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LNG PEAK SHAVING FACILITY
TUCSON, AZ
2022
ANNUAL
REPORT
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
M A T R I X S E R V I C E C O M P A N Y . C O M
N A S D A Q : M T R X
PURPOSE
Working to build a better future,
improve quality of life, and create
long-term value for our people,
business partners, shareholders,
and communities.
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
BOARD OF DIRECTORS
Jim W. Mogg
Board Chair
John R. Hewitt
President and
Chief Executive Officer
Jose L. Bustamante
Director
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
EXECUTIVE OFFICERS
John R. Hewitt
President and
Chief Executive Officer
Kevin S. Cavanah
Vice President and
Chief Financial Officer
Alan R. Updyke
Nancy E. Austin
Vice President and
Chief Administrative Officer
Rick J. Bennett
Vice President and
Chief Information Officer
Kevin A. Durkin
Vice President and Chief Business
Development and Strategy Officer
Justin D. Sheets
Shawn P. Payne
President,
Matrix Service
Glyn A. Rodgers
President,
Matrix PDM Engineering
Vice President and Chief Operating
Vice President, General Counsel
Officer and Interim President, Matrix NAC
and Corporate Secretary
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.
OUR FISCAL 2022 WAS A YEAR MARKED BY THE BEGINNINGS OF A
TURNAROUND IN OUR EXISTING MARKETS, STRENGTHENING OF OUR
POSITION IN NEW MARKETS, AND TRANSFORMATION OF OUR ORGANIZATION
TO IMPROVE PERFORMANCE AND OUTCOMES FOR ALL STAKEHOLDERS.
As demonstrated by our best book-to-bill in nearly two years, project
award cycles have accelerated, with multiple awards of smaller projects
in key strategic markets.
Our opportunity pipeline has continued to grow with a wide range of projects
in strategic growth markets. We have positioned ourselves to take advantage of
the vast project opportunities ahead of us, and we expect continued backlog
build and improving revenue as we move through fiscal 2023.
The macroeconomic environment, global energy markets, and transition toward a low carbon economy, all support
the critical role Matrix will fulfill in supporting necessary infrastructure investments being made by our clients.
Concerns over global energy security – heightened by Russia’s invasion of Ukraine – has bolstered our clients’
infrastructure investment plans to ensure reliable, clean energy. Severe weather events, aging infrastructure, and
unreliable renewable power generation further support these plans as the need for critical upgrades and repairs, as
well as new construction of peak shaving facilities and investments in the power grid, are made evident. Global supply
chain disruptions and inflation have also made way for a North American industrial renaissance supporting further
infrastructure investments to domestically produce the necessary products and elements needed to support quality of
life here and across the world.
TRANSFORMING THE FUTURE
As we partner with our clients on the projects ahead, we are keenly aware of our role in
developing and implementing solutions for these and other projects that will transform the future
for generations to come. Accordingly, we are focused on making sure Matrix is positioned to
achieve its objectives for growth, profitability, and sustainable long-term shareholder value.
While our journey is not complete, we are well on our way to becoming a different company
than we were just two short years ago. Specifically, we continue to:
• Build operational and business development bench strength in end markets such as natural
gas, LNG, ammonia, hydrogen and other renewable fuels – all critical to a low carbon economy;
• Improve our performance and position in electrical infrastructure, which creates significant
growth opportunities for the enterprise;
• Advance our leading market position in aerospace, where we hold a niche position in thermal
vacuum chambers, used to test satellites and key space equipment;
• Advance our position in chemicals and mining and minerals;
• Support our traditional energy clients as they maintain, improve, and invest in new
infrastructure for their mid- and downstream crude oil facilities.
We also carefully evaluated our own operational structure and are implementing an enterprise-wide organizational
transformation that will bring greater efficiency and effectiveness to our operations, improve our performance, and
provide better client support. In doing so, quality is being elevated to the same level as our industry-leading safety
culture. This focus and investment in quality is a cornerstone to improving the performance of all aspects of our business.
We continue to invest in our people through training and development and our commitment to diversity, equity,
and inclusion – both of which are critical to our future growth and success. Led from the top, these aspects of social
sustainability are critically important to achieving our objectives, and benefit from concerted efforts across our
own organization, on our project sites, through our relationships with suppliers and vendors, and in service to our
communities.
Finally, we continue to advance our commitment to Environmental, Social, and Governance (ESG). Most notably in
fiscal 2022, we established our framework for climate-related risks based on the recommendations of the Task Force
on Climate-Related Financial Disclosures (TCFD). This, together with the Sustainability Accounting Standards Board
(SASB) framework adopted last year, will further ensure that both financial risks and opportunities related to
climate change become an integral part of our risk management and strategic planning processes.
In closing, I am incredibly proud of our employees and their ongoing resilience, dedication, and commitment
to achieving our objectives during these incredibly challenging times.
As we look toward fiscal 2023, we do so with great optimism and confidence. Our client relationships are strong,
significant projects are nearing award, the project opportunity pipeline is substantial, we are organized for the
future, and the Company’s business is sound.
Thank you for your continued investment and trust in Matrix Service Company.
Respectfully,
John R. Hewitt
President and Chief Executive 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
December 5th, 2022 at 10:00 a.m. CT.
To attend virtually please visit:
VirtualShareholderMeeting.com/MTRX2022
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
Cherokee LNG
Ball Ground, GA
[THIS PAGE INTENTIONALLY LEFT BLANK]
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, 2022
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 $195 million.
The number of shares of the registrant’s common stock outstanding as of October 7, 2022 was 26,972,621 shares.
Documents Incorporated by Reference
Certain sections of the registrant’s definitive proxy statement relating to the registrant’s 2022 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
Item 4.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
Item 6.
Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . .
24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
Item 8.
Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . .
76
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76
Part III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . .
77
Item 14.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
Part IV
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
Item 16.
Form 10-K Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
1
Item 1.
Business
FORWARD-LOOKING STATEMENTS
PART I
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:
•
•
•
•
•
•
•
•
•
amounts and nature of future project awards, revenue and margins from each of our segments;
our ability to generate sufficient cash from operations, access our credit facility, or raise cash in order to
meet our short and long-term capital requirements;
our ability to comply with the covenants in our credit agreement;
the impact to our business from economic, market or business conditions in general and in the oil, natural
gas, power, petrochemical, agricultural and mining industries in particular;
the impact of inflation on our operating expenses and our business operations;
the likely impact of new or existing regulations or market forces on the demand for our services;
the impact to our business of the COVID-19 pandemic and its related disruptions to supply chains, inflation
and availability of materials and labor;
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,
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 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 permitting issues or other
factors;
reduced creditworthiness of our customer base and the higher risk of non-payment of receivables;
the inherently uncertain outcome of current and future litigation;
the adequacy of our reserves for claims and contingencies; and
changes in laws or regulations, including the imposition, cancellation or delay of tariffs on imported goods.
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, construction, and maintenance services to support critical energy infrastructure and industrial markets.
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, including exhibits, 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. The information contained in our social media accounts is
not incorporated into this Annual Report or other documents we file with, or furnish to, the SEC.
OPERATING SEGMENTS
We operate our business through three reportable segments:
•
•
Utility and Power Infrastructure: consists of power delivery services provided to investor-owned
utilities, including construction of new substations, upgrades of existing substations, transmission and
distribution line installations, upgrades and maintenance, as well as emergency and storm restoration
services. We also provide engineering, fabrication, and construction services for LNG utility peak shaving
facilities, and construction and maintenance services to a variety of power generation facilities, including
natural gas fired facilities, in simple or combined cycle configuration.
Process and Industrial Facilities: primarily serves customers in the downstream and midstream petroleum
industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas
and natural gas liquids. We also serve customers in various other industries such as petrochemical, sulfur,
mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and
defense, cement, agriculture, and other industrial customers. Our services include plant maintenance,
turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.
3
•
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 400 customers in fiscal 2022. Most of our revenue comes from long-term
customer relationships. One customer accounted for $87.2 million or 12.3% of our consolidated revenue in fiscal
2022, which was primarily included in the Process and Industrial Facilities segment. Another customer accounted for
$78.1 million or 11.0% of our consolidated revenue in fiscal 2022, 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 2022. 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 providing 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 2022:
Utility and
Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
Total
(In thousands)
Backlog as of June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Project awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 170,043
152,109
(220,093)
$ 134,777 $ 157,741 $ 462,561
834,679
270,212
(707,780)
(232,839)
412,358
(254,848)
Backlog as of June 30, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book-to-bill ratio(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 102,059
$ 292,287 $ 195,114 $ 589,460
0.7
1.6
1.2
1.2
(1)
Calculated by dividing project awards by revenue recognized.
In the Utility and Power Infrastructure segment, backlog decreased by 40.0% as we booked $152.1 million of project
awards in fiscal 2022. Our opportunity pipeline for LNG peak shaving projects continues to be promising, however
those awards, while significant, can be less frequent. Bidding activity is strong in the power delivery portion of the
business. During fiscal 2022, we received several key contracts for electrical infrastructure services including
substation and transmission line rebuilds, relay upgrades, and fiber installation.
In the Process and Industrial Facilities segment, backlog increased by 116.9% as we booked $412.4 million of project
awards in fiscal 2022. Client spending related to refinery maintenance operations has returned to near-normal
pre-pandemic levels. During fiscal 2022, we received key awards for two thermal vacuum chamber projects, a
midstream gas processing plant, a borate mining facility, a refinery capital project, and other renewable energy capital
projects. We continue to see strong demand for thermal vacuum chambers in the coming quarters, as well as
increasing opportunities in mining and minerals, and chemicals. In addition, we are seeing more opportunities for
midstream gas work, including some larger scale projects.
In the Storage and Terminal Solutions segment, backlog increased by 23.7% as we booked $270.2 million of project
awards during fiscal 2022. This segment includes significant opportunities for storage infrastructure projects related
to natural gas, LNG, ammonia, hydrogen, NGLs and other forms of renewable energy. We believe LNG and hydrogen
projects in particular will be key growth drivers for this segment. Bidding activity on LNG projects has been strong
and we have been positioning ourselves for growth in hydrogen by entering into key relationships, such as the signing
of a memorandum of understanding (‘‘MOU’’) with Korea Gas Corporation in August 2022 to support South Korea’s
development of a hydrogen economy as it transforms itself from natural gas and the signing of a MOU with Chart
Industries, Inc. in January of 2021 to support the development of hydrogen solutions. Oil and natural gas producers
have remained cautious with capital spending, which has limited opportunities in crude oil tanks and terminals.
However, the price of crude oil and natural gas increased significantly during fiscal 2022, which, if sustained, may
lead to higher production volumes and more opportunities for crude oil tanks, terminals and export facilities in the
coming quarters.
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 83% of our total backlog
reported as of June 30, 2022 as revenue within fiscal 2023.
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.
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
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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 COVID-19 pandemic and increased demand and competition for qualified labor have 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, electrical components, fabricated products and
equipment, 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, to purchase special insurance policies or surety bonds for specific
customers or to 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 2022 as a Great Place To Work® — for the sixth consecutive year — both a point of pride and
an invaluable tool for continuous improvement supporting our objective of remaining an employer of choice.
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, 2022, we had 2,810
employees worldwide. Of those employees, 677 were employed in office-based positions and 2,133 were employed
in field or craft positions. The breakdown by country was: 2,467 located in the United States, 309 in Canada, and
34 across other international locations. At the end of fiscal 2022, 45% of our overall workforce and 28% of our
management team was represented by women and minorities. Recognizing that commitment to Diversity, Equity and
Inclusion (DEI) begins at the top, in fiscal 2022, Matrix increased the overall diversity of our Independent Board
Members to 43%, with 29% female and 14% ethnically diverse.
The percentage of our employees represented by unions as of June 30, 2022, was approximately 30%. Operating
under collective bargaining agreements with various unions, our union employees are provided with benefits
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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. Our TRIR
was 0.51, 0.28, and 0.50 during fiscal years 2022, 2021, and 2020, respectively.
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, 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 2022, we continued to advance and strengthen our culture. We launched our first Employee Resource Groups
(ERGs), creating employee-led pathways for inclusion. We also continued year-round learning opportunities on
unconscious bias and other DEI-specific topics and enhanced our DEI education offering available to all employees
through Matrix University. We strengthened our accountability by increasing the diversity of our independent Board
Members based on gender and ethnicity; establishing our ERG Executive Sponsor Program; advancing development
of an employee survey designed to measure effectiveness of our DEI efforts and setting the framework for data
analysis to identify opportunities for improvement. We also continued our participation in CEO Action for Diversity
& Inclusion and participated in a variety of community events including Advancing Oklahoma, a state-wide
conversation on race, where Matrix leadership served on the committee that developed comprehensive programming
to engage participants in discussions about race and history, the criminal justice system, everyday conversations,
education, business, image and attitudes, advocacy, and the future.
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 support, 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.
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
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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 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.
The Flowdome® trademark is used to market our geodesic dome tank roofs. Our SwingMaster® trademark is used
to market our central type swing joints. 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 hold two separate patents for Pipe Lifting and Orienting Apparatus and Method that is used to raise
and lower pipes and to move them around the upper surface of floating roof of tanks. The Batten Joint for an Internal
Floating Roof of a Fluid Tank allows us to overcome many of the disadvantages associated with other types of joints
used for internal floating roofs for floating tanks.
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, trademarks,
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. Department of Labor 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.
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.
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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 Our Business and Operations
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 energy markets, including LNG, hydrogen, renewable energy, midstream and downstream petroleum,
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 and energy prices, which could adversely affect the demand for our products and
services.
The availability of engineering and construction projects is dependent upon economic conditions and the outlook for
renewable energy, hydrogen, natural gas, oil, petrochemical, industrial, and power industries, and specifically, the
level of capital expenditures on energy infrastructure. 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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the demand for alternative and renewable energy products, including hydrogen;
ability and demand to export LNG and other hydrocarbon products;
the demand for natural gas, oil and electricity;
current or projected commodity prices, including natural gas, oil, power and mineral prices;
refining margins;
the ability of energy and industrial companies to generate, access and deploy capital;
interest rates;
technological challenges and advances;
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.
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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.
Our ability to attract and retain qualified engineers, project managers, skilled craftsmen and other experienced
professionals in accordance with our need is 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.
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.
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.
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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 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
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.
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.
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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:
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curtailment of services;
suspension of operations;
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.
Our business has been affected by inflation, supply chain disruptions and shortages of materials and labor.
Following the onset of the pandemic and with the ongoing conflict between Ukraine and Russia in Europe, there has
been a high degree of volatility in commodity and energy markets that affect our client’s businesses. In addition,
inflation in the United States has reached multi-decade highs and has been increasing since the beginning of the fiscal
year. In some cases we have had to bid more competitively than before to win work, which has compressed margins
somewhat given the higher inflation. It is uncertain how this market environment will impact our business, both
positively or negatively.
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.
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.
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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.
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. 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
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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.
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.
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.
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.
Revenue for fixed-price contracts is 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
15
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 to accrue 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 recognized in 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 uncollectable receivables from customers for invoiced amounts;
the amount and collectability of unpriced change orders and claims against customers;
provisions for income taxes and related valuation allowances;
recoverability of goodwill and intangible assets;
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, 2022, we had
$4.8 million of amortizing intangible assets and $42.1 million of non-amortizing goodwill representing 1.1% and
9.6% 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.
16
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.
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.
Our projects often involve highly regulated materials,
laws and
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
17
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
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
18
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.
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.
19
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.
Item 1B. Unresolved Staff Comments
None.
20
Description of Facility
Segment
Item 2.
Properties
Our principal properties are as follows:
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
Regional office and fabrication
and warehouse facility
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
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.
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.
21
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 September 30, 2022, there were 19 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
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
2022 and have no current plans to repurchase stock. As of June 30, 2022, there were 1,349,037 shares available for
purchase under the Stock Buyback Program. The terms of our Credit Agreement limit share repurchases to
$2.5 million per fiscal year provided that that we meet certain availability thresholds and do not violate our Fixed
Charge Coverage Ratio financial covenant.
22
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, 2017 to June 30, 2022, the cumulative stockholder return
on our common stock with the cumulative total return of the NASDAQ Composite Index and the Dow Jones U.S.
Heavy Construction Index.
The graph below assumes an investment of $100 (with reinvestment of all dividends) in our common stock, the
NASDAQ Composite Index, and the Dow Jones U.S. Heavy Construction Index on June 30, 2017 and tracks their
relative performance through June 30, 2022. The stock price performance reflected in the following graph is not
necessarily indicative of future stock performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Matrix Service Company, the NASDAQ Composite Index and the Dow Jones US Heavy
Construction Index
$300
$250
$200
$150
$100
$50
$0
6/17
6/18
6/19
6/20
6/21
6/22
Matrix Service Company
NASDAQ Composite
Dow Jones US Heavy Construction
*$100 invested on 6/30/17 in stock or index, including reinvestment of dividends.
Fiscal year ending June 30.
Copyright© 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
Matrix Service Company. . . . . . . . . . . . . . . . . . . . . . . $100.00 $196.26 $216.68 $103.96 $112.30 $ 54.12
NASDAQ Composite. . . . . . . . . . . . . . . . . . . . . . . . . . $100.00 $123.60 $133.22 $169.11 $245.60 $188.07
Dow Jones US Heavy Construction . . . . . . . . . . . . . . $100.00 $107.41 $113.48 $ 98.54 $179.38 $190.51
2017
2018
2019
2020
2021
2022
June 30,
Item 6. Reserved
23
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
Reportable Segments
We operate our business through three reportable segments:
•
•
•
Utility and Power Infrastructure: consists of power delivery services provided to investor-owned
utilities, including construction of new substations, upgrades of existing substations, transmission and
distribution line installations, upgrades and maintenance, as well as emergency and storm restoration
services. We also provide engineering, fabrication, and construction services for LNG utility peak shaving
facilities, and construction and maintenance services to a variety of power generation facilities, including
natural gas fired facilities, in simple or combined cycle configuration.
Process and Industrial Facilities: primarily serves customers in the downstream and midstream petroleum
industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas
and natural gas liquids. We also serve customers in various other industries such as petrochemical, sulfur,
mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and
defense, cement, agriculture, and other industrial customers. Our services include plant maintenance,
turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.
Storage and Terminal Solutions: consists of work related to aboveground 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.
Overview
The majority of the work for all segments is performed in the United States, with 9.5% of revenue generated
internationally during fiscal 2022, 10.2% in fiscal 2021 and 7.3% in fiscal 2020. The percentage of revenue generated
internationally decreased in fiscal 2022 compared to fiscal 2021 primarily due to higher levels of revenue generated
domestically.
Significant period to period changes in revenue, gross profits and operating results between fiscal 2022 and fiscal
2021 are discussed below on a consolidated basis for each segment. A discussion of results of operations changes
between fiscal 2021 and fiscal 2020 is included in Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations of our Annual Report on Form 10-K for the year ended June 30, 2021, which
was filed with the SEC on September 13, 2021.
24
Matrix Service Company
Results of Operations
(In thousands)
Utility and
Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
Corporate
Total
Fiscal Year 2022
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) %. . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . .
Goodwill impairment and restructuring costs . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss %. . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2021
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit %. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss %. . . . . . . . . . . . . . . . . . . . . . . . . . .
Variances Fiscal Year 2022 to Fiscal Year 2021
Increase/(Decrease)
$220,093
(8,586)
$254,848
9,270
(3.9)%
3.6%
$
$232,839
262
0.1%
— $707,780
(1,206)
(2,152)
—%
11,771
2,746
(23,103)
12,506
6,867
(10,103)
17,284
7,330
(24,352)
(10.5)%
(4.0)%
(10.5)%
26,129
2,015
(30,296)
—%
(0.2)%
67,690
18,958
(87,854)
(12.4)%
$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)%
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . .
Goodwill impairment and restructuring costs . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,041
(10,092)
1,889
1,434
(13,415)
$ 54,931
(8,372)
(2,250)
3,060
(9,182)
$ (30,590)
(13,355)
(1,360)
5,939
(17,934)
$
— $ 34,382
(33,971)
(2,066)
12,202
(44,107)
(2,152)
(345)
1,769
(3,576)
Operational Update
Bidding activity, project award volumes, and revenue volumes all improved in fiscal 2022 as the economy recovered
from the pandemic. However, delays in project starts on certain projects in our backlog as well as delays in awards
of larger projects have negatively impacted our operating results. Therefore, we have not been able to generate
enough revenue to fully recover construction overhead and SG&A costs despite significant reductions in our cost
structure. In addition, projects bid during a competitive environment and increased forecasted costs to complete
certain projects have further pressured profitability during the fiscal year (see the discussion of our fiscal 2022 results,
and Part II, Item 8-Financial Statements and Supplementary Data, Note 2 - Revenue - Revisions in Estimates, for
more information). Based on improving market conditions and strong bidding activity, we are expecting project
awards to increase into fiscal 2023, which we expect to lead to higher revenue volume, increased cost leverage, better
margins, and improved earnings.
In fiscal 2022, we commenced the second phase of our ongoing business improvement plan to focus on centralization
of support functions, including business development, accounting, human resources, procurement and project
services into shared service centers. Since the beginning of fiscal 2020, we estimate that we have reduced our cost
structure by approximately $83 million, or approximately 30%, with approximately one-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. See Part II. Item 8. Financial Statements and Supplementary Data, Note 14 -
Restructuring Costs, for more information about our business improvement plan.
25
In order to more clearly depict our core profitability, the following tables present our operating results after certain
adjustments:
Reconciliation of Net Loss to Adjusted Net Income (Loss)(1)
(In thousands, except per share data)
June 30, 2022
June 30, 2020
Fiscal Years Ended
June 30, 2021
Net loss, as reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs incurred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible asset impairments . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of facilities(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated amortization of deferred debt amendment fees(3) . . . . . . . . .
Deferred tax valuation allowance(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of adjustments and other net tax items. . . . . . . . . . . . . . . . . .
$(63,900)
646
18,312
(32,392)
1,518
17,943
4,464
$(31,224)
6,756
—
—
—
—
(1,739)
$(33,074)
14,010
38,515
—
—
—
(8,644)
Adjusted net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(53,409)
$(26,207)
$ 10,807
Loss per fully diluted share, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2.39)
$ (1.18)
$ (1.24)
Adjusted earnings (loss) per fully diluted share . . . . . . . . . . . . . . . . . . . . . .
$ (2.00)
$ (0.99)
$
0.40
(1)
This table presents non-GAAP financial measures of our adjusted net income (loss) and adjusted earnings (loss) per fully diluted share for
fiscal 2022, 2021 and 2020. The most directly comparable financial measures are net loss and loss per fully 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 earnings (loss) per fully diluted 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.
(2) Gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California (see Part II.
Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more
information.)
(3)
(4)
Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees (see Part II.
Item 8-Financial Statements and Supplementary Data, Note 5 - Debt, for more information).
See Part II, Item 8-Financial Statements and Supplementary Data, Note 6 - Income Taxes, for more information about the deferred tax asset
valuation allowance.
Reconciliation of Net Loss to Adjusted EBITDA
We have presented Adjusted EBITDA, which we define as net loss before goodwill and other intangible asset
impairments, restructuring costs, gain on sale of facilities, stock-based compensation, interest expense, income taxes,
and 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 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 loss, the most directly comparable GAAP
financial measure, users of this financial information should consider the type of events and transactions that are
excluded. Our non-GAAP performance measure, 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 gain on sale of facilities. While the sale occurred outside the normal course of business
and similar sales are not expected to be recurring or sustainable, any measure that excludes this gain has
inherent limitations since the sale resulted in a material inflow of cash.
26
•
•
•
•
•
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.
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible asset impairment . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of facilities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for federal, state and foreign income taxes . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2022
Fiscal Years Ended
June 30,
2021
(in thousands)
June 30,
2020
$(63,900)
18,312
(32,392)
646
7,877
2,951
5,617
15,254
$(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(45,635)
$ (8,934)
$ 46,479
(1) Gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California (see Part II.
Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more
information.)
Fiscal 2022 Versus Fiscal 2021
Consolidated
Consolidated revenue was $707.8 million for fiscal 2022 compared to $673.4 million in fiscal 2021. On a segment
basis, revenue increased in the Process and Industrial Facilities and Utility and Power Infrastructure segments by
$54.9 million and $10.1 million, respectively. The increases were partially offset by a decrease in revenue of
$30.6 million in the Storage and Terminal Solutions segment.
Consolidated gross profit (loss) was ($1.2) million in fiscal 2022 compared to $32.8 million in fiscal 2021. Gross
margin (loss) was (0.2)% in fiscal 2022 compared to 4.9% in fiscal 2021. Gross margins in fiscal 2022 were
negatively impacted by low revenue volume, which led to the under recovery of construction overhead costs. In
addition, the competitive bidding environment and increased forecasts in costs to complete projects negatively
impacted gross margins. 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 Solutions segments, and an unfavorable
settlement on a contract dispute in the Storage and Terminal Solutions segment.
Consolidated SG&A expenses were $67.7 million in fiscal 2022 compared to $69.8 million in fiscal 2021. The
decrease in fiscal 2022 was primarily attributable to implemented cost reductions.
27
In the third quarter of fiscal 2022, we recorded $18.3 million of goodwill impairment. See Part II. Item 8, Financial
Statements, Note 4 - Goodwill and Other Intangible Assets - Goodwill, for more information about the impairments.
As a result of actions taken to reduce our cost structure, we recorded $0.6 million of restructuring costs in fiscal 2022.
These costs were net of a $1.6 million credit recorded in restructuring costs in the third quarter. The credit was due
to a favorable settlement of a restructuring obligation related to our exit from the domestic iron and steel industry
in fiscal 2020. See ‘‘Operational Update’’ in this Results of Operations section and Part II. Item 8, Financial
Statements and Supplementary Data, Note 14 - Restructuring Costs, for more information.
Interest expense was $3.0 million in fiscal 2022 and $1.6 million in fiscal 2021. Interest expense in fiscal 2022
included $1.5 million of accelerated amortization of deferred debt amendment fees in the first quarter (see Part II.
Item 8, Financial Statements, Note 5 - Debt, for more information.) The remaining interest expense in fiscal 2022 was
comprised of letter of credit fees, unused capacity fees, interest on outstanding advances, and amortization of deferred
debt issuance costs.
Other income included a $32.4 million gain on the sale-leaseback of our regional office and fabrication and
warehouse facility located in Orange, California during the fourth quarter of fiscal 2022. See Part II. Item 8, Financial
Statements, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.
Our effective tax rate for fiscal 2022 was (9.6)% compared to 27.8% in fiscal 2021. The effective tax rate during fiscal
2022 was primarily impacted by a $17.9 million valuation allowance placed on our deferred tax assets. See Part II.
Item 8, Financial Statements, Note 6 - Income Taxes, for more information about the valuation allowance. The
effective tax rate during fiscal 2021 was positively impacted by a provision of the CARES Act that allowed us to
carryback $5.2 million of the fiscal 2021 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.
In fiscal 2022 and 2021, net loss was $63.9 million and $31.2 million, respectively; or $2.39 and $1.18 per fully
diluted share, respectively.
Utility and Power Infrastructure
Revenue for the Utility and Power Infrastructure segment was $220.1 million in fiscal 2022 compared to
$210.1 million in fiscal 2021. The increase is primarily due to higher volumes of power generation and power
delivery work, partially offset by lower volumes of natural gas utility peak shaving and storm response service work.
The segment gross margin (loss) was (3.9)% in fiscal 2022 compared to 0.7% in fiscal 2021. Fiscal 2022 segment
gross margin was materially impacted by changes in the forecasted costs to complete two large capital projects.
Improved execution on the first project resulted in an increase in gross profit of $2.2 million during the second half
of fiscal 2022. However, increases in the forecasted costs to complete this project during the first half of fiscal 2022
resulted in the project reducing gross profit by $3.6 million during the year. The increase in forecasted costs during
the first half of the fiscal year was principally due to unexpected equipment repairs during commissioning that
delayed the scheduled completion and increased the estimated costs to complete. We achieved a critical performance
milestone during the second quarter of fiscal 2022, which significantly reduced our financial exposure on the project.
Increased forecasted costs to the complete the second project resulted in the project reducing gross profit by
$2.2 million during the fourth quarter of fiscal 2022 and $0.1 million during fiscal 2022. We recognized $78.1 million
of revenue on this project during the year at a near break-even margin as a result of the change in estimate. The
increase in forecasted costs was the result of higher than anticipated subcontractor costs and labor costs as the project
neared completion. We expect to complete the project during the second quarter of fiscal 2023.
The segment gross margin in fiscal 2022 was also negatively impacted by low revenue volume, which led to the under
recovery of construction overhead costs, and by an unfavorable settlement of a claim with a customer in the first
quarter of fiscal 2022.
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 impact of COVID-19,
and rework which led to higher costs and schedule compression. 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.
28
Process and Industrial Facilities
Revenue for the Process and Industrial Facilities segment was $254.8 million in fiscal 2022 compared to
$199.9 million in fiscal 2021. The increase of $54.9 million is primarily due to higher levels of refinery maintenance
and turnaround work.
The segment gross margin was 3.6% in fiscal 2022 compared to 8.8% in fiscal 2021. Despite generally strong project
execution and higher volumes, the segment gross margin in fiscal 2022 was negatively impacted by an increase in
forecasted costs to complete a midstream gas processing project. The project reduced gross profit by $8.7 million
during fiscal 2022. The increase in forecasted costs was primarily due to poor performance of a now terminated
subcontractor, which required rework, as well as supply chain and escalation issues, in order to meet our client’s
expectations. Segment gross margin was also negatively impacted by under recovered construction overhead costs
in fiscal 2022.
Segment gross margin in fiscal 2021 was positively impacted by strong project execution and the positive impact of
a one-time workers’ 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.
Storage and Terminal Solutions
Revenue for the Storage and Terminal Solutions segment was $232.8 million in fiscal 2022 compared to
$263.4 million in fiscal 2021, a decrease of $30.6 million. The decrease in segment revenue is primarily a result of
lower volumes of crude oil tank and terminal capital work.
The segment gross margin was 0.1% in fiscal 2022 compared to 5.2% in fiscal 2021. The fiscal 2022 segment gross
margin was negatively impacted by low revenue volume, which led to under recovery of construction overhead costs
and a lower than previously forecasted margin on a thermal energy storage tank repair and maintenance project due
to changes in repair scope, expanded client weld testing and associated schedule delays, which reduced segment gross
profit by $6.3 million. In addition, segment gross margin was negatively impacted by smaller competitively priced
capital projects.
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.
Corporate
Unallocated corporate expenses were $30.3 million during fiscal 2022 compared to $26.7 million in the same period
last year. The increase is primarily attributable to an increase in legal costs for outstanding litigation (see Item 8.
Financial Statements, Note 7 - Commitment and Contingencies, for more information), third party consulting services
and centralization of support costs related to restructuring activities (see ‘‘Operational Update’’ in this Results of
Operations section), partially offset by cost reductions we implemented.
29
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 at June 30, 2022 were unrestricted cash and
cash equivalents on hand, capacity under our ABL Facility (see ‘‘ABL Credit Facility’’ in this Liquidity and Capital
Resources section and Item 8. Financial Statements and Supplementary Data, Note 5 - Debt, for more information),
and cash generated from operations. Unrestricted cash and cash equivalents at June 30, 2022 totaled $52.4 million
and availability under the ABL Facility totaled $42.5 million, resulting in total liquidity of $94.8 million.
The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Consolidated
Balance Sheets to the total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash
Flows (in thousands):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$52,371
25,000
$83,878
—
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements
of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$77,371
$83,878
June 30, 2022 June 30, 2021
The following table provides a summary of changes in our liquidity for the year ended June 30, 2022 (in thousands):
Liquidity at June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash used by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from asset sales(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net borrowings under ABL Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining availability under ABL Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash restricted in support of ABL Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash used by other financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 83,878
(54,196)
(3,345)
39,018
15,000
42,460
(25,000)
(2,301)
(683)
Liquidity at June 30, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 94,831
(1)
Includes $37.4 million of proceeds from the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange,
California during the fourth quarter of fiscal 2022. See Part II. Item 8, Financial Statements, Note 3 - Property, Plant and Equipment -
Sale-leaseback Transaction, for more information. The remaining asset sales comprised of equipment sold in the normal course of business.
There continues to be significant uncertainty regarding the near- and intermediate-term business impacts from supply
chain disruptions, inflation, and the dislocation of certain energy and industrial markets following the onset of the
COVID-19 Pandemic and the war between Ukraine and Russia. During fiscal 2022, low revenue volume, a
competitive bidding environment, and increased forecasted costs to complete certain projects led to a $54.2 million
use of cash by operating activities, which negatively impacted our liquidity position. However, we improved our
liquidity position by entering into a sale-leaseback transaction during the fourth quarter of fiscal 2022, which resulted
in $37.4 million in proceeds (see Part II. Item 8-Financial Statements and Supplementary Data, Note 3 - Property,
Plant and Equipment - Sale-leaseback Transaction, for more information.) In addition, we added $32.5 million of
liquidity as a result of entering into the ABL Facility during the first quarter of fiscal 2022.
We continue to maintain adequate liquidity 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.
30
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.
Cash Flows Used by Operating Activities
Cash flows used by operating activities for the fiscal year ended June 30, 2022 totaled $54.2 million. Major
components of cash flows used by operating activities for the year ended June 30, 2022 are as follows:
Net Cash Used by Operating Activities
(In thousands)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of property, plant and equipment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash effect of changes in operating assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
June 30, 2022
$(63,900)
(33,114)
18,312
15,254
7,877
5,358
2,425
(6,408)
$(54,196)
(1) Gain on sale of property, plant and equipment includes a $32.4 million gain on the sale-leaseback of our regional office and fabrication and
warehouse facility located in Orange, California (see Part II. Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant
and Equipment - Sale-leaseback Transaction, for more information.) The remaining gain on the sale of property, plant and equipment
comprised of equipment sold in the normal course of business.
31
Cash effect of changes in operating assets and liabilities at June 30, 2022 in comparison to June 30, 2021 include the
following:
•
•
•
•
•
Accounts receivable, excluding credit losses recognized during the period, increased $6.6 million during
fiscal 2022, which decreased cash flows from operating activities. The variance is primarily attributable to
higher business volume and the timing of billing and collections.
Costs and estimated earnings in excess of billings on uncompleted contracts (‘‘CIE’’) increased
$14.0 million, which decreased cash flows from operating activities. Billings on uncompleted contracts in
excess of costs and estimated earnings (‘‘BIE’’) increased $11.3 million, which increased 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
non-current assets increased $1.1 million during fiscal 2022, 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 increased by $12.2 million during fiscal 2022, which increased 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 decreased by $7.4 million, which decreased cash flows from operating activities. This
decrease was primarily due to payment on the deferred payroll tax liability associated with the CARES Act.
See Part II., Item 8. Financial Statements and Supplementary Data, Note 6 - Income Taxes for more
information.
Cash Flows Provided by Investing Activities
Investing activities provided $35.7 million of cash in the fiscal year ended June 30, 2022 primarily due to
$39.0 million of asset sales, including $37.4 million in proceeds from the sale-leaseback of our regional office and
fabrication and warehouse facilities located in Orange, California during the fourth quarter of fiscal 2022 (see Part
II. Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more
information.) The asset sale proceeds were partially offset by $3.3 million of capital expenditures. Capital
expenditures consisted of $1.5 million for facilities, office equipment and software, and $1.8 million for construction,
fabrication, and transportation equipment.
Cash Flows Provided by Financing Activities
Financing activities provided $12.7 million of cash in the fiscal year ended June 30, 2022 primarily due to the net
borrowings of $15.0 million under our ABL Facility, partially offset by $1.3 million paid in fees to enter into the ABL
Facility, and $0.9 million paid to repurchase our stock for payment of withholding taxes due on equity-based
compensation.
ABL Credit Facility
On October 5, 2022, we and our primary U.S. and Canada operating subsidiaries entered into the First Amendment
and Waiver to Credit Agreement (the ‘‘Amendment’’), which amended our asset-backed credit agreement (the ‘‘ABL
Facility’’), dated as of September 9, 2021 with Bank of Montreal, as Administrative Agent, Swing Line Lender and
a Letter of Credit Issuer, and the lenders named therein. The Amendment (i) waives an event of default resulting from
our failure to deliver the Administrative Agent and the lenders our audited financial statements for the fiscal year
ended June 30, 2022 by September 28, 2022 (the ‘‘Audited Financial Statements’’), provided we deliver the Audited
Financial Statements by October 14, 2022, (ii) reduces the maximum amount of loans under the ABL Facility to
$90.0 million from $100.0 million and (iii) replaces the London interbank offered rate with the forward term rate
based on the secured overnight financing rate (the ‘‘SOFR’’) as the interest rate benchmark.
The ABL Facility is guaranteed by substantially all of our remaining U.S. and Canadian subsidiaries. The ABL
Facility available borrowings may be increased by an amount not to exceed $15.0 million, subject to certain
32
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. The ABL Facility matures and any outstanding amounts become
due and payable on September 9, 2026. At June 30, 2022, our borrowing base was $80.8 million, we had
$15.0 million of outstanding borrowings, and $23.3 million in letters of credit outstanding, which resulted in
availability of $42.5 million under the ABL Facility.
Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an
annual rate of either a base rate (‘‘Base Rate’’), an Adjusted Term SOFR (‘‘Adjusted Term SOFR’’), or at the
Canadian Prime Rate, plus an applicable margin. The Adjusted Term SOFR is defined as (i) the SOFR plus (ii) 11.448
basis points for a one-month tenor and 26.161 basis points for a three-month tenor; provided that the Adjusted Term
SOFR cannot be below zero. The Base Rate is defined as a fluctuating interest rate equal to the greater of: (i) rate
of interest announced by Bank of Montreal from time to time as its prime rate; (ii) the U.S. federal funds rate plus
0.50%; (iii) Adjusted Term SOFR for one month period plus 1.00%; or (iv) 1.00%. Depending on the amount of
average availability, the applicable margin is between 1.00% to 1.50% for Base Rate and Canadian Prime Rate
borrowings, which includes either U.S. or Canadian prime rate, and between 2.00% and 2.50% for Adjusted Term
SOFR borrowings. Interest is payable either (i) monthly for Base Rate or Canadian Prime Rate borrowings or (ii) the
last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility. The fee for
undrawn amounts is 0.25% per annum and is due quarterly. The interest rate in effect for borrowings outstanding at
June 30, 2022, including applicable margin, was 6.00%.
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. We are in compliance with all covenants of the ABL Facility as of June 30, 2022.
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 the date we commenced the ABL Facility. Interest expense during the fiscal 2022 included
$1.5 million of accelerated amortization of deferred debt amendment fees associated with the Prior Credit Agreement.
Dividend Policy
We have never paid cash dividends on our common stock and the terms of our ABL Facility limit dividends to stock
dividends only. Any future dividend payments will depend on the terms of our ABL Facility, our financial condition,
capital requirements and earnings as well as other relevant factors.
Stock Repurchase Program
We may repurchase common stock pursuant to the Stock Buyback Program, which was approved by the board of
directors in November 2018. Under the program, the aggregate number of shares repurchased may not exceed
2,707,175 shares. We may repurchase our stock from time to time in the open market at prevailing market prices or
in privately negotiated transactions and are not obligated to purchase any shares. The program will continue unless
and until it is modified or revoked by the Board of Directors. We made no repurchases under the program in fiscal
33
2022 and have no current plans to repurchase stock. As of June 30, 2022, there were 1,349,037 shares available for
repurchase under the Stock Buyback Program. The terms of our ABL Facility limit share repurchases to $2.5 million
per fiscal year provided that we meet certain availability thresholds and do not violate our Fixed Charge Coverage
Ratio financial covenant.
Treasury Shares
We had 1,097,703 treasury shares as of June 30, 2022 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.
Material Cash Requirements from Contractual and Other Obligations
As of June 30, 2022, our short-term and long-term material cash requirements for known contractual and other
obligations were as follows:
•
•
•
Operating Leases: In the normal course of business, we lease real estate and equipment under various
arrangements which are classified as operating leases. Future payments for such leases, excluding leases
with initial terms of one year or less, were $31.7 million at June 30, 2022, with $7.0 million payable within
the next 12 months. Refer to Part II. Item 8, Financial Statements, Note 8 - Leases, for more information
about our lease obligations and the timing of expected future payments.
Outstanding Debt and Interest Payments: As of June 30, 2022, the amount outstanding under our ABL
Facility was $15.0 million. Based on the outstanding balance and interest rates applicable as of June 30,
2022, if we carried the borrowings to the maturity of the facility, we would make total interest payments
on the outstanding debt of $6.8 million, with $1.6 million payable within the next 12 months. The
outstanding borrowings are due on September 9, 2026 when the ABL Facility matures. Future interest
payments will be determined based on prevailing interest rates during that time. Refer to Part II. Item 8,
Financial Statements, Note 5 - Debt, for more information about the terms of our ABL Facility.
Deferred Payroll Taxes: We have deferred $5.6 million of U.S. payroll tax as of June 30, 2022 through
provisions of the Coronavirus Aid, Relief, and Economic Security Act (the ‘‘CARES Act’’). We must repay
these deferred payroll taxes by December 31, 2022. Refer to Part II. Item 8, Financial Statements, Note 6
- Income Taxes, for more information about the deferred payroll taxes.
Off-Balance Sheet Arrangements and Other Commitments
The terms of our construction contracts frequently require that we obtain from surety companies, and provide to our
customers, surety bonds as a condition to the award of such contracts. These surety bonds are issued in return for
premiums, which vary depending on the size and type of the bond, and secure our payment and performance
obligations under such contracts. We have agreed to indemnify the surety companies for amounts, if any, paid by
them in respect of surety bonds issued on our behalf. Surety bonds expire at various times ranging from final
completion of a project to a period extending beyond contract completion in certain circumstances. Such amounts can
also fluctuate from period to period based upon the mix and level of our bonded operating activity. As of June 30,
2022, there were $140.6 million of surety bonds in force, of which we expect $90.3 million to expire within the next
12 months. We are not aware of any losses in connection with surety bonds that have been posted on our behalf, and
we do not expect to incur significant losses in the foreseeable future.
We issue letters of credit under our ABL Facility in the normal course of business to support workers’ compensation
insurance programs or certain construction contracts. As of June 30, 2022, we had $23.3 million of letters of credit
outstanding, nearly all of which expire within the next 12 months. 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 throughout fiscal 2023.
34
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,
payment terms are identified, the contract has commercial substance, and collectability 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.
35
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
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 $8.9 million at June 30, 2022 and $14.6 million at June 30, 2021. 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.
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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
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, 2022, which resulted in no impairment. The fiscal
2022 test indicated that four reporting units with a combined total of $33.8 million of goodwill as of June 30, 2022
were at higher risk of future impairment. If our view of project opportunities or gross margins deteriorates,
particularly for the higher risk reporting units, then we may be required to record an impairment of goodwill.
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
Goodwill
as of
June 30, 2022
(in thousands)
Baseline
Headroom
Headroom if
Revenue Growth
Rate
Declines by 100
Basis Points
Headroom if
Gross Margin
Declines by 100
Basis Points
Headroom if
Discount Rate
Increases by 100
Basis Points
Reporting Unit 1 . . . . . . . . . . . . . . . . . . . .
Reporting Unit 2 . . . . . . . . . . . . . . . . . . . .
Reporting Unit 3 . . . . . . . . . . . . . . . . . . . .
Reporting Unit 4 . . . . . . . . . . . . . . . . . . . .
Reporting Unit 5 . . . . . . . . . . . . . . . . . . . .
$12,316
$11,158
$ 8,287
$ 6,112
$ 4,262
5%
4%
103%
23%
16%
-3%
-2%
87%
18%
9%
-20%
-12%
37%
1%
-17%
-3%
-4%
83%
17%
6%
In the third quarter, we concluded that goodwill impairment indicators existed based on the decline in the price of
our stock and operating results that have underperformed our forecasts during the year. Accordingly, we performed
an interim impairment test as of March 31, 2022 and concluded that there was $18.3 million of total impairment to
goodwill, which was recorded as follows:
•
•
•
$8.4 million in the Process and Industrial Facilities segment;
$7.2 million in the Storage and Terminal Solutions segment; and
$2.7 million in the Utility and Power Infrastructure segment.
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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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our interest rate risk results primarily from our variable rate indebtedness under our ABL Facility, which is
influenced by movements in short-term rates. Borrowings under the ABL Facility bear interest through maturity at
a variable rate based upon, at our option, an annual rate of either a base rate (‘‘Base Rate’’), an Adjusted Term SOFR
(‘‘Adjusted Term SOFR’’), or at the Canadian Prime Rate, plus an applicable margin. The Adjusted Term SOFR is
defined as (i) the SOFR plus (ii) 11.448 basis points for a one-month tenor and 26.161 basis points for a three-month
tenor; provided that the Adjusted Term SOFR cannot be below zero. The Base Rate is defined as a fluctuating interest
rate equal to the greater of: (i) rate of interest announced by Bank of Montreal from time to time as its prime rate;
(ii) the U.S. federal funds rate plus 0.50%; (iii) Adjusted Term SOFR for one month period plus 1.00%; or (iv) 1.00%.
Depending on the amount of average availability, the applicable margin is between 1.00% to 1.50% for Base Rate
and Canadian Prime Rate borrowings, which includes either U.S. or Canadian prime rate, and between 2.00% and
2.50% for Adjusted Term SOFR borrowings. Interest is payable either (i) monthly for Base Rate or Canadian Prime
Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL
Facility. The fee for undrawn amounts is 0.25% per annum and is due quarterly. The interest rate in effect for
borrowings outstanding at June 30, 2022, including applicable margin, was 6.00%.
Financial instruments with interest rate risk at June 30, 2022 were as follows:
Maturity by Fiscal Year
2023
2025
2024
(in thousands)
2026
2027
Fair Value as
of June 30, 2022
Long-term debt:
Variable rate debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$— $— $— $— $15,000
$15,000
If the interest in effect for borrowings outstanding at June 30, 2022, including applicable margin, increases 1.00%,
then our interest expense would only increase $0.2 million, which would not have a material impact to our business.
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.
38
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, 2022.
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. The COVID-19 Pandemic and the war
between Russia and Ukraine 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 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. 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.
39
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 (PCAOB ID 34) . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the Fiscal Years Ended June 30, 2022, June 30, 2021, and
June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended June 30, 2022,
June 30, 2021, and June 30, 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of June 30, 2022 and June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2022, June 30, 2021,
and June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended June 30,
2022, June 30, 2021, and June 30, 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41
42
46
47
48
49
50
51
75
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, 2022, June 30, 2021 and June 30, 2020 immediately following
Notes to Consolidated Financial Statements. 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.
40
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, 2022. 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, 2022 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, 2022. 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
October 11, 2022
41
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, 2022, 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, 2022
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, 2022, of the Company
and our report dated October 11, 2022, 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
October 11, 2022
42
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, 2022 and 2021, 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, 2022 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the
period ended June 30, 2022, 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, 2022, 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 October 11, 2022 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, 2022, revenue totaled $707.8 million, of which $421.2 million related to fixed-price
contracts.
43
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 two selected fixed price contracts.
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 two selected fixed price contracts, 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 goodwill impairment tests as of March 31, 2022 and May 31, 2022,
which resulted in $18.3 million of total impairment to goodwill in the third quarter of fiscal year 2022 and no
impairment of goodwill in the fourth quarter of fiscal year 2022, respectively. Four reporting units with a combined
total of $33.8 million of goodwill as of June 30, 2022 were at higher risk of future impairment than others and their
estimated fair values exceed their carrying values by 4% to 23%. The Company’s total goodwill was $42.1 million
as of June 30, 2022.
We identified goodwill for four identified reporting units with a combined total of $33.8 million of goodwill as a
critical audit matter because of the significant judgments made by management to estimate the fair values of these
44
reporting units. This required a high degree of auditor judgment and an increased extent of effort, including the need
to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of
management’s estimates and assumptions related to the revenue growth rate, forecasted gross margins, and discount
rate.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the revenue growth rate, forecasted gross margins, and the discount rate used by
management to estimate the fair value of the three identified reporting units included the following, among others:
• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those
over the determination of the fair value of the four identified reporting units, such as controls related to
management’s selection of the revenue growth rate and discount rate and forecasts of gross margins.
• 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
including testing the source information underlying the
methodology and (2)
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
October 11, 2022
We have served as the Company’s auditor since 2006.
45
Matrix Service Company
Consolidated Statements of Income
(In thousands, except per share data)
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible asset impairment. . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for federal, state and foreign income taxes . . . . . . .
June 30,
2022
$707,780
708,986
(1,206)
67,690
18,312
646
Fiscal Years Ended
June 30,
2021
June 30,
2020
$673,398
640,633
$1,100,938
998,762
32,765
69,756
—
6,756
102,176
86,276
38,515
14,010
(87,854)
(43,747)
(36,625)
(2,951)
90
32,432
(58,283)
5,617
(1,559)
126
1,917
(43,263)
(12,039)
(1,597)
1,270
308
(36,644)
(3,570)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (63,900)
$ (31,224)
$ (33,074)
Basic loss per common share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted loss per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding:
$
$
(2.39)
(2.39)
$
$
(1.18)
(1.18)
$
$
(1.24)
(1.24)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,733
26,733
26,451
26,451
26,621
26,621
See accompanying notes
46
Matrix Service Company
Consolidated Statements of Comprehensive Income
(In thousands)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax:
Foreign currency translation gain (loss) (net of tax expense
(benefit) of $71, $223 and $(88) for the fiscal years ended
June 30, 2022, 2021 and 2020, respectively) . . . . . . . . . . . . . . . . .
June 30,
2022
Fiscal Years Ended
June 30,
2021
June 30,
2020
$(63,900)
$(31,224)
$(33,074)
(1,426)
1,624
(622)
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(65,326)
$(29,600)
$(33,696)
See accompanying notes
47
Matrix Service Company
Consolidated Balance Sheets
(In thousands)
June 30,
2022
June 30,
2021
Current assets:
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowances (2022 - $1,320; 2021 - $898) . . . . . . . . . . . . . . .
Costs and estimated earnings in excess of billings on uncompleted contracts. . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment - net
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net of accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, non-current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 52,371
153,879
44,752
9,974
13,547
12,889
287,412
25,000
53,869
22,067
42,135
4,796
—
5,514
$ 83,878
148,030
30,774
7,342
16,965
4,230
291,219
—
69,407
22,412
60,636
6,614
5,295
11,973
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$440,793
$467,556
Current liabilities:
Liabilities and stockholders’ equity
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings on uncompleted contracts in excess of costs and estimated earnings. . . . . . . .
Accrued wages and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under asset-backed credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities, non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’ equity:
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares
issued as of June 30, 2022 and June 30, 2021; 26,790,514 and 26,549,438 shares
outstanding as of June 30, 2022 and June 30, 2021, respectively . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 74,886
65,106
21,526
6,125
5,715
4,427
177,785
26
19,904
15,000
372
213,087
$ 60,920
53,832
21,008
6,568
5,747
5,327
153,402
34
20,771
—
7,810
182,017
279
139,854
111,278
(8,175)
279
137,575
175,178
(6,749)
243,236
306,283
Treasury stock, at cost — 1,097,703 and 1,338,779 shares as of June 30, 2022 and
June 30, 2021, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,530)
(20,744)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
227,706
285,539
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$440,793
$467,556
See accompanying notes
48
Matrix Service Company
Consolidated Statements of Cash Flows
(In thousands)
Operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash provided (used) by operating
activities
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 sale of property, plant and equipment (Note 3) . . . . . . . . . . . . . . . . . .
Provision for uncollectable accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated amortization of deferred debt amendment fees (Note 5) . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities increasing (decreasing) cash:
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 asset sales (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided (used) by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Advances under senior secured revolving credit facility . . . . . . . . . . . . . . . . . . . .
Repayments of advances under senior secured revolving credit facility . . . . . . . .
Advances under asset-backed credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of advances under asset-backed 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided (used) by financing activities. . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents, and restricted cash, beginning of period (Note 1) . . . . . .
Cash, cash equivalents, and restricted cash, end of period (Note 1) . . . . . . . . . . .
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
June 30,
2022
Fiscal Years Ended
June 30,
2021
June 30,
2020
$(63,900)
$ (31,224)
$ (33,074)
15,254
18,312
7,877
—
5,358
(33,114)
738
1,518
169
(6,587)
(13,978)
(2,632)
(530)
13,654
11,274
(7,609)
(54,196)
(3,345)
39,018
35,673
—
—
20,000
(5,000)
(1,263)
—
199
270
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)
(4,354)
2,090
(2,264)
1,125
(10,913)
—
—
(1,275)
—
349
299
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
(18,539)
1,423
(17,116)
18,567
(14,357)
—
—
—
(17,045)
—
320
(853)
(654)
12,699
(683)
(6,507)
83,878
$ 77,371
(1,554)
(355)
(12,324)
1,401
(16,158)
100,036
$ 83,878
(3,524)
—
(16,039)
(609)
10,321
89,715
$100,036
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,864)
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,773
Non-cash investing and financing activities:
Purchases of property, plant and equipment on account . . . . . . . . . . . . . . . . . .
$
54
$
$
$
451
1,834
106
$
$
$
6,394
2,148
48
See accompanying notes
49
Matrix Service Company
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share data)
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 . . . . . . . . . . . . .
Balances, June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . .
Treasury Shares Sold to Employee Stock Purchase
Plan (29,826 shares) . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options (19,550 shares) . . . . . . . .
Issuance of deferred shares (268,403 shares) . . . . . .
Treasury shares repurchased to satisfy tax
withholding obligations (76,703 shares) . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . .
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
$279
—
—
$137,712 $239,476
— (33,074)
—
—
$(7,751)
—
(622)
$(17,759) $351,957
— (33,074)
(622)
—
—
—
—
—
—
279
—
—
—
—
—
—
—
279
—
—
—
—
—
—
—
(19)
(8,604)
—
—
9,877
—
—
—
—
—
—
—
—
—
—
138,966
206,402
— (31,224)
—
—
(8,373)
—
1,624
(207)
(257)
(9,083)
—
8,156
—
—
—
—
—
—
—
—
—
—
137,575
175,178
— (63,900)
—
—
(6,749)
—
(1,426)
(307)
(189)
(5,102)
—
7,877
—
—
—
—
—
—
—
—
—
—
339
8,604
320
—
(3,524)
(3,524)
(17,045)
—
(17,045)
9,877
(29,385) 307,889
— (31,224)
1,624
—
506
606
9,083
299
349
—
(1,554)
—
(1,554)
8,156
(20,744) 285,539
— (63,900)
— (1,426)
577
388
5,102
270
199
—
(853)
—
(853)
7,877
Balances, June 30, 2022 . . . . . . . . . . . . . . . . . . . . . . .
$279
$139,854 $111,278
$(8,175)
$(15,530) $227,706
See accompanying notes
50
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, deferred tax assets, and the estimation of loss contingencies,
including liabilities associated with litigation and with the self-insured retentions on our insurance programs. Actual
results could materially differ from those estimates.
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 collectability 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.
51
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
as if they were part of that existing contract. The effect of a change order on the contract price and our measure of
52
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
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, Cash Equivalents and Restricted Cash
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, 2022 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
$5.7 million as of June 30, 2022.
The ABL Facility requires us to maintain a minimum of $25.0 million of restricted cash at all times. Since this cash
must be restricted through the maturity date of the ABL Facility, which is beyond one year, we have classified this
restricted cash as non-current in our Consolidated Balance Sheets. The following table provides a reconciliation of
cash, cash equivalents and restricted cash in the Consolidated Balance Sheets to the total cash, cash equivalents and
restricted cash shown in the Consolidated Statements of Cash Flows (in thousands):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$52,371
25,000
$83,878
—
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements
of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$77,371
$83,878
June 30, 2022 June 30, 2021
Accounts Receivable
Accounts receivable are carried on a gross basis, less the allowance for credit losses. We estimate the allowance for
credit losses based on relevant information about past events, including historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectability of the reported amount. 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. Accounts are written off against the allowance for credit losses only after all reasonable collection
attempts have been exhausted.
Retentions
Contract retentions collectable 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
53
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
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.
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.
54
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
We perform our annual impairment test in the fourth quarter of each fiscal year, or in between annual tests whenever
events or changes in circumstances indicate the carrying value of goodwill may not be recoverable, to determine
whether an impairment exists and to determine the amount of headroom. 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
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. 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
55
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
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. 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.
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 $484.2 million of remaining performance obligations yet to be satisfied as of June 30, 2022. We expect to
recognize approximately $389.9 million of our remaining performance obligations as revenue within the next twelve
months.
Contract Balances
Contract terms with customers include the timing of billing and 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,
2022
June 30,
2021
(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 . .
$ 44,752
(65,106)
$ 30,774
(53,832)
$ 13,978
(11,274)
Net contract liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(20,354) $(23,058) $ 2,704
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,
2022 that was included in the prior period BIE balance was $49.2 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, 2022 and June 30, 2021 included retentions to be collected within
one year of $16.1 million and $19.9 million, respectively. Contract retentions collectable beyond one year are
included in other assets in the Consolidated Balance Sheets and totaled $4.0 million as of June 30, 2022 and
$3.1 million as of June 30, 2021.
56
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
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:
Geographic Disaggregation:
June 30,
2022
Fiscal Years Ended
June 30,
2021
(In thousands)
June 30,
2020
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other international. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$640,512
63,045
4,223
$604,739
61,703
6,956
$1,020,083
70,133
10,722
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$707,780
$673,398
$1,100,938
Contract Type Disaggregation:
June 30,
2022
Fiscal Years Ended
June 30,
2021
(In thousands)
June 30,
2020
Fixed-price contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time and materials and other cost reimbursable contracts . . . . . . . . . . . . .
$421,188
286,592
$444,042
229,356
$ 685,559
415,379
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$707,780
$673,398
$1,100,938
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.
Revisions in Estimates
Our results of operations were materially impacted by an increase in the forecasted costs to complete a midstream
gas processing project in the Process and Industrial Facilities segment. The project reduced gross profit by
$8.7 million during fiscal 2022. The increase in forecasted costs was primarily due to poor performance of a now
terminated subcontractor, which required rework, as well as supply chain and escalation issues, in order to meet our
client’s expectations. We expect to complete the project during the second quarter of fiscal 2023.
Our results of operations were materially impacted by changes in the forecasted costs to complete two large capital
projects in the Utility and Power Infrastructure segment. Improved project execution on the first project resulted in
an increase in gross profit of $2.2 million during the second half of fiscal 2022. However, increases in the forecasted
costs to complete this project during the first half of fiscal 2022 resulted in the project reducing gross profit by
$3.6 million during fiscal 2022. The increase in forecasted costs during the first half of the fiscal year was principally
due to unexpected equipment repairs during commissioning that delayed the scheduled completion and increased the
estimated costs to complete. We achieved a critical performance milestone during the second quarter of fiscal 2022,
which significantly reduced our financial exposure on the project.
Increased forecasted costs to the complete the second project resulted in the project reducing gross profit by
$2.2 million during the fourth quarter of fiscal 2022 and $0.1 million during fiscal 2022. We recognized $78.1 million
of revenue on this project during the year at a near break-even margin as a result of the change in estimate. The
increase in forecasted costs was the result of higher than anticipated subcontractor costs and labor costs as the project
neared completion. We expect to complete the project during the second quarter of fiscal 2023.
57
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Our results of operations were materially impacted by an increase in the costs required to complete a thermal energy
storage tank repair and maintenance project in the Storage and Terminal Solutions segment, which resulted in a
decrease in gross profit of $6.3 million in fiscal 2022. The increase in costs was primarily due to changes in repair
scope, expanded client weld testing and associated schedule delays. We achieved substantial completion on this
project in the fourth quarter of fiscal 2022.
Note 3—Property, Plant and Equipment
The following table presents the components of our property, plant and equipment - net at June 30, 2022 and 2021:
June 30,
2022
June 30,
2021
(In thousands)
Property, plant and equipment - at cost:
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34,788
93,036
48,999
43,823
1,646
$ 41,633
94,453
50,510
42,706
493
Total property, plant and equipment - at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
222,292
(168,423)
229,795
(160,388)
Property, plant and equipment - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 53,869
$ 69,407
Geographical Disaggregation of Long-Lived Assets
June 30,
2022
Long-Lived Assets
June 30,
2021
(In thousands)
June 30,
2020
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other international . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$137,682
3,436
12,263
$157,442
6,523
12,372
$164,056
5,659
12,435
$153,381
$176,337
$182,150
Sale-leaseback Transaction
We sold our regional office and fabrication and warehouse facilities located in Orange, California during the
fourth quarter of fiscal 2022 for net proceeds of $37.4 million in cash. We recorded a gain of $32.4 million on the
sale, which is included in other income in the Consolidated Statements of Income. In connection with the sale, we
also entered into a leaseback agreement for a period up to 24 months while we locate replacement facilities. We are
still fully committed to our operations in Southern California - we decided to enter into the sale and leaseback
transaction to take advantage of the elevated real estate market valuations in Southern California.
58
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:
Utility and Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
(In thousands)
Total
Net balance at June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net balance at June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net balance at June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net balance at June 30, 2022 . . . . . . . . . . . . . . . . . . . . . . . .
$ 31,840
(24,900)
(35)
6,905
79
6,984
(2,659)
(62)
$34,842
(7,981)
(15)
26,846
32
26,878
(8,445)
(6)
$26,686
—
(68)
$ 93,368
(32,881)
(118)
26,618
156
26,774
(7,208)
(121)
60,369
267
60,636
(18,312)
(189)
$ 4,263
$18,427
$19,445
$ 42,135
(1)
The translation adjustments relate to the periodic translation of Canadian Dollar and South Korean Won denominated goodwill recorded as
a part of prior acquisitions in Canada and South Korea, in which the local currency was determined to be the functional currency.
We performed our annual goodwill impairment test as of May 31, 2022, which resulted in no impairment. The fiscal
2022 test indicated that four reporting units with a combined total of $33.8 million of goodwill as of June 30, 2022
were at higher risk of future impairment. If our view of project opportunities or gross margins deteriorates,
particularly for the higher risk reporting units, then we may be required to record an impairment of goodwill.
In the third quarter of fiscal 2022, we concluded that goodwill impairment indicators existed based on the decline in
the price of our stock and operating results that have underperformed our forecasts during the year. Accordingly, we
performed an interim impairment test as of March 31, 2022 and concluded that there was $18.3 million of total
impairment to goodwill, which was recorded as follows:
•
•
•
$8.4 million in the Process and Industrial Facilities segment;
$7.2 million in the Storage and Terminal Solutions segment; and
$2.7 million in the Utility and Power Infrastructure segment.
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 segment was derived by utilizing a discounted cash flow analysis and market
multiples of projected EBITDA. The key assumptions used are described in Note 1 - Summary of Significant
Accounting Policies, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, Critical Accounting Policies, Goodwill.
59
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Other Intangible Assets
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
$ 2,558
17,331
$19,889
Gross
Carrying
Amount
$ 2,483
17,354
$19,837
At June 30, 2022
Accumulated
Amortization
Net Carrying
Amount
(In thousands)
$ (2,276)
(12,817)
$(15,093)
At June 30, 2021
$ 282
4,514
$4,796
Accumulated
Amortization
Net Carrying
Amount
(In thousands)
$ (2,031)
(11,192)
$(13,223)
$ 452
6,162
$6,614
Amortization expense totaled $1.8 million, $2.3 million, and $3.4 million in fiscal 2022, 2021, and 2020,
respectively.
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 in the Utility and Power Infrastructure
segment 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 in the Process and
Industrial Facilities segment. The closure was part of 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.
We estimate that future amortization of other intangible assets will be as follows (in thousands):
For year ending:
June 30, 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2026. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total estimated amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,729
1,416
1,096
555
$4,796
60
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Note 5—Debt
ABL Credit Facility
On October 5, 2022, we and our primary U.S. and Canada operating subsidiaries entered into the First Amendment
and Waiver to Credit Agreement (the ‘‘Amendment’’), which amended our asset-backed credit agreement (the ‘‘ABL
Facility’’), dated as of September 9, 2021 with Bank of Montreal, as Administrative Agent, Swing Line Lender and
a Letter of Credit Issuer, and the lenders named therein. The Amendment (i) waives an event of default resulting from
our failure to deliver the Administrative Agent and the lenders our audited financial statements for the fiscal year
ended June 30, 2022 by September 28, 2022 (the ‘‘Audited Financial Statements’’), provided we deliver the Audited
Financial Statements by October 14, 2022, (ii) reduces the maximum amount of loans under the ABL Facility to
$90.0 million from $100.0 million and (iii) replaces the London interbank offered rate with the forward term rate
based on the secured overnight financing rate (the ‘‘SOFR’’) as the interest rate benchmark.
The ABL Facility is guaranteed by substantially all of our remaining U.S. and Canadian subsidiaries. The ABL
Facility available borrowings may be increased by an amount not to exceed $15.0 million, subject to certain
conditions, including obtaining additional commitments. The ABL Facility is intended to be used for working capital,
capital expenditures, issuances of letters of credit and other lawful purposes. Our obligations under the ABL Facility
are secured by a first lien on all our assets and the assets of our co-borrowers and guarantors under the ABL Facility.
The maximum amount that we may borrow under the ABL Facility is subject to a borrowing base, which is based
on restricted cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced
for certain reserves. We are required to maintain a minimum of $25.0 million of restricted cash at all times, but such
amounts are also included in the borrowing base. The ABL Facility matures and any outstanding amounts become
due and payable on September 9, 2026. At June 30, 2022, our borrowing base was $80.8 million, we had
$15.0 million of outstanding borrowings, and $23.3 million in letters of credit outstanding, which resulted in
availability of $42.5 million under the ABL Facility.
Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an
annual rate of either a base rate (‘‘Base Rate’’), an Adjusted Term SOFR (‘‘Adjusted Term SOFR’’), or at the
Canadian Prime Rate, plus an applicable margin. The Adjusted Term SOFR is defined as (i) the SOFR plus (ii) 11.448
basis points for a one-month tenor and 26.161 basis points for a three-month tenor; provided that the Adjusted Term
SOFR cannot be below zero. The Base Rate is defined as a fluctuating interest rate equal to the greater of: (i) rate
of interest announced by Bank of Montreal from time to time as its prime rate; (ii) the U.S. federal funds rate plus
0.50%; (iii) Adjusted Term SOFR for one month period plus 1.00%; or (iv) 1.00%. Depending on the amount of
average availability, the applicable margin is between 1.00% to 1.50% for Base Rate and Canadian Prime Rate
borrowings, which includes either U.S. or Canadian prime rate, and between 2.00% and 2.50% for Adjusted Term
SOFR borrowings. Interest is payable either (i) monthly for Base Rate or Canadian Prime Rate borrowings or (ii) the
last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility. The fee for
undrawn amounts is 0.25% per annum and is due quarterly. The interest rate in effect for borrowings outstanding at
June 30, 2022, including applicable margin, was 6.00%.
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. We are in compliance with all covenants of the ABL Facility as of June 30, 2022.
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
61
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
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. Interest expense during fiscal 2022 included $1.5 million of accelerated amortization
of deferred debt amendment fees associated with the Prior Credit Agreement.
Note 6—Income Taxes
Sources of Pretax Income (Loss)
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Components of the Provision for Income Tax Expense (Benefit)
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2022
$(53,258)
(5,025)
$(58,283)
Fiscal Years Ended
June 30,
2021
(In thousands)
$(38,867)
(4,396)
$(43,263)
June 30,
2020
$(32,660)
(3,984)
$(36,644)
June 30,
2022
Fiscal Years Ended
June 30,
2021
(In thousands)
June 30,
2020
$ 230
28
1
259
2,504
2,858
(4)
5,358
$5,617
$(13,154)
465
(239)
(12,928)
774
(291)
406
889
$(12,039)
$ (376)
412
23
59
(5,000)
(1,091)
2,462
(3,629)
$(3,570)
Reconciliation Between the Expected Income Tax Provision Applying the Domestic Federal Statutory Tax Rate
and the Reported Income Tax Provision
Expected 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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,
2022
$(12,239)
(1,971)
1,132
265
17,943
1,019
(613)
(232)
141
(120)
292
$ 5,617
Fiscal Years Ended
June 30,
2021
(In thousands)
$ (9,085)
(1,240)
—
961
2,797
1,826
(1,707)
(96)
(5,223)
(7)
(265)
$(12,039)
June 30,
2020
$(7,695)
(768)
1,813
1,707
3,062
230
(1,724)
(132)
—
20
(83)
$(3,570)
(1)
In fiscal 2022, we impaired $18.3 million of goodwill, which included $5.4 million of non-deductible goodwill. 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.
62
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
(2)
(3)
In fiscal 2022, due to the existence of a cumulative loss over a three-year period, we recorded a full valuation allowance of $17.9 million
against our deferred tax assets. These assets are primarily comprised of federal net operating losses, which have an indefinite carryforward,
federal tax credits and state net operating losses. To the extent we generate taxable income in the future, or cumulative losses are no longer
present and our future projections for growth or tax planning strategies are demonstrated, we will realize the benefit associated with the net
operating losses for which the valuation allowance has been provided. In fiscal 2021, we placed $2.8 million of valuation allowances,
including $1.5 million on certain state net operating loss carryforwards due to a 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.
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Tax over book depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable holdbacks and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2022
June 30,
2021
(In thousands)
$
206
340
315
1,019
79
23,717
736
16
1,910
1,089
160
5,449
1,427
1,002
(28,615)
$
206
231
747
1,229
146
14,966
690
27
1,895
64
725
3,765
1,920
665
(11,104)
8,850
16,172
7,842
1,034
8,876
10,315
596
10,911
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(26) $ 5,261
As reported in the Consolidated Balance Sheets:
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2022
June 30,
2021
(In thousands)
$ —
(26)
$(26)
$5,295
(34)
$5,261
Valuation Allowance
In fiscal 2022, due to the existence of a cumulative loss over a three-year period, we recorded a full valuation
allowance of $17.9 million against our deferred tax assets. These assets are primarily comprised of federal net
operating losses, which have an indefinite carryforward, federal tax credits and state net operating losses. To the
extent we generate taxable income in the future, or cumulative losses are no longer present and our future projections
63
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
for growth or tax planning strategies are demonstrated, we will realize the benefit associated with the net operating
losses for which the valuation allowance has been provided.
Operating Loss and Tax Credit Carryforwards
We have net operating loss carryforwards and tax credit carryforwards in federal, state and foreign jurisdictions. The
valuation allowance at June 30, 2022 and June 30, 2021 reduces the recognized tax benefit of these carryforwards
to an amount that is more likely than not to be realized. The gross carryforwards will generally expire as shown below
for each jurisdiction:
Operating Loss and Tax Credit Carryforwards
Expiration Period
Amount (in thousands)
Federal net operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal tax credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State tax credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite
June 2041 to June 2042
June 2023 to June 2025
June 2025 to indefinite
June 2033 to indefinite
June 2029 to June 2042
June 2035 to June 2042
$27,207
$ 1,700
$
655
$73,889
912
$
$37,379
676
$
Net Operating Loss Carryback Refund
Through provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the ‘‘CARES Act’’), we
had an income tax benefit from the ability to carryback the fiscal 2021 federal net operating loss to a period with a
higher statutory federal income tax rate. We estimate that we will receive a $12.6 million tax refund in connection
with this carryback, which is included in income taxes receivable in the Consolidated Balance Sheets.
Refund of Overpayment of Estimated Taxes
In January 2022, we received a $2.4 million tax refund in connection with overpayments of estimated taxes from prior
years.
Deferred Payroll Taxes
As of June 30, 2022, we have a balance of $5.6 million remaining on U.S. payroll taxes we deferred through
provisions of the CARES Act. We paid half of the original deferred payroll tax balance during the second quarter of
fiscal 2022 and must repay the remaining balance by December 31, 2022. The remaining balance of deferred payroll
taxes is included within accrued wages and benefits in the Consolidated Balance Sheets.
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 2017. At June 30, 2022, we updated our evaluation of our
open tax years in all known jurisdictions. As of June 30, 2022, 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.
64
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, 2022 and June 30, 2021, costs and estimated earnings in excess of billings on uncompleted contracts
included revenue for unpriced change orders and claims of $8.9 million and $14.6 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 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, 2022 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 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 96% of all right-of-use assets as of
June 30, 2022. 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 14 years.
Construction equipment leases generally have ‘‘month-to-month’’ lease terms that automatically renew as long as the
equipment remains in use.
In fiscal 2021 we recorded $0.5 million of impairments to right-of-use assets related to leased office space that was
closed in connection with our restructuring activities, see Note 14 – Restructuring Costs for additional information.
The components of lease expense in the Consolidated Statements of Income are as follows:
Lease expense
Location of Expense in Consolidated Statements
of Income
Fiscal Years Ended
June 30, 2022 June 30, 2021 June 30, 2020
(in thousands)
Operating lease expense . . . . . Cost of revenue and selling, general and
$ 7,511
$ 8,386
$12,274
Short-term lease expense(1) . . . Cost of revenue
Total lease expense . . . . . . . . .
administrative expenses
24,225
25,912
37,371
$31,736
$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.
65
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
The future undiscounted lease payments, as reconciled to the discounted operating lease liabilities presented in our
Consolidated Balance Sheets, were as follows:
Maturity Analysis:
Fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future operating lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net present value of future lease payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion of operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2022
(in thousands)
$ 6,956
5,654
3,697
3,400
3,288
8,681
31,676
(6,057)
25,619
5,715
Non-current operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,904
The following is a summary of the weighted average remaining operating lease term and weighted average discount
rate as of June 30, 2022:
Weighted-average remaining lease term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.2 years
5.0%
Supplemental cash flow information related to leases is as follows:
Fiscal Year Ended
June 30, 2022
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,060
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,687
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, 2022
or June 30, 2021.
Stock Repurchase Program
We may repurchase common stock pursuant to the Stock Buyback Program, which was approved by the board of
directors in November 2018. Under the program, the aggregate number of shares repurchased may not exceed
2,707,175 shares. We may repurchase our stock from time to time in the open market at prevailing market prices or
in privately negotiated transactions and are not obligated to purchase any shares. The program will continue unless
and until it is modified or revoked by the Board of Directors. We made no repurchases under the program in fiscal
2022 and have no current plans to repurchase stock. The terms of our ABL Facility limit share repurchases to
$2.5 million per fiscal year provided that we meet certain availability thresholds and do not violate our Fixed Charge
Coverage Ratio financial covenant. There were 1,349,037 shares available for repurchase under the November 2018
Program as of June 30, 2022.
66
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Treasury Shares
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 76,703, 170,629, and 181,081 shares of
common stock during fiscal 2022, 2021, and 2020, respectively, to satisfy these obligations. These shares were
returned to our pool of treasury shares. We have 1,097,703 treasury shares as of June 30, 2022 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, 2022, June 30, 2021, and June 30, 2020
was $7.9 million, $8.2 million and $9.9 million, respectively. Measured but unrecognized stock-based compensation
expense at June 30, 2022 was $9.0 million, all of which related to nonvested deferred shares which are expected to
be recognized as expense over a weighted average period of 1.7 years. We recognized excess tax expense of
$1.0 million, $1.8 million, and $0.2 million related to stock-based compensation vesting for the fiscal years ended
June 30, 2022, 2021, and 2020, respectively.
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.
Awards totaling 1,725,000 shares have been authorized under the 2020 Plan. There were 1,392,706 shares available
for grant under the 2020 Plan as of June 30, 2022.
Stock Options
We did not award any new stock options in fiscal years 2022, 2021, or 2020. The 19,550 options outstanding as of
June 30, 2021 were exercised in the second quarter of fiscal 2022 at a weighted average exercise price of $10.19 per
share. There were no options outstanding at June 30, 2022. The total intrinsic value of stock options exercised were
less than $0.1 million during fiscal 2022 and $0.1 million during fiscal 2021. 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
67
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Company’s relative total shareholder return during the performance period. These awards are settled in
stock. As of June 30, 2022, there were approximately 163,000, 340,000, and 389,000 performance units that
are scheduled to vest in fiscal 2023, fiscal 2024, and fiscal 2025, 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 the market-based awards is calculated using a Monte Carlo model. For the
fiscal 2022 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.
Nonvested deferred share activity for the fiscal year ended June 30, 2022 is as follows:
Nonvested shares at June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares vested and released. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested shares at June 30, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
1,280,707
696,227
(268,403)
(242,743)
1,465,788
Weighted Average Grant
Date Fair Value per Share
$17.07
$14.13
$13.92
$25.50
$14.86
There were 665,597 and 490,322 deferred shares granted in fiscal 2021 and 2020 with average grant date fair values
of $10.60 and $21.79 per share, respectively. There were 515,218 and 542,279 deferred shares that vested and were
released in fiscal 2021 and 2020 with weighted average fair values of $16.99 and $19.43 per share, respectively.
There were 119,904 deferred shares cancelled in fiscal 2021 with an average grant date fair value of $20.67. No
deferred shares were cancelled in fiscal 2020.
Cash-Settled Restricted Share Units
We granted 231,219 and 238,848 cash-settled restricted share units during fiscal years 2022 and 2021, respectively;
with weighted average fair values of $2.6 million and $2.3 million, respectively. No cash-settled restricted share units
were granted in fiscal year 2020. There were 53,333 shares vested and released in fiscal 2022 with a weighted average
fair value of $0.5 million. There were no cash-settled restricted shares vested or released in fiscal 2021 or 2020. There
were 25,355 shares cancelled in fiscal 2022 with a weighted average fair value of $0.3 million. There were no
cash-settled restricted shares cancelled in fiscal 2021 or 2020.
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 $0.6 million and $1.0 million of expense in fiscal years 2022 and 2021, respectively, 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, 2022, the liability for cash-settled restricted share units was
$0.9 million and is included in accrued wages and benefits in the Consolidated Balance Sheets.
68
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
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:
June 30,
2022
Fiscal Years Ended
June 30,
2021
(In thousands, except per share data)
June 30,
2020
Basic EPS:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(63,900)
$(31,224)
$(33,074)
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,733
26,451
26,621
Basic loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2.39)
$ (1.18)
$ (1.24)
Diluted EPS:
Weighted average shares outstanding—basic . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,733
26,733
26,451
26,451
26,621
26,621
Diluted loss per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2.39)
$ (1.18)
$ (1.24)
Note 12—Employee Benefit Plans
Defined Contribution Plans
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 $5.3 million, $5.4 million, and $6.2 million in the fiscal years ended June 30, 2022,
2021, and 2020, respectively.
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
100 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 2022
and 2025. 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.
69
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
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.
Our participation in significant plans for the fiscal year ended June 30, 2022 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
2022
2021
FIP/RP
Status
Pending or
Implemented
Company Contributions
Fiscal Year
2021
(In thousands)
2020
2022
Surcharge
Imposed
48-6168020/001
Yellow
Yellow
Implemented
$ 5,208
$ 4,003
$ 6,634
No
Boilermaker-Blacksmith
National Pension Trust
National Electrical Benefit
Fund, IBEW locals 71, 126,
488, and 1319
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 654 Pension
Plan
Ohio Carpenters’ Pension
Fund, Locals 1090 and 351
Iron Workers Pension Plan,
Local 55
Northwestern Ohio Plumbers
and Pipefitters Pension,
Local 50
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
53-0181657/001
22-6031199/001
22-1615726/001
Described
below(1)
Described
below(1)
Described
below(1)
22-6238995/001
Green
Green
Described
below(1)
Green
Described
below(1)
Described
below(1)
Described
below(1)
Described
below(1)
Green
Described
below(1)
22-3417366/001
23-2004424/001
23-6538183/001
34-6574360/001
34-6682351/001
34-6502487/001
35-6027150/001
36-6488227/001
62-6105084/001
25-1283169/001
NA
2,973
1,865
2,674
Implemented
1,514
1,958
1,560
Green
Described
below (1)
Green
Green
Green
NA
NA
NA
Red
Implemented
Green
NA
Red
Implemented
Green
Green
Green
Green
Green
NA
NA
NA
NA
NA
No
No
No
No
No
Yes
No
Yes
No
No
No
No
No
No
906
734
395
498
857
—
—
—
—
—
4
1,341
1,227
595
479
442
818
—
—
—
20
—
—
427
1,709
1,523
1,021
3,042
2,951
2,504
1,604
840
835
—
3,729
$16,818
—
3,848
$15,369
500
8,352
$37,403
Green
NA
Contributions to other multiemployer plans
Total contributions made
Green
(1)
For the National Electrical Benefit Fund for Locals 71/126/488/1319, Local 164 IBEW Pension Plan, Local IBEW 102 IBEW Pension Plan,
Steamfitters Local Union No. 420 Pension Plan, Locals 1090 and 351 of the Ohio Carpenters’ Pension Fund, Iron Workers Pension Plan
Local 55, Northwestern Ohio Plumbers and Pipefitters Pension Local 50, Indiana Laborers Pension Fund, and Pipefitters Retirement Fund
Local 597, we have not received a funding notification that covers our fiscal year 2022 during the preparation of this Form 10-K. For Local
164 IBEW Pension Plan, we have not received a funding notification that covers our fiscal year 2021 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 be accessed at https://www.dol.gov/agencies/ebsa/about-ebsa/our-
activities/public-disclosure/2022-funding-status-notices#2020-c-and-d.
70
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 29,826 shares issued in fiscal 2022, 29,171 shares in fiscal 2021, and
20,733 shares in fiscal 2020.
Note 13—Segment Information
In fiscal 2022, we operated our business through three reportable segments:
•
•
•
Utility and Power Infrastructure: consists of power delivery services provided to investor-owned
utilities, including construction of new substations, upgrades of existing substations, transmission and
distribution line installations, upgrades and maintenance, as well as emergency and storm restoration
services. We also provide engineering, fabrication, and construction services for LNG utility peak shaving
facilities, and construction and maintenance services to a variety of power generation facilities, including
natural gas fired facilities, in simple or combined cycle configuration.
Process and Industrial Facilities: primarily serves customers in the downstream and midstream petroleum
industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas
and natural gas liquids. We also serve customers in various other industries such as petrochemical, sulfur,
mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and
defense, cement, agriculture, and other industrial customers. Our services include plant maintenance,
turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.
Storage and Terminal Solutions: consists of work related to aboveground 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.
We evaluate performance and allocate resources based on operating income. We eliminate intersegment sales;
therefore, no intercompany profit or loss is recognized. Corporate selling, general and administrative expenses are
excluded from our three reportable segments in order to better align controllable costs with the responsibility of
segment management, and to be consistent with how our chief operating decision-maker assesses segment
performance and allocates resources.
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.
71
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Results of Operations
(In thousands)
Fiscal year ended June 30, 2022
Gross revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: inter-segment revenue. . . . . . . . . . . . . . . .
Consolidated revenue . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss). . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . .
Goodwill impairment and restructuring costs . .
Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . .
Utility and
Power
Infrastructure
Process and
Industrial
Facilities
Storage and
Terminal
Solutions
Corporate
Total
$220,093
—
$258,497
3,649
$236,260
3,421
$
— $ 714,850
7,070
—
220,093
(8,586)
11,771
2,746
(23,103)
94,059
29
3,812
254,848
9,270
12,506
6,867
(10,103)
104,078
254
5,659
232,839
262
17,284
7,330
(24,352)
141,084
338
5,540
—
(2,152)
26,129
2,015
(30,296)
101,572
2,724
243
707,780
(1,206)
67,690
18,958
(87,854)
440,793
3,345
15,254
$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
72
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Information about Significant Customers:
Fiscal Year ended June 30, 2022
Customer one . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
12.3%
11.0%
4.7%
12.9%
9.9%
7.0%
4.4%
9.7%
8.2%
8.2%
6.8%
2.0%
—%
35.5%
15.1%
41.3%
—%
22.5%
—%
—%
42.7%
—%
—%
10.5%
33.5%
—%
—%
—%
33.3%
—%
—%
25.4%
—%
—%
—%
—%
0.8%
—%
—%
—%
0.1%
0.1%
11.2%
—%
—%
19.3%
16.1%
—%
In fiscal 2020, we initiated a business improvement plan to increase profitability and reduce our cost structure in order
to help us become more competitive and deliver higher quality service. As a result of specific events, including the
effects of the COVID-19 pandemic and related market disruptions, the Company expanded its business improvement
plan.
The business improvement plan consists of an initial phase of discretionary cost reductions, workforce reductions,
reduction of capital expenditures and the reduction in size or closure of certain offices in order to increase the
utilization of our staff and bring the cost structure of the business in line with revenue volumes. In fiscal 2022, we
commenced a second phase of our plan to focus on centralization of support functions, including business
development, accounting, human resources, procurement and project services into shared service centers. The
restructuring costs consist primarily of severance costs, facility closure costs, consulting fees and other liabilities.
73
Matrix Service Company
Notes to Consolidated Financial Statements (continued)
Restructuring costs incurred are classified as follows:
Fiscal Year
Ended
June 30, 2022
Fiscal Year
Ended
June 30, 2021
Fiscal Year
Ended
June 30, 2020
(in thousands)
Since Inception
of Business
Improvement
Plan
Utility and Power Infrastructure
Severance and other personnel-related costs . . . . . . .
Facility costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible asset impairments . . . . . . . . . . . . . . .
Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Utility and Power Infrastructure . . . . . . . . . .
Process and Industrial Facilities
Severance and other personnel-related costs . . . . . . .
Facility costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible asset impairments . . . . . . . . . . . . . . .
Other costs(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Process and Industrial Facilities . . . . . . . . . .
Storage and Terminal Solutions
Severance and other personnel-related costs . . . . . . .
Facility costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Storage and Terminal Solutions . . . . . . . . . . .
Corporate
Severance and other personnel-related costs . . . . . . .
Facility costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
45
—
—
1
46
$
(22)
17
—
(1,597)
$(1,602)
$
$
$
69
—
28
97
504
16
1,585
Total Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,105
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. . . . . . . . . . . . . . . . . . . . . .
$
$
$
646
596
33
—
17
646
$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
$ 1,340
235
1,150
—
$ 2,725
$ 6,167
2,757
375
—
$ 9,299
$
347
720
—
$ 1,067
$
$
919
—
—
919
$14,010
$ 8,773
3,712
1,525
—
$14,010
$ 2,584
348
1,150
1
$ 4,083
$ 9,096
3,205
375
(1,171)
$11,505
$ 1,647
879
28
$ 2,554
$ 1,587
98
1,585
$ 3,270
$21,412
$14,914
4,530
1,525
443
$21,412
(1) Other costs in the Process and Industrial Facilities segment consisted of a $1.6 million credit in the third quarter of fiscal 2022. The credit
was due to a favorable settlement of a restructuring obligation related to our exit from the domestic iron and steel industry in fiscal 2020.
74
Matrix Service Company
Schedule II—Valuation and Qualifying Accounts
June 30, 2022, June 30, 2021, and June 30, 2020
(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 2022
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . . . . .
Valuation reserve for deferred tax assets . . . . . . . .
$
898
11,104
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,002
Fiscal Year 2021
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . . . . .
Valuation reserve for deferred tax assets . . . . . . . .
$
905
7,763
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,668
Fiscal Year 2020
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . . . . .
Valuation reserve for deferred tax assets . . . . . . . .
$
923
4,959
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,882
$
738
17,943
$18,681
$
85
2,797
$ 2,882
$ 1,158
3,062
$ 4,220
$—
—
$—
$—
—
$—
$—
—
$—
$ (316)(A) $ 1,320
(432) (B) 28,615
$29,935
$ (748)
$
$
(92)(C) $
898
544 (D) 11,104
$12,002
452
$(1,176)(E) $
(258)(B)
905
7,763
$(1,434)
$ 8,668
(A) Relates to the write off of a $0.3 million account receivable that was fully reserved in a prior period.
(B) Relates to foreign currency translation for the portion of the valuation allowance on net operating loss and tax credit carryforwards in foreign
jurisdictions.
(C)
Primarily relates to a $0.1 million reserve that was recognized as a credit loss and ultimately written off within fiscal 2021.
(D) 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.
(E)
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.
75
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, 2022. 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, 2022.
On September 12, 2022, we filed a form 12b-25 with the SEC to notify the Commission that we were not in a position
to file this Form 10-K in a timely manner without unreasonable effort or expense for reasons described below. In the
course of preparing our financial statements, we discovered that employee support and oversight time for a certain
project was allocated to our general overhead expense category rather than to the specific project to which it should
have been allocated. We conducted an internal review and determined the amount of misallocated time was
immaterial. As a result of this issue, our Audit Committee engaged third-party advisors to conduct a review of the
Company’s internal control over financial reporting and findings of the investigation. The review confirmed our
internal conclusion that the misallocated time was immaterial and the review supported management’s conclusion
that no material weakness in our internal control over financial reporting exists and that our internal control over
financial reporting was effective at a reasonable assurance level at June 30, 2022.
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 2022 that materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
76
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 2022 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
is publicly available in the ‘‘Investors’’ section of our website at
corporate governance documents
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
The information required by this item is incorporated herein by reference to the sections entitled ‘‘Director
Compensation,’’ ‘‘Compensation Discussion and Analysis’’ and ‘‘Executive Officer Compensation’’ in the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item is 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 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the section entitled ‘‘Corporate
Governance and Board Matters’’ and ‘‘Certain Relationships and Related Transactions’’ in the Proxy Statement.
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.
77
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) . . . . . . . . . . . . . . . . .
41
42
Consolidated Statements of Income for the Fiscal Years Ended June 30, 2022, June 30, 2021 and
June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended June 30, 2022, June 30,
2021 and June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of June 30, 2022 and June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
48
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2022, June 30, 2021 and
June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49
Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended June 30, 2022,
June 30, 2021 and June 30, 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
51
75
(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, 2022, June 30, 2021 and June 30, 2020, immediately following Notes to Consolidated Financial
Statements. 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.
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 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 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).
+10.2 Amendment 1 to Matrix Service Company 2004 Stock Incentive Plan (Exhibit 10 to Amended
Schedule 14A filed October 4, 2006).
78
+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 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).
+10.5 Matrix Service Company 2016 Stock and Incentive Compensation Plan (Appendix B to the
Company’s Proxy Statement, filed October 7, 2016).
+10.6
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, filed
February 9, 2017).
+10.7
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, filed September 19, 2018).
+10.8 Matrix Service Company 2018 Stock and Incentive Compensation Plan (Appendix A to the
Company’s Proxy Statement, 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, filed
November 8, 2018).
+10.10
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, filed September 3, 2020).
+10.11
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, 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).
+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 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 filed November 9, 2012).
+10.15 Matrix Service Company 2020 Stock and Incentive Compensation Plan (Appendix A to the
Company’s Proxy Statement filed on September 24, 2020)..
+10.16
Form of Long-Term Incentive Award Agreement (2020 Stock and Incentive Compensation Plan)
(Exhibit 10.16 to the Company’s Annual Report on Form 10-K filed September 13, 2021).
+10.17
Form of Restricted Stock Unit Award Agreement (2020 Stock and Incentive Compensation Plan)
(Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed September 13, 2021).
+10.18
Form of Indemnification Agreement (Exhibit 10 to the Company’s Quarterly Report on Form 10-Q
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 (Exhibit 10.19 to the Company’s Annual Report on Form 10-K filed
September 13, 2021).
79
+10.20 Amended and Restated Matrix Service Company 2021 Severance Plan for Executives (Exhibit 10.1
to the Company’s Quarterly Report on Form 10-Q filed May 10, 2022).
*10.21
Purchase and Sale Agreement dated June 9, 2022 by and between Matrix Service, Inc. and Pisces
Logistics Acquisition LLC.
*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
80
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 : October 11, 2022
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
October 11, 2022
Jim W. Mogg
John R. Hewitt
Kevin S. Cavanah
Jose L. Bustamante
Martha Z. Carnes
John D. Chandler
Carlin G. Conner
Liane K. Hinrichs
James H. Miller
President, Chief Executive Officer and Director
(Principal Executive Officer)
October 11, 2022
Vice President and Chief Financial Officer
(Principal Accounting and
Principal Financial Officer)
October 11, 2022
Director
October 11, 2022
Director
October 11, 2022
Director
October 11, 2022
Director
October 11, 2022
Director
October 11, 2022
Director
October 11, 2022
81
[THIS PAGE INTENTIONALLY LEFT BLANK]
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
Matrix Engineering & Technical Solutions, LLC, a Delaware limited liability company
Matrix Project Services, LLC, a Delaware limited liability 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: October 11, 2022
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: October 11, 2022
Kevin S. Cavanah
Vice President and Chief Financial Officer
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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, 2022 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) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act
of 1934 as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: October 11, 2022
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, 2022 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) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act
of 1934 as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: October 11, 2022
Kevin S. Cavanah
Vice President and Chief Financial Officer
PURPOSE
Working to build a better future,
improve quality of life, and create
long-term value for our people,
business partners, shareholders,
and communities.
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
BOARD OF DIRECTORS
Jim W. Mogg
Board Chair
John R. Hewitt
President and
Chief Executive Officer
Jose L. Bustamante
Director
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
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
Justin D. Sheets
Vice President, General Counsel
and Corporate Secretary
Nancy E. Austin
Vice President and
Chief Administrative Officer
Shawn P. Payne
President,
Matrix Service
Glyn A. Rodgers
President,
Matrix PDM Engineering
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.
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LNG PEAK SHAVING FACILITY
TUCSON, AZ
2022
ANNUAL
REPORT
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