Pension Plan, Local 3 Iron Workers Pension
Plan of Western Pennsylvania, Iron Workers Pension Plan Local 55, National Electrical Benefit Fund for Locals 71/126/488/1319, Local
777 Connecticut Plumbers and Pipefitters Pension Fund, Local 50 Northwestern Ohio Plumbers and Pipefitters Pension, and Local 654
IBEW Pension Plan, we have not received a funding notification that covers our fiscal year 2021 during the preparation of this Form 10-K.
For Local 164 IBEW Pension Plan and Local 3 Iron Workers Pension Plan of Western Pennsylvania, we have not received a funding
notification that covers our fiscal year 2020 either. 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. We also observed that these plans have not submitted any Critical or Endangered Status
Notices to the Department of Labor for calendar years that we have not received notification. The Critical or Endangered Status Notices
can
https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/public-disclosure/2021-funding-status-
be
notices#2020-c-and-d.
accessed
at
72
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Employee Stock Purchase Plan
The Matrix Service Company 2011 Employee Stock Purchase Plan (‘‘ESPP’’) was effective January 1, 2011. The
ESPP allows employees to purchase shares through payroll deductions and members of the Board of Directors to
purchase shares from amounts withheld from their cash retainers. Share purchases are limited to an aggregate market
value of no greater than $60,000 per calendar year per participant and are purchased from us at the current market
value with no discount to the participant. Contributions are with after tax earnings and are accumulated in
non-interest bearing accounts for quarterly purchases of company stock. 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. 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. Shares are issued from
Treasury Stock under the ESPP. There were 29,171 shares issued in fiscal 2021, 20,733 shares in fiscal 2020, and
15,812 shares in fiscal 2019.
Note 13—Segment Information
Due to changing markets facing our clients and to better align our financial reporting with our long-term strategic
growth areas, we began reporting our financial results under new reportable segments effective July 1, 2020. The new
reportable segments along with a description of each are as follows:
•
•
•
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 construction and maintenance services to a variety of power generation facilities, including natural
gas fired facilities in simple or combined cycle configuration and provide engineering, fabrication, and
construction services for LNG utility peak shaving facilities.
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 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 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.
All prior period segment information has been restated to conform with our new reportable segments. In addition,
beginning July 1, 2020, we separately report corporate selling, general and administrative expenses and other
corporate expenses that were previously allocated to the segments.
We evaluate performance and allocate resources based on operating income. We record intersegment sales and
transfers at cost; therefore, no intercompany profit or loss is recognized.
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.
73
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Results of Operations
(In thousands)
Fiscal year ended June 30, 2021
Gross revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: inter-segment revenue. . . . . . . . . . . . . . . .
Consolidated revenue . . . . . . . . . . . . . . . . . . . . .
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . .
Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense. . . . . . .
Fiscal year ended June 30, 2020
Gross revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: inter-segment revenue. . . . . . . . . . . . . . . .
Consolidated revenue . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss). . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . .
Intangible asset impairments and restructuring
costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . .
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense. . . . . . .
Fiscal year ended June 30, 2019
Gross revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: inter-segment revenue. . . . . . . . . . . . . . . .
Consolidated revenue . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss). . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . .
Operating income (loss) . . . . . . . . . . . . . . . . . . .
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense. . . . . . .
Geographical information is as follows:
Utility and
Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
Corporate
Total
$210,052
—
$201,472
1,555
$267,982
4,553
$
— $ 679,506
6,108
—
210,052
1,506
9,882
1,312
(9,688)
81,717
1,183
4,127
$212,001
—
212,001
7,081
10,047
27,625
(30,591)
67,398
3,285
3,054
199,917
17,642
14,756
3,807
(921)
106,619
834
6,018
263,429
13,617
18,644
1,391
(6,418)
160,782
1,136
7,456
—
—
26,474
246
(26,720)
118,438
1,201
257
673,398
32,765
69,756
6,756
(43,747)
467,556
4,354
17,858
$424,710
2,839
$470,871
3,805
$
— $1,107,582
6,644
—
421,871
36,349
24,266
22,914
(10,831)
138,734
7,523
8,014
467,066
61,413
26,386
1,066
33,961
187,167
4,921
7,743
— 1,100,938
102,176
86,276
(2,667)
25,577
920
(29,164)
124,011
2,810
313
52,525
(36,625)
517,310
18,539
19,124
$249,867
—
$656,137
2,123
$514,948
2,149
$
— $1,420,952
4,272
—
249,867
21,161
9,842
11,319
166,857
2,711
2,567
654,014
58,853
26,932
31,921
162,449
6,673
8,232
512,799
54,600
30,319
24,281
197,781
4,284
7,132
— 1,416,680
131,951
94,021
37,930
633,394
19,558
18,224
(2,663)
26,928
(29,591)
106,307
5,890
293
June 30,
2021
Long-Lived Assets
June 30,
2020
(In thousands)
June 30,
2019
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other international . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$157,442
6,523
12,372
$164,056
5,659
12,435
$193,472
10,110
12,502
$176,337
$182,150
$216,084
74
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Information about Significant Customers:
Fiscal Year ended June 30, 2021
Customer one . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer four . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year ended June 30, 2020
Customer one . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer four . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer five. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year ended June 30, 2019
Customer one . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer four . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer five. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer six . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer seven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer eight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer nine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer ten . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14—Restructuring Costs
Significant Customers as a Percentage of Segment Revenue
Consolidated
Utility and
Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
12.9%
9.9%
7.0%
4.4%
9.7%
8.2%
8.2%
6.8%
2.0%
9.7%
7.6%
7.6%
7.2%
7.1%
5.0%
4.6%
3.4%
2.1%
2.0%
41.3%
—%
22.5%
—%
—%
42.7%
—%
—%
10.5%
—%
42.7%
—%
—%
—%
—%
0.2%
19.5%
11.7%
11.3%
—%
33.3%
—%
—%
25.4%
—%
—%
—%
—%
21.0%
0.2%
16.4%
15.1%
—%
—%
1.5%
—%
—%
—%
—%
0.1%
0.1%
11.2%
—%
—%
19.3%
16.1%
—%
—%
—%
—%
0.6%
19.7%
13.8%
10.8%
—%
—%
—%
During the third quarter of fiscal 2020, we initiated a business improvement plan to increase profitability and reduce
our cost structure related to:
•
•
•
our strategic initiative to exit the domestic iron and steel industry;
the implementation of business improvements in the power delivery portion of the Utility and Power
Infrastructure segment; and
the decline in revenue caused by the ongoing effects of the COVID-19 pandemic and related market
disruptions.
The business improvement plan consists of discretionary cost reductions, workforce reductions, reduction of capital
expenditures and the reduction in size or closure of certain offices in order to increase the utilization of our staff and
bring the cost structure of the business in line with revenue volume. We incurred $14.0 million of restructuring costs
during fiscal 2020 and $6.8 million during fiscal 2021. The restructuring costs consist primarily of severance costs,
facility closure costs, lease and fixed asset impairments, other intangible asset impairments and other liabilities as a
result of exiting certain operations.
In fiscal 2021, we engaged a third party consultant to help us perform a strategic review of our end markets in support
of updating our business strategy and to ensure that our organizational structure is properly designed to support our
updated strategy. Based on the preliminary results of this review, we believe there are opportunities for us to be more
competitive, which will require organizational and process changes and will likely result in additional restructuring
costs. We expect to substantially complete this initiative in fiscal 2022.
75
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Restructuring costs incurred are classified as follows:
Fiscal Year
Ended
June 30, 2021
Since Inception
of Business
Improvement
Plan
(in thousands)
Utility and Power Infrastructure
Severance and other personnel-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facility costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Utility and Power Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Process and Industrial Facilities
Severance and other personnel-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facility costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Process and Industrial Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Storage and Terminal Solutions
Severance and other personnel-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facility costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Storage and Terminal Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate
Severance and other personnel-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facility costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Costs by Type:
Severance and other personnel-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total facility costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other intangible asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,199
113
—
$1,312
$2,951
431
—
426
$3,808
$1,231
159
$1,390
$ 164
82
—
$ 246
$6,756
$5,545
785
—
426
$6,756
$ 2,539
348
1,150
$ 4,037
$ 9,118
3,188
375
426
$13,107
$ 1,578
879
$ 2,457
$ 1,083
82
—
$ 1,165
$20,766
$14,318
4,497
1,525
426
$20,766
The restructuring reserve is included in other accrued expenses and other liabilities in the Consolidated Balance
Sheets. The table below is a reconciliation of the beginning and ending restructuring reserve balance (in thousands):
Balance as of June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,403
4,026
(3,484)
(510)
$ 2,435
76
Matrix Service Company
Quarterly Financial Data (Unaudited)
Fiscal Years Ended June 30, 2021 and June 30, 2020
Fiscal Year 2021
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss per common share:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share amounts)
$182,771
14,350
(320)
(3,458)
(3,037)
$167,468
15,313
5,045
(6,456)
(4,591)
$148,260
1,560
1,860
(17,479)
(12,873)
$174,899
1,542
171
(16,354)
(10,723)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.12)
(0.12)
(0.17)
(0.17)
(0.49)
(0.49)
(0.40)
(0.40)
Fiscal Year 2020
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset impairments and restructuring costs . . . . . . . . . . . . .
Operating income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) per common share:
$338,097
32,465
—
8,774
6,151
$318,677
30,001
38,515
(31,679)
(28,008)
$248,327
20,477
6,559
(5,800)
(5,495)
$195,837
19,233
7,451
(7,920)
(5,722)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.23
0.22
(1.04)
(1.04)
(0.21)
(0.21)
(0.22)
(0.22)
The sum of earnings per share for the four quarters may not equal the total earnings per share for the year due to changes in the average number
of common shares outstanding and rounding.
77
Matrix Service Company
Schedule II—Valuation and Qualifying Accounts
June 30, 2021, June 30, 2020, and June 30, 2019
(In thousands)
COL. A
COL. B
COL. C
ADDITIONS
COL. D
COL. E
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts—
Describe
Deductions—
Describe
Balance at
End of
Period
Fiscal Year 2021
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . . . . .
Valuation reserve for deferred tax assets . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 905
7,763
$8,668
$
85
2,797
$2,882
Fiscal Year 2020
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . . . . .
Valuation reserve for deferred tax assets . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 923
4,959
$5,882
$1,158
3,062
$4,220
Fiscal Year 2019
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . . . . .
Valuation reserve for deferred tax assets . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,327
1,638
$7,965
5
$
4,594
$4,599
$—
—
$—
$—
—
$—
$—
—
$—
$
$
(92)(A) $
544 (B)
452
898
11,104
$12,002
$(1,176)(C) $
(258)(D)
905
7,763
$(1,434)
$ 8,668
$(5,409)(E) $
(1,273)(F)
$(6,682)
923
4,959
$ 5,882
(A) Primarily relates to a $0.1 million reserve that was recognized as a credit loss and ultimately written off within fiscal 2021.
(B) 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.
(C)
Primarily relates to a $0.6 million reserve that was recognized as a credit loss and ultimately settled and written off within fiscal 2020 and
$0.3 million of payments received on a balance that was fully reserved.
(D) Relates to foreign currency translation for the portion of the valuation allowance on net operating loss and tax credit carryforwards in foreign
jurisdictions.
(E)
Primarily relates to a $5.2 million reversal of a previous reserved account receivable balance that was fully settled with an agreement with
the customer.
(F) Relates to the deferred tax asset of $0.8 million created by a stock-based compensation award with a market condition that was fully reserved
in fiscal 2018. In fiscal 2019, upon the final determination that the award would not vest, we wrote off the deferred tax asset against the
reserve. The remaining balance relates to $0.5 million of fully reserved tax credits that expired in fiscal 2019.
78
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed
in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based on the definition of ‘‘disclosure controls and procedures’’ in
Rule 13a-15(e).
We carried out an evaluation, under the supervision and with the participation of our management, including our
Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of June 30, 2021. Based on the foregoing, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable
assurance level at June 30, 2021.
Management’s Report on Internal Control over Financial Reporting
See ‘‘Management’s Report on Internal Control over Financial Reporting’’ set forth in Item 8, Financial Statements
and Supplementary Data of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no changes during the fourth quarter of fiscal 2021 that materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting despite the fact that many of our employees worked
remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the effects of the pandemic
on our internal controls to minimize the impact to their design and operating effectiveness.
Item 9B. Other Information
On September 10, 2021, the Board of Directors, based on the recommendation of the Compensation Committee,
approved the Matrix Service Company 2021 Severance Plan for Executives (the ‘‘Severance Plan’’). The Severance
Plan replaces the severance agreements that were in place with our Named Executive Officers (the ‘‘NEOs’’). The
Severance Plan provides general severance benefits for the CEO of 2.0 times his base salary and for the remaining
NEOs of 1.5 times their base salary. In addition, the Severance Plan provides severance benefits for a change in
control event providing that the NEO experiences an involuntary separation from service for other than cause within
24 months of the change of control. The change of control severance benefit for the CEO, CFO and COO is 2.0 times
their base salary and their target bonus and for the remaining NEOs, their change of control severance benefit is
1.5 times their base salary and their target bonus. The Severance Plan has been attached to this Form 10-K as
Exhibit 10.20.
79
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item with respect to our directors and corporate governance is incorporated herein
by reference to the sections entitled ‘‘Proposal Number 1: Election of Directors’’ and ‘‘Corporate Governance and
Board Matters’’ in our definitive Proxy Statement for the 2021 Annual Meeting of Stockholders (‘‘Proxy Statement’’).
The information required by this item with respect to our executive officers is incorporated herein by reference to the
section entitled ‘‘Executive Officer Information’’ in the Proxy Statement.
We have adopted a Code of Business Conduct and Ethics applicable to all our directors, officers and employees,
including the principal executive officer, principal financial officer and principal accounting officer. In addition, we
have adopted Corporate Governance Guidelines for the Board of Directors and Charters for the Audit, Compensation
and Nominating and Corporate Governance Committees of the Board of Directors. The current version of these
corporate governance documents
is publicly available in the ‘‘Investors’’ section of our website at
matrixservicecompany.com under ‘‘Corporate Governance.’’ If we make any substantive amendments to the Code of
Business Conduct and Ethics, or grant any waivers, including implicit waivers, from the Code of Business Conduct
and Ethics applicable to the principal executive officer, principal financial officer or principal accounting officer, or
any person performing similar functions, we will disclose such amendment or waiver on our website or in a report
on Form 8-K.
Item 11. Executive Compensation
incorporated herein by reference to the sections entitled
The information required by this
‘‘Director Compensation,’’ ‘‘Compensation Discussion and Analysis’’ and ‘‘Executive Officer Compensation’’ in the
Proxy Statement.
item is
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this
incorporated herein by reference to the sections entitled
‘‘Securities Authorized for Issuance Under Executive Compensation Plans’’ and ‘‘Security Ownership of Certain
Beneficial Owners and Management’’ in the Proxy Statement.
item is
Item 13. Certain Relationships and Related Transactions, and Director Independence
incorporated herein by reference to the section entitled
The information required by this
‘‘Corporate Governance and Board Matters’’ and ‘‘Certain Relationships and Related Transactions’’ in the Proxy
Statement.
item is
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference to the sections entitled ‘‘Fees of
Independent Registered Public Accounting Firm’’ and ‘‘Audit Committee Pre-Approval Policy’’ in the Proxy
Statement.
80
Item 15. Exhibits and Financial Statement Schedules
(a)
(1) Financial Statements of the Company
PART IV
The following financial statements and supplementary data are filed as a part of this report under ‘‘Item 8—Financial
Statements and Supplementary Data’’ in this Annual Report on Form 10-K:
Financial Statements of the Company
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) . . . . . . . . . . . . . . . . .
42
43
Consolidated Statements of Income for the Fiscal Years Ended June 30, 2021, June 30, 2020 and
June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended June 30, 2021, June 30,
2020 and June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of June 30, 2021 and June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
49
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2021, June 30, 2020 and
June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended June 30, 2021,
June 30, 2020 and June 30, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51
52
77
78
(2) Financial Statement Schedules
The financial statement schedule is filed as a part of this report under Schedule II—Valuation and Qualifying
Accounts June 30, 2021, June 30, 2020 and June 30, 2019, immediately following Quarterly Financial Data
(Unaudited). All other schedules are omitted because they are not applicable or the required information is shown in
the financial statements, or notes thereto, included herein.
(3) The following documents are included as exhibits to this Annual Report on Form 10-K. The exhibits
below incorporated by reference herein are indicated as such by the information supplied in the
parenthetical hereafter.
3.1 Amended and Restated Certificate of Incorporation of Matrix Service Company (Appendix A to the
Company’s Proxy Statement filed October 7, 2016 (File No. 1-15461).
3.2
Second Amended and Restated Bylaws, effective as of May 4, 2017 (Exhibit 3.1 to the Company’s
Quarterly Report on Form 10-Q (File No. 1-15461) filed May 10, 2017).
4.1 Description of the Company’s Common Stock (Exhibit 4.2 to the Company’s Annual Report on
Form 10-K (File No. 1-15461) filed September 4, 2019).
+10.1 Matrix Service Company 2004 Stock Incentive Plan (Appendix B to the Company’s Proxy
Statement filed September 15, 2006 (File No. 1-15461)).
+10.2 Amendment 1 to Matrix Service Company 2004 Stock Incentive Plan (Exhibit 10 to Amended
Schedule 14A filed October 4, 2006 (File No. 1-15461)).
81
+10.3 Amendment 2 to Matrix Service Company 2004 Stock Incentive Plan (Exhibit 10.6 to the
Company’s Annual Report on Form 10-K (File No. 1-15461) filed August 5, 2008).
+10.4 Amendment 3 to Matrix Service Company 2004 Stock Incentive Plan (Exhibit A to the Company’s
Proxy Statement filed September 11, 2009 (File No. 1-15461)).
+10.5 Matrix Service Company 2016 Stock and Incentive Compensation Plan (Appendix B to the
Company’s Proxy Statement (File No. 1-15461), filed October 7, 2016).
+10.6
+10.7
Form of Restricted Stock Unit Award Agreement for Directors (2016 Stock and Incentive
Compensation Plan) (Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-
15461), filed February 9, 2017).
Form of Long-Term Incentive Award Agreement (2016 Stock and Incentive Compensation Plan)
(Exhibit 10.11 to the Company’s Annual Report on Form 10-K/A (File No. 1-15461), filed
September 19, 2018).
+10.8 Matrix Service Company 2018 Stock and Incentive Compensation Plan (Appendix A to the
Company’s Proxy Statement (File No. 1-15461), filed September 21, 2018).
+10.9
Form of Restricted Stock Unit Award Agreement for Directors (2018 Stock and Incentive
Compensation Plan) (Exhibit 10 to the Company’s Quarterly Report on Form 10-Q (File No. 1-
15461), filed November 8, 2018).
+10.10
+10.11
Form of Restricted Stock Unit Agreement for Employees (2018 Stock and Incentive Compensation
Plan) (Exhibit 10.14 to the Company’s Annual Report on Form 10-K (File No. 1-15461), filed
September 3, 2020).
Form of Long-Term Incentive Award Agreement (2018 Stock and Incentive Compensation Plan)
(Exhibit 10.15 to the Company’s Annual Report on Form 10-K (File No. 1-15461), filed
September 3, 2020).
+10.12
Form of Amended and Restated Severance Agreement (Exhibit 10 to the Company’s Current
Report on Form 8-K filed November 15, 2016 (File No. 1-15461)).
+10.13 Amended and Restated Deferred Compensation Plan for Members of the Board of Directors
(Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-15461) filed January 8,
2009).
+10.14 Amendment 1 to Amended and Restated Deferred Compensation Plan for Members of the Board of
Directors (Exhibit 10 to the Company’s Quarterly Report on Form 10-Q (File No. 1-15461) filed
November 9, 2012).
+10.15 Matrix Service Company 2020 Stock and Incentive Compensation Plan (Appendix A to the
Company’s Proxy Statement (File No. 1-15461) filed on September 24, 2020)..
*+10.16
Form of Long-Term Incentive Award Agreement (2020 Stock and Incentive Compensation Plan).
*+10.17
Form of Restricted Stock Unit Award Agreement (2020 Stock and Incentive Compensation Plan).
+10.18
Form of Indemnification Agreement (Exhibit 10 to the Company’s Quarterly Report on Form 10-Q
(File No. 1-15461) filed November 7, 2019).
*10.19 Credit Agreement dated as of September 9, 2021 by and among, Matrix Service Company and
certain subsidiaries thereof, certain financial institutions as lenders, and Bank of Montreal, as
administrative agent.
82
*+10.20 Matrix Service Company 2021 Severance Plan for Executives.
*21
Subsidiaries.
*23 Consent of Independent Registered Public Accounting Firm—Deloitte & Touche LLP.
*31.1 Certification Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002—CEO.
*31.2 Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002—CFO.
*32.1 Certification Pursuant to 18 U.S.C. 1350 (section 906 of Sarbanes-Oxley Act of 2002)—CEO.
*32.2 Certification Pursuant to 18 U.S.C. 1350 (section 906 of Sarbanes-Oxley Act of 2002)—CFO.
*95 Mine Safety Disclosure.
*101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
*101.SCH XBRL Taxonomy Schema Document.
*101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
*101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
*101.LAB XBRL Taxonomy Extension Labels Linkbase Document.
*101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
*104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
+
Filed herewith.
Management Contract or Compensatory Plan.
Item 16. Form 10-K Summary
None
83
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Matrix Service Company
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date : September 13, 2021
Matrix Service Company
By:
John R. Hewitt, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
Chairman of the Board of Directors
September 13, 2021
Jim W. Mogg
John R. Hewitt
Kevin S. Cavanah
Martha Z. Carnes
John D. Chandler
Carlin G. Conner
Liane K. Hinrichs
James H. Miller
President, Chief Executive Officer and Director
(Principal Executive Officer)
September 13, 2021
Vice President and Chief Financial Officer
(Principal Accounting and
Principal Financial Officer)
September 13, 2021
Director
September 13, 2021
Director
September 13, 2021
Director
September 13, 2021
Director
September 13, 2021
Director
September 13, 2021
84
EXHIBIT 21
Matrix Service Company
Subsidiaries
Matrix Service Inc., an Oklahoma corporation
Matrix Service Canada ULC, an Alberta, Canada unlimited liability corporation
Matrix North American Construction, Inc., an Oklahoma corporation
Matrix North American Construction, Ltd., a Canadian corporation
Matrix North American Construction, LLC, a Delaware limited liability company
Matrix SME Canada, Inc., a Delaware corporation
Matrix SME Canada ULC, a Nova Scotia, Canada unlimited liability corporation
Matrix PDM Engineering, Inc., a Delaware corporation
Matrix PDM, LLC, an Oklahoma limited liability company
Matrix Applied Technologies, Inc., a Delaware corporation
Matrix International Holding Company, Ltd., a British corporation
Matrix Applied Technologies, Ltd., a South Korean corporation
Matrix Applied Technologies, Pty. Ltd., an Australian corporation
River Consulting, LLC, a Louisiana limited liability company
Matrix Products and Services S. de R.L. de C.V., a Mexican limited liability variable stock corporation
Matrix Service VI, LLC, a U.S. Virgin Island limited liability company
Mobile Aquatic Solutions, Inc., an Oklahoma corporation
MSI Federal Contracting, LLC, a Delaware limited liability company
Devco USA, LLC, an Oklahoma limited liability company
Houston Dynamics, LLC, a Qatar limited liability company
Matrix Service International, LLC, a Delaware limited liability company
Matrix Applied Technologies FZ-LLC, a UAE free zone company
Matrix Applied Technologies Pte Ltd, a Singapore limited company
Matrix PDM Engineering Ltd., a Nova Scotia limited company
[THIS PAGE INTENTIONALLY LEFT BLANK]
I, John R. Hewitt, certify that:
CERTIFICATIONS
EXHIBIT 31.1
1.
I have reviewed this Annual Report on Form 10-K of Matrix Service Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date:
September 13, 2021
John R. Hewitt
President and Chief Executive Officer
[THIS PAGE INTENTIONALLY LEFT BLANK]
I, Kevin S. Cavanah, certify that:
CERTIFICATIONS
EXHIBIT 31.2
1.
I have reviewed this Annual Report on Form 10-K of Matrix Service Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date:
September 13, 2021
Kevin S. Cavanah
Vice President and Chief Financial Officer
EXHIBIT 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant
Section 906 of Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Matrix Service Company (the ‘‘Company’’) on Form 10-K for the period
ending June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’),
I, John R. Hewitt, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:
1.
2.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act
of 1934 as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date:
September 13, 2021
John R. Hewitt
President and Chief Executive Officer
EXHIBIT 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant
Section 906 of Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Matrix Service Company (the ‘‘Company’’) on Form 10-K for the period
ending June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’),
I, Kevin S. Cavanah, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:
1.
2.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act
of 1934 as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date:
September 13, 2021
Kevin S. Cavanah
Vice President and Chief Financial Officer
SHAREHOLDER INFORMATION
CORPORATE OFFICES
5100 E. Skelly Dr., Ste. 100
Tulsa, OK 74135
Phone: 918 838 8822
Fax: 918 838 8810
NOTICE OF ANNUAL MEETING
The Annual Meeting of Stockholders
will be virtual and held on
November 2nd, 2021 at 11:00 a.m. CT.
To attend virtually please visit:
VirtualShareholderMeeting.com/MTRX2021
STOCK TRANSFER AGENT & REGISTRAR
Computershare Trust Company, N.A.
250 Royall St.
Canton, MA 02021
WEBSITES
MatrixServiceCompany.com
MatrixPDM.com
MatrixNAC.com
MatrixService.com
MatrixAppliedTech.com
COMMON STOCK DATA
Matrix Service Company’s Common
Stock is traded on NASDAQ
Global Select Market under the
Ticker Symbol: “MTRX”
INDEPENDENT REGISTERED
PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
6100 S. Yale Ave., Ste. 2010
Tulsa, OK 74136
INVESTOR AND MEDIA RELATIONS,
STOCKHOLDER RELATIONS
& AVAILABLE INFORMATION
Matrix Service Company’s Annual Report
on Form 10-K filed with the Securities
and Exchange Commission may be
obtained by writing to:
Kevin S. Cavanah
Vice President and Chief Financial Officer
Matrix Service Company
5100 E. Skelly Dr., Ste. 100
Tulsa, OK 74135
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PURPOSE
Working to build a better future,
improve quality of life, and create
long-term value for our people,
business partners, shareholders,
and communities.
BOARD OF DIRECTORS
Jim W. Mogg
Board Chair
John R. Hewitt
President and
Chief Executive Officer
Martha Z. Carnes
Chair of Audit Committee
John D. Chandler
Chair of Compensation
Committee
Carlin G. Conner
Director
Liane K. Hinrichs
Chair of Nominating
and Corporate Governance
Committee
James H. Miller
Director
VISION
To be the company of choice
for engineering, constructing, and
maintaining the energy and industrial
infrastructure that people rely
on around the world.
VALUES
COMMITMENT TO SAFETY
INTEGRITY
POSITIVE RELATIONSHIPS
STEWARDSHIP
COMMUNITY INVOLVEMENT
DELIVER THE BEST
EXECUTIVE OFFICERS
John R. Hewitt
President and
Chief Executive Officer
Kevin S. Cavanah
Vice President and
Chief Financial Officer
Rick J. Bennett
Vice President and
Chief Information Officer
Kevin A. Durkin
Vice President and Chief Business
Development and Strategy Officer
Alan R. Updyke
Vice President and Chief Operating
Officer and Interim President, Matrix NAC
Bradley J. Rinehart
President,
Matrix Service
Nancy E. Austin
Vice President and
Chief Administrative Officer
Glyn A. Rodgers
President,
Matrix PDM Engineering
Justin D. Sheets
Vice President, General Counsel
and Corporate Secretary
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Matrix Service Company is an Equal Opportunity/Affirmative Action employer and does not discriminate against any employee or applicant for employment because of race,
color, religion, gender, sexual orientation, national origin, age, genetic information, disability, veteran status, marital status, or any other legally protected characteristic or category.
5 1 0 0 E . S K E L L Y D R . , S T E . 1 0 0 | T U L S A , O K 7 4 1 3 5
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