UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022


☐			Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 1-15461

MATRIX SERVICE COMPANY

(Exact name of registrant as specified in its charter)


Delaware						73-1352174
(State of incorporation)						(I.R.S. Employer Identification No.)

5100 East Skelly Drive, Suite 500, Tulsa, Oklahoma 74135

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (918) 838-8822

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

___________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	MTRX	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 8, 2021~~May 9, 2022 there were ~~27,888,217~~26,790,514 shares of the ~~Company’s~~Company's common stock, $0.01 par value per share, ~~issued and 26,765,025 shares~~ outstanding.

Table of Contents

TABLE OF CONTENTS


		PAGE
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Income for the Three and Nine Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	1

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	2

	Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 and June 30, 2021	3

	Condensed Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	5

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	7

	Notes to Condensed Consolidated Financial Statements	89

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1921

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3136

Item 4.	Controls and Procedures	3137

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	3338

Item 1A.	Risk Factors	3338

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3439

Item 3.	Defaults Upon Senior Securities	3439

Item 4.	Mine Safety Disclosures	3439

Item 5.	Other Information	3439

Item 6.	Exhibits	3540

Signature		3641

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Matrix Service Company

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(unaudited)


		Three Months Ended				Three Months Ended				Nine Months Ended
		September 30, 2021		September 30, 2020				March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Revenue	Revenue	$	168,093	$	182,771		Revenue	$	177,003	$	148,260	$	507,061	$	498,499
Cost of revenue	Cost of revenue	171,601		168,421			Cost of revenue	178,766		146,700		509,125		467,276
Gross profit (loss)	Gross profit (loss)	(3,508)		14,350			Gross profit (loss)	(1,763)		1,560		(2,064)		31,223
Selling, general and administrative expenses	Selling, general and administrative expenses	16,629		18,128			Selling, general and administrative expenses	17,041		17,179		49,592		52,031

Restructuring costs		605		(320)
Goodwill impairment (Note 4)							Goodwill impairment (Note 4)	18,312		—		18,312		—
Restructuring costs (Note 10)							Restructuring costs (Note 10)	(1,578)		1,860		(278)		6,585
Operating loss	Operating loss	(20,742)		(3,458)			Operating loss	(35,538)		(17,479)		(69,690)		(27,393)
Other income (expense):	Other income (expense):						Other income (expense):
Interest expense (Note 5)	Interest expense (Note 5)	(1,999)		(375)			Interest expense (Note 5)	(204)		(322)		(2,705)		(1,055)
Interest income	Interest income	21		33			Interest income	19		25		69		96
Other	Other	(83)		1,033			Other	677		(157)		534		1,849
Loss before income tax benefit		(22,803)		(2,767)
Provision (benefit) from federal, state and foreign income taxes		(5,265)		270
Loss before income tax expense (benefit)							Loss before income tax expense (benefit)	(35,046)		(17,933)		(71,792)		(26,503)
Provision (benefit) for federal, state and foreign income taxes							Provision (benefit) for federal, state and foreign income taxes	(147)		(5,060)		5,564		(6,002)
Net loss	Net loss	$	(17,538)	$	(3,037)		Net loss	$	(34,899)	$	(12,873)	$	(77,356)	$	(20,501)

Basic loss per common share	Basic loss per common share	$	(0.66)	$	(0.12)		Basic loss per common share	$	(1.30)	$	(0.49)	$	(2.90)	$	(0.78)
Diluted loss per common share	Diluted loss per common share	$	(0.66)	$	(0.12)		Diluted loss per common share	$	(1.30)	$	(0.49)	$	(2.90)	$	(0.78)
Weighted average common shares outstanding:	Weighted average common shares outstanding:						Weighted average common shares outstanding:
Basic	Basic	26,611		26,265			Basic	26,783		26,515		26,714		26,422
Diluted	Diluted	26,611		26,265			Diluted	26,783		26,515		26,714		26,422

See accompanying notes.

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Table of Contents

Matrix Service Company

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(unaudited)


		Three Months Ended				Three Months Ended				Nine Months Ended
		September 30, 2021		September 30, 2020				March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Net loss	Net loss	$	(17,538)	$	(3,037)		Net loss	$	(34,899)	$	(12,873)	$	(77,356)	$	(20,501)
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:						Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss) (net of tax expense of $54 and $12 for the three months ended September 30, 2021 and 2020, respectively		(795)		404
Foreign currency translation gain (loss) (net of tax expense (benefit) of $(16) and $30 for the three and nine months ended March 31, 2022, respectively, and $(33) and $20 for the three and nine months ended March 31, 2021, respectively)							Foreign currency translation gain (loss) (net of tax expense (benefit) of $(16) and $30 for the three and nine months ended March 31, 2022, respectively, and $(33) and $20 for the three and nine months ended March 31, 2021, respectively)	(32)		68		(728)		1,291
Comprehensive loss	Comprehensive loss	$	(18,333)	$	(2,633)		Comprehensive loss	$	(34,931)	$	(12,805)	$	(78,084)	$	(19,210)

See accompanying notes.

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Table of Contents

Matrix Service Company

Condensed Consolidated Balance Sheets

(In thousands)

(unaudited)


		September 30, 2021		June 30, 2021			March 31, 2022		June 30, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents (Note 1)	Cash and cash equivalents (Note 1)	$	34,678	$	83,878	Cash and cash equivalents (Note 1)	$	34,092	$	83,878
Restricted cash (Note 1)		2,600		—
Accounts receivable, less allowances (September 30, 2021—$586 and June 30, 2021—$898)		144,892		148,030
Accounts receivable, less allowances (March 31, 2022—$634 and June 30, 2021—$898)						Accounts receivable, less allowances (March 31, 2022—$634 and June 30, 2021—$898)	137,690		148,030
Costs and estimated earnings in excess of billings on uncompleted contracts	Costs and estimated earnings in excess of billings on uncompleted contracts	33,766		30,774		Costs and estimated earnings in excess of billings on uncompleted contracts	46,393		30,774
Inventories	Inventories	6,314		7,342		Inventories	6,907		7,342
Income taxes receivable	Income taxes receivable	16,845		16,965		Income taxes receivable	13,734		16,965
Other current assets	Other current assets	11,180		4,230		Other current assets	7,322		4,230
Total current assets	Total current assets	250,275		291,219		Total current assets	246,138		291,219
Property, plant and equipment at cost:	Property, plant and equipment at cost:					Property, plant and equipment at cost:
Land and buildings	Land and buildings	41,556		41,633		Land and buildings	41,745		41,633
Construction equipment	Construction equipment	94,209		94,453		Construction equipment	93,862		94,453
Transportation equipment	Transportation equipment	50,068		50,510		Transportation equipment	49,532		50,510
Office equipment and software	Office equipment and software	43,010		42,706		Office equipment and software	43,447		42,706
Construction in progress	Construction in progress	126		493		Construction in progress	564		493
Total property, plant and equipment - at cost	Total property, plant and equipment - at cost	228,969		229,795		Total property, plant and equipment - at cost	229,150		229,795
Accumulated depreciation	Accumulated depreciation	(163,171)		(160,388)		Accumulated depreciation	(168,672)		(160,388)
Property, plant and equipment - net	Property, plant and equipment - net	65,798		69,407		Property, plant and equipment - net	60,478		69,407
Restricted cash, non-current (Note 1)		25,000		—
Restricted cash (Note 1)						Restricted cash (Note 1)	25,000		—
Operating lease right-of-use assets	Operating lease right-of-use assets	21,515		22,412		Operating lease right-of-use assets	20,811		22,412
Goodwill	Goodwill	60,540		60,636		Goodwill	42,240		60,636
Other intangible assets, net of accumulated amortization	Other intangible assets, net of accumulated amortization	6,094		6,614		Other intangible assets, net of accumulated amortization	5,228		6,614
Deferred income taxes	Deferred income taxes	10,687		5,295		Deferred income taxes	—		5,295
Other assets, non-current	Other assets, non-current	10,368		11,973		Other assets, non-current	13,185		11,973
Total assets	Total assets	$	450,277	$	467,556	Total assets	$	413,080	$	467,556

See accompanying notes.

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Table of Contents

Matrix Service Company

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)


		September 30, 2021		June 30, 2021			March 31, 2022		June 30, 2021
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	65,973	$	60,920	Accounts payable	$	68,161	$	60,920
Billings on uncompleted contracts in excess of costs and estimated earnings	Billings on uncompleted contracts in excess of costs and estimated earnings	50,973		53,832		Billings on uncompleted contracts in excess of costs and estimated earnings	73,868		53,832
Accrued wages and benefits	Accrued wages and benefits	20,216		21,008		Accrued wages and benefits	23,073		21,008

Accrued insurance	Accrued insurance	6,627		6,568		Accrued insurance	6,310		6,568
Operating lease liabilities	Operating lease liabilities	5,570		5,747		Operating lease liabilities	4,928		5,747

Other accrued expenses	Other accrued expenses	4,918		5,327		Other accrued expenses	3,841		5,327
Total current liabilities	Total current liabilities	154,277		153,402		Total current liabilities	180,181		153,402
Deferred income taxes	Deferred income taxes	29		34		Deferred income taxes	32		34
Operating lease liabilities	Operating lease liabilities	19,951		20,771		Operating lease liabilities	19,630		20,771

Other liabilities, non-current	Other liabilities, non-current	7,722		7,810		Other liabilities, non-current	401		7,810
Total liabilities	Total liabilities	181,979		182,017		Total liabilities	200,244		182,017
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:

Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of September 30, 2021 and June 30, 2021; 26,697,028 and 26,549,438 shares outstanding as of September 30, 2021 and June 30, 2021		279		279
Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of March 31, 2022 and June 30, 2021; 26,783,265 and 26,549,438 shares outstanding as of March 31, 2022 and June 30, 2021, respectively						Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of March 31, 2022 and June 30, 2021; 26,783,265 and 26,549,438 shares outstanding as of March 31, 2022 and June 30, 2021, respectively	279		279
Additional paid-in capital	Additional paid-in capital	135,308		137,575		Additional paid-in capital	137,886		137,575
Retained earnings	Retained earnings	157,640		175,178		Retained earnings	97,822		175,178
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(7,544)		(6,749)		Accumulated other comprehensive loss	(7,477)		(6,749)
		285,683		306,283			228,510		306,283
Less: Treasury stock, at cost — 1,191,189 shares as of September 30, 2021, and 1,338,779 shares as of June 30, 2021		(17,385)		(20,744)
Less: Treasury stock, at cost — 1,104,952 shares as of March 31, 2022, and 1,338,779 shares as of June 30, 2021						Less: Treasury stock, at cost — 1,104,952 shares as of March 31, 2022, and 1,338,779 shares as of June 30, 2021	(15,674)		(20,744)
Total stockholders' equity	Total stockholders' equity	268,298		285,539		Total stockholders' equity	212,836		285,539
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	450,277	$	467,556	Total liabilities and stockholders’ equity	$	413,080	$	467,556

See accompanying notes.

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Table of Contents

Matrix Service Company

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


		Three Months Ended					Nine Months Ended
		September 30, 2021		September 30, 2020			March 31, 2022		March 31, 2021
Operating activities:	Operating activities:					Operating activities:
Net loss	Net loss	$	(17,538)	$	(3,037)	Net loss	$	(77,356)	$	(20,501)
Adjustments to reconcile net loss to net cash used by operating activities:	Adjustments to reconcile net loss to net cash used by operating activities:					Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	Depreciation and amortization	4,052		4,639		Depreciation and amortization	11,557		13,639

Goodwill impairment						Goodwill impairment	18,312		—
Stock-based compensation expense	Stock-based compensation expense	1,869		2,218		Stock-based compensation expense	5,823		6,413
Operating lease impairment due to restructuring	Operating lease impairment due to restructuring	—		150		Operating lease impairment due to restructuring	—		454
Deferred income tax	Deferred income tax	(5,343)		289		Deferred income tax	5,323		1,468

Gain on sale of property, plant and equipment	Gain on sale of property, plant and equipment	(101)		(941)		Gain on sale of property, plant and equipment	(674)		(1,123)
Provision for uncollectible accounts	Provision for uncollectible accounts	4		(64)		Provision for uncollectible accounts	52		(38)
Accelerated amortization of deferred debt amendment fees (Note 5)	Accelerated amortization of deferred debt amendment fees (Note 5)	1,518		—		Accelerated amortization of deferred debt amendment fees (Note 5)	1,518		—
Other	Other	—		101		Other	103		317
Changes in operating assets and liabilities increasing (decreasing) cash:	Changes in operating assets and liabilities increasing (decreasing) cash:					Changes in operating assets and liabilities increasing (decreasing) cash:
Accounts receivable	Accounts receivable	3,134		(10,769)		Accounts receivable	10,288		2,610
Costs and estimated earnings in excess of billings on uncompleted contracts	Costs and estimated earnings in excess of billings on uncompleted contracts	(2,992)		1,854		Costs and estimated earnings in excess of billings on uncompleted contracts	(15,619)		21,584
Inventories	Inventories	1,028		(291)		Inventories	435		243
Other assets and liabilities	Other assets and liabilities	(5,921)		(8,018)		Other assets and liabilities	(2,769)		(17,825)
Accounts payable	Accounts payable	5,108		(4,431)		Accounts payable	7,188		(22,966)
Billings on uncompleted contracts in excess of costs and estimated earnings	Billings on uncompleted contracts in excess of costs and estimated earnings	(2,859)		(366)		Billings on uncompleted contracts in excess of costs and estimated earnings	20,036		(4,394)
Accrued expenses	Accrued expenses	(1,112)		3,646		Accrued expenses	(6,734)		6,907
Net cash used by operating activities	Net cash used by operating activities	(19,153)		(15,020)		Net cash used by operating activities	(22,517)		(13,212)
Investing activities:	Investing activities:					Investing activities:
Capital expenditures	Capital expenditures	(219)		(2,777)		Capital expenditures	(1,335)		(3,897)

Proceeds from asset sales	Proceeds from asset sales	103		1,074		Proceeds from asset sales	1,250		1,784
Net cash used by investing activities	Net cash used by investing activities	$	(116)	$	(1,703)	Net cash used by investing activities	$	(85)	$	(2,113)

See accompanying notes.

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Table of Contents

Matrix Service Company

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


		Three Months Ended					Nine Months Ended
		September 30, 2021		September 30, 2020			March 31, 2022		March 31, 2021
Financing activities:	Financing activities:					Financing activities:

Advances under senior secured revolving credit facility						Advances under senior secured revolving credit facility	$	—	$	1,125
Repayments of advances under senior secured revolving credit facility						Repayments of advances under senior secured revolving credit facility	—		(10,913)
Payment of debt amendment fees	Payment of debt amendment fees	$	(922)	$	—	Payment of debt amendment fees	(1,054)		(924)

Issuances of common stock						Issuances of common stock	199		92

Proceeds from issuance of common stock under employee stock purchase plan	Proceeds from issuance of common stock under employee stock purchase plan	76		82		Proceeds from issuance of common stock under employee stock purchase plan	212		230
Repurchase of common stock for payment of statutory taxes due on equity-based compensation	Repurchase of common stock for payment of statutory taxes due on equity-based compensation	(853)		(1,536)		Repurchase of common stock for payment of statutory taxes due on equity-based compensation	(853)		(1,554)
Other	Other	(118)		—		Other	(354)		(236)

Net cash used by financing activities	Net cash used by financing activities	(1,817)		(1,454)		Net cash used by financing activities	(1,850)		(12,180)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(514)		316		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(334)		1,220
Decrease in cash, cash equivalents and restricted cash	Decrease in cash, cash equivalents and restricted cash	(21,600)		(17,861)		Decrease in cash, cash equivalents and restricted cash	(24,786)		(26,285)
Cash, cash equivalents and restricted cash, beginning of period (Note 1)	Cash, cash equivalents and restricted cash, beginning of period (Note 1)	83,878		100,036		Cash, cash equivalents and restricted cash, beginning of period (Note 1)	83,878		100,036
Cash, cash equivalents and restricted cash, end of period (Note 1)	Cash, cash equivalents and restricted cash, end of period (Note 1)	$	62,278	$	82,175	Cash, cash equivalents and restricted cash, end of period (Note 1)	$	59,092	$	73,751
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid during the period for:
Cash paid (received) during the period for:						Cash paid (received) during the period for:
Income taxes	Income taxes	$	—	$	122	Income taxes	$	(2,841)	$	200
Interest, including payment of debt amendment fees	Interest, including payment of debt amendment fees	$	1,603	$	470	Interest, including payment of debt amendment fees	$	2,509	$	1,404

Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Purchases of property, plant and equipment on account	Purchases of property, plant and equipment on account	$	51	$	—	Purchases of property, plant and equipment on account	$	99	$	33

See accompanying notes.

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Table of Contents

Matrix Service Company

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share data)

(unaudited)

Common
Stock Additional
Paid-In
Capital Retained
Earnings Treasury
Stock Accumulated
Other
Comprehensive
Loss Total
Balances, July 1, 2021 $ 279 $ 137,575 $ 175,178 $ (20,744) $ (6,749) $ 285,539
Net loss — — (17,538) — — (17,538)
Other comprehensive loss — — — — (795) (795)
Issuance of deferred shares (217,084 shares) — (4,084) — 4,084 — —
Treasury shares sold to Employee Stock Purchase Plan (7,209 shares) — (52) — 128 — 76
Treasury shares purchased to satisfy tax withholding obligations (76,703 shares) — — — (853) — (853)
Stock-based compensation expense — 1,869 — — — 1,869
Balances, September 30, 2021 $ 279 $ 135,308 $ 157,640 $ (17,385) $ (7,544) $ 268,298
Balances, July 1, 2020 $ 279 $ 138,966 $ 206,402 $ (29,385) $ (8,373) $ 307,889
Net loss — — (3,037) — — (3,037)
Other comprehensive income — — — — 404 404
Issuance of deferred shares (478,703 shares) — (8,435) — 8,435 — —
Treasury shares sold to Employee Stock Purchase Plan (8,730 shares) — (62) — 144 — 82
Treasury shares purchased to satisfy tax withholding obligations (168,765 shares) — — — (1,536) — (1,536)
Stock-based compensation expense — 2,218 — — — 2,218
Balances, September 30, 2020 $ 279 $ 132,687 $ 203,365 $ (22,342) $ (7,969) $ 306,020


	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balances, December 31, 2021	$	279	$	135,913	$	132,721	$	(15,858)	$	(7,445)	$	245,610
Net loss	—		—		(34,899)		—		—		(34,899)
Other comprehensive loss	—		—		—		—		(32)		(32)



Treasury shares sold to Employee Stock Purchase Plan (9,290 shares)	—		(115)		—		184		—		69


Stock-based compensation expense	—		2,088		—		—		—		2,088
Balances, March 31, 2022	$	279	$	137,886	$	97,822	$	(15,674)	$	(7,477)	$	212,836

Balances, December 31, 2020	$	279	$	133,957	$	198,774	$	(21,571)	$	(7,150)	$	304,289
Net loss	—		—		(12,873)		—		—		(12,873)
Other comprehensive income	—		—		—		—		68		68
Exercise of stock options (9,000 shares)	—		(68)		—		160		—		92

Issuance of deferred shares (900 shares)	—		(16)		—		16		—		—
Treasury shares sold to Employee Stock Purchase Plan (6,785 shares)	—		(45)		—		120		—		75

Treasury shares purchased to satisfy tax withholding obligations (428 shares)	—		—		—		(5)		—		(5)
Stock-based compensation expense	—		2,214		—		—		—		2,214
Balances, March 31, 2021	$	279	$	136,042	$	185,901	$	(21,280)	$	(7,082)	$	293,860

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Table of Contents

Matrix Service Company

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share data)

(unaudited)


	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balances, June 30, 2021	$	279	$	137,575	$	175,178	$	(20,744)	$	(6,749)	$	285,539
Net loss	—		—		(77,356)		—		—		(77,356)
Other comprehensive loss	—		—		—		—		(728)		(728)
Exercise of stock options (19,550 shares)	—		(189)		—		388		—		199

Issuance of deferred shares (268,403 shares)	—		(5,102)		—		5,102		—		—
Treasury shares sold to Employee Stock Purchase Plan (22,577 shares)	—		(221)		—		433		—		212

Treasury shares purchased to satisfy tax withholding obligations (76,703 shares)	—		—		—		(853)		—		(853)
Stock-based compensation expense	—		5,823		—		—		—		5,823
Balances, March 31, 2022	$	279	$	137,886	$	97,822	$	(15,674)	$	(7,477)	$	212,836

Balances, June 30, 2020	$	279	$	138,966	$	206,402	$	(29,385)	$	(8,373)	$	307,889
Net loss	—		—		(20,501)		—		—		(20,501)
Other comprehensive income	—		—		—		—		1,291		1,291
Exercise of stock options (9,000 shares)	—		(68)		—		160		—		92

Issuance of deferred shares (515,218 shares)	—		(9,083)		—		9,083		—		—
Treasury shares sold to Employee Stock Purchase Plan (24,100 shares)	—		(186)		—		416		—		230

Treasury shares purchased to satisfy tax withholding obligations (170,629 shares)	—		—		—		(1,554)		—		(1,554)
Stock-based compensation expense	—		6,413		—		—		—		6,413
Balances, March 31, 2021	$	279	$	136,042	$	185,901	$	(21,280)	$	(7,082)	$	293,860

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Table of Contents

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include the accounts of Matrix Service Company and its subsidiaries (“Matrix”, “we”, “our”, “us”, “its” or the “Company”), unless otherwise indicated. Intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by U.S. generally accepted accounting principles ("GAAP") for complete financial statements. The information furnished reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair statement of the results of operations, cash flows and financial position for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2021, included in our Annual Report on Form 10-K for the year then ended. The results of operations for the three ~~month period~~and nine months ended ~~September 30, 2021~~March 31, 2022 may not necessarily be indicative of the results of operations for the full year ending June 30, 2022.

Significant Accounting Policies

We updated our significant accounting policies as a result of entering into an asset-backed credit agreement (the "ABL Facility"), which requires us to maintain a restricted cash balance (See Note 5 - Debt for more information about the ABL Facility). Our other significant accounting policies are detailed in “Note 1 - Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended June 30, 2021.

Cash, Cash Equivalents and Restricted Cash

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 Condensed Consolidated Balance Sheets. ~~In addition, we must maintain a restricted cash balance of~~During the third quarter, restrictions were released on $2.6 million ~~in support~~ of ~~the purchase card program~~cash that ~~is associated with our prior card administrator. We have included this restricted cash in current assets in our Condensed Consolidated Balance Sheets since we expect to dissolve the~~supported a prior purchase card ~~program during fiscal 2022.~~program.

The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Condensed Consolidated Balance Sheets to the total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows (in thousands):


		September 30, 2021		June 30, 2021			March 31, 2022		June 30, 2021
Cash and cash equivalents	Cash and cash equivalents	$	34,678	$	83,878	Cash and cash equivalents	$	34,092	$	83,878
Restricted cash, current		2,600		—
Restricted cash, non-current		25,000		—
Restricted cash						Restricted cash	25,000		—
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	62,278	$	83,878	Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	59,092	$	83,878

Note 2 – Revenue

Remaining Performance Obligations

We had ~~$365.4~~$433.6 million of remaining performance obligations yet to be satisfied as of ~~September 30, 2021.~~March 31, 2022. We expect to recognize ~~$302.2~~$368.9 million of our remaining performance obligations as revenue within the next twelve months.

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Table of Contents

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Contract Balances

Contract terms with customers include the timing of billing and ~~payment,~~payments, which usually differs from the timing of revenue recognition. As a result, we carry contract assets and liabilities in our balance sheet. These contract assets and liabilities are calculated on a contract-by-contract basis and 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:


		September 30, 2021		June 30, 2021		Change			March 31, 2022		June 30, 2021		Change
		(in thousands)							(in thousands)
Costs and estimated earnings in excess of billings on uncompleted contracts	Costs and estimated earnings in excess of billings on uncompleted contracts	$	33,766	$	30,774	$	2,992	Costs and estimated earnings in excess of billings on uncompleted contracts	$	46,393	$	30,774	$	15,619
Billings on uncompleted contracts in excess of costs and estimated earnings	Billings on uncompleted contracts in excess of costs and estimated earnings	(50,973)		(53,832)		2,859		Billings on uncompleted contracts in excess of costs and estimated earnings	(73,868)		(53,832)		(20,036)
Net contract liabilities	Net contract liabilities	$	(17,207)	$	(23,058)	$	5,851	Net contract liabilities	$	(27,475)	$	(23,058)	$	(4,417)

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 ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 that was included in the June 30, 2021 BIE balance was ~~$44.3~~$48.2 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 ~~September 30, 2021~~March 31, 2022 and June 30, 2021 included retentions to be collected within one year of ~~$12.8~~$14.1 million and $19.9 million, respectively. Contract retentions collectible beyond one year are included in other assets, non-current in the Condensed Consolidated Balance Sheet and totaled ~~$2.6~~$2.8 million as of ~~September 30, 2021~~March 31, 2022 and $3.1 million as of June 30, 2021.

Disaggregated Revenue

Revenue disaggregated by reportable segment is presented in Note 9 - Segment Information. The following ~~series of~~ tables presents revenue disaggregated by geographic area where the work was performed and by contract type:

Geographic Disaggregation:


		Three Months Ended					Three Months Ended				Nine Months Ended
		September 30, 2021		September 30, 2020					March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
		(In thousands)				(In thousands)
United States	United States	$	153,284	$	161,377			United States	$	160,453	$	138,001	$	459,654	$	445,578
Canada	Canada	13,510		19,611				Canada	16,268		8,930		45,038		47,673
Other international	Other international	1,299		1,783				Other international	282		1,329		2,369		5,248
Total Revenue	Total Revenue	$	168,093	$	182,771			Total Revenue	$	177,003	$	148,260	$	507,061	$	498,499

Contract Type Disaggregation:


		Three Months Ended					Three Months Ended				Nine Months Ended
		September 30, 2021		September 30, 2020					March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
		(In thousands)				(In thousands)
Fixed-price contracts	Fixed-price contracts	$	102,065	$	133,356			Fixed-price contracts	$	100,602	$	96,412	$	303,508	$	343,639
Time and materials and other cost reimbursable contracts	Time and materials and other cost reimbursable contracts	66,028		49,415				Time and materials and other cost reimbursable contracts	76,401		51,848		203,553		154,860
Total Revenue	Total Revenue	$	168,093	$	182,771			Total Revenue	$	177,003	$	148,260	$	507,061	$	498,499

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Table of Contents

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Typically, we assume more risk with fixed-price contracts since increases in costs to perform the work may not be recoverable. However, these types of contracts typically offer higher profits than time and materials and other cost reimbursable contracts when completed at or below the costs originally estimated. The profitability of time and materials and other cost reimbursable contracts is typically lower than fixed-price contracts and is usually less volatile than fixed-price contracts since the profit component is factored into the rates charged for labor, equipment and materials, or is expressed in the contract as a percentage of the reimbursable costs incurred.

~~Other~~Revisions in Estimates

Our results of operations were materially impacted by an increase in the forecasted costs to complete a ~~large capital~~midstream gas processing project in the ~~Utility~~Process and ~~Power Infrastructure~~Industrial Facilities segment, which resulted in a decrease in gross profit of ~~$5.9~~$4.8 million in the three and nine months ended ~~September 30, 2021.~~March 31, 2022. The ~~change~~increase in ~~estimate~~forecasted costs was primarily due to performance of a, now terminated, subcontractor, which will require rework in order to meet our client's expectations.

Our results of operations were materially impacted by changes in the forecasted costs to complete a large capital project in the Utility and Power Infrastructure segment. Improved project execution resulted in an increase in gross profit of $0.8 million during the three months ended March 31, 2022. However, increases in the forecasted costs to complete the project during the first half of fiscal 2022 resulted in the project reducing gross profit by $5.1 million during the nine months ended March 31, 2022. The increase in forecasted costs during the first half of the fiscal year was principally due to unexpected equipment repairs during commissioning that delayed the scheduled completion and increased the estimated costs to complete. We achieved a critical performance milestone induring the second quarter of fiscal 2022, which significantly reduced our financial ~~exposure.~~exposure on the project. We expect to complete the project during the fourth quarter of fiscal 2022.

Our results of operations were materially impacted by an increase in the costs required to complete a thermal energy storage tank repair and maintenance project in the Storage and Terminal Solutions segment, which resulted in a decrease in gross profit of $5.5 million in the first half of fiscal 2022. The increase in costs was primarily due to changes in repair scope, expanded client weld testing and associated schedule delays. We expect to complete these repairs in the fourth quarter of fiscal 2022.

Note 3 – 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 ~~93%~~96% of all right-of-use assets as of ~~September 30, 2021.~~March 31, 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 aone 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.

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


			Three Months Ended								Three Months Ended			Nine Months Ended
			September 30, 2021		September 30, 2020							March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Lease expense	Lease expense	Location of Expense	(in thousands)				Lease expense	Location of Expense	(in thousands)
Operating lease expense	Operating lease expense	Cost of revenue and Selling, general and administrative expenses	$	2,092	$	2,488				Operating lease expense	Cost of revenue and Selling, general and administrative expenses	$	1,867	$	1,743	$	5,837	$	6,542
Short-term lease expense(1)	Short-term lease expense(1)	Cost of revenue	5,571		5,975					Short-term lease expense(1)	Cost of revenue	6,216		6,772		17,079		19,020
Total lease expense	Total lease expense		$	7,663	$	8,463				Total lease expense		$	8,083	$	8,515	$	22,916	$	25,562

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

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


	~~September 30, 2021~~
~~Maturity Analysis:~~	~~(in thousands)~~
~~Remainder of Fiscal 2022~~	$	~~5,412~~
~~Fiscal 2023~~	~~4,752~~
~~Fiscal 2024~~	~~3,608~~
~~Fiscal 2025~~	~~3,160~~
~~Fiscal 2026~~	~~2,882~~
~~Thereafter~~	~~11,220~~
~~Total future operating lease payments~~	~~31,034~~
~~Imputed interest~~	~~(5,513)~~
~~Net present value of future lease payments~~	~~25,521~~
~~Less: current portion of operating lease liabilities~~	~~5,570~~
~~Non-current operating lease liabilities~~	$	~~19,951~~

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Table of Contents

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

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


	March 31, 2022
Maturity Analysis:	(in thousands)
Remainder of Fiscal 2022	$	1,745
Fiscal 2023	5,211
Fiscal 2024	3,978
Fiscal 2025	3,483
Fiscal 2026	3,187
Thereafter	11,843
Total future operating lease payments	29,447
Imputed interest	(4,889)
Net present value of future lease payments	24,558
Less: current portion of operating lease liabilities	4,928
Non-current operating lease liabilities	$	19,630

The following is a summary of the weighted average remaining operating lease term and weighted average discount rate as of ~~September 30, 2021:~~March 31, 2022:


Weighted-average remaining lease term (in years)	7.2 years
Weighted-average discount rate	5.2	%

Supplemental cash flow information related to leases is as follows:


	~~Three~~Nine Months Ended
	~~September 30, 2021~~March 31, 2022
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease payments	$	~~2,188~~6,197
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	~~882~~3,065

Note 4 – Goodwill and Other Intangible Assets ~~Including Goodwill~~

Goodwill

The changes in the carrying value of goodwill by segment are as follows:


		Utility and Power Infrastructure		Process and Industrial Facilities		Storage and Terminal Solutions		Total			Utility and Power Infrastructure		Process and Industrial Facilities		Storage and Terminal Solutions		Total
		(In thousands)									(In thousands)
Net balance at June 30, 2021	Net balance at June 30, 2021	$	6,984	$	26,878	$	26,774	$	60,636	Net balance at June 30, 2021	$	6,984	$	26,878	$	26,774	$	60,636

Goodwill impairment										Goodwill impairment	(2,659)		(8,445)		(7,208)		(18,312)
Translation adjustment(1)	Translation adjustment(1)	(30)		(8)		(58)		(96)		Translation adjustment(1)	(27)		(6)		(51)		(84)
Net balance at September 30, 2021		$	6,954	$	26,870	$	26,716	$	60,540
Net balance at March 31, 2022										Net balance at March 31, 2022	$	4,298	$	18,427	$	19,515	$	42,240

(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 test our goodwill for impairment annually as of May 31st. While there continues to be uncertainty around the near-term level of spending by some of our customers due to the impacts of the COVID-19 pandemic and the timing of the economic recovery in certain energy markets, we concluded, that based on the totality of both positive and negative factors, no impairment indicators existed at September 30, 2021. However, if customer spending levels do not improve or if the outlook in certain key markets deteriorates, we may need to perform an interim goodwill impairment test, which could result in an impairment.

~~Other Intangible Assets~~

~~Information on the carrying value of other intangible assets is as follows:~~

At September 30, 2021

Useful Life Gross Carrying
Amount Accumulated
Amortization Net Carrying
Amount
(Years) (In thousands)
Intellectual property 10 to 15 $ 2,483 $ (2,074) $ 409
Customer-based 6 to 15 17,260 (11,575) 5,685
Total amortizing intangible assets $ 19,743 $ (13,649) $ 6,094

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Table of Contents

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

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.

The estimated fair value of each segment was derived by utilizing a discounted cash flow analysis. The key assumptions used are described in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Policies, Goodwill.

Other Intangible Assets

Information on the carrying value of other intangible assets is as follows:


		At March 31, 2022
	Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(Years)	(In thousands)
Intellectual property	10 to 15	$	2,483	$	(2,159)	$	324
Customer-based	6 to 15	17,274		(12,370)		4,904


Total amortizing intangible assets		$	19,757	$	(14,529)	$	5,228


		At June 30, 2021
	Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(Years)	(In thousands)
Intellectual property	10 to 15	$	2,483	$	(2,031)	$	452
Customer-based	6 to 15	17,354		(11,192)		6,162


Total amortizing intangible assets		$	19,837	$	(13,223)	$	6,614

Amortization expense totaled ~~$0.5~~$0.4 million and ~~$0.6~~$1.4 million during the three and nine months ended ~~September 30,~~March 31, 2022, respectively; and $0.6 million and $1.7 million during the three and nine months ended March 31, 2021, ~~and September 30, 2020,~~ respectively.

We estimate that the remaining amortization expense related to ~~September 30, 2021~~March 31, 2022 amortizing intangible assets will be as follows (in thousands):


Period ending:
Remainder of Fiscal 2022	$	~~1,297~~432
Fiscal 2023	1,729
Fiscal 2024	1,416
Fiscal 2025	~~1,097~~1,096
Fiscal 2026	555
Total estimated remaining amortization expense at ~~September 30, 2021~~March 31, 2022	$	~~6,094~~5,228

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Table of Contents

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 5 – Debt

ABL Credit Facility

On September 9, 2021, we and our primary U.S. and Canada operating subsidiaries entered into an asset-backed credit agreement (the "ABL Facility") as borrowers with Bank of Montreal, as Administrative Agent, Swing-Line Lender, a Letter of Credit Issuer and a Lender. The ABL Facility is guaranteed by substantially all of our remaining U.S. and Canadian subsidiaries. The ABL Facility provides for available borrowings of up to $100.0 million, which may be increased further by an amount not to exceed $15.0 million, subject to certain conditions, including obtaining additional commitments. The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes. Our obligations under the ABL Facility are secured by a first lien on all our assets and the assets of our co-borrowers and guarantors under the ABL Facility.

The maximum amount that we may borrow under the ABL Facility is subject to a borrowing base, which is based on restricted cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced for certain reserves. We are required to maintain a minimum of $25.0 million of restricted cash at all times, but such amounts are also included in the borrowing base. ~~At September 30, 2021, availability under the ABL Facility was $32.1 million and there were $43.1 million in letters of credit outstanding.~~ The ABL Facility matures and any outstanding amounts become due and payable on September 9, 2026.

At March 31, 2022, our borrowing base was $76.4 million and we had $23.7 million in letters of credit outstanding issued by Bank of Montreal, which resulted in availability of $52.7 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 equal to any of a base rate (“Base Rate”), Canadian prime rate, CDOR rate or a LIBOR rate, plus an applicable margin. The Base Rate is defined as a fluctuating interest rate equal to the greatest of (i) rate of interest announced by Bank of Montreal from time to time as its prime rate; (ii) the U.S. federal funds rate plus 0.50%; (iii) LIBOR rate for one month period plus 1.00%; and (iv) 1.00%. Depending on the amount of average availability, the applicable margin is between 1.00% to 1.50% for either U.S. Base Rate Loans or Canadian prime rate, and between 2.00% and 2.50% for CDOR and LIBOR rate borrowings. Interest is payable either (i) monthly for Base Rate borrowings or (ii) the last day of the interest period for LIBOR or CDOR rate borrowings, as set forth in the Credit Agreement. The fee for undrawn amounts is 0.25% per annum and is due quarterly.

~~-12-~~

~~Table of Contents~~

~~Matrix Service Company~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

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 March 31, 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~~was set to expire 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 ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees associated with the Prior Credit Agreement.

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Table of Contents

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 6 – Income Taxes

Effective Tax Rate

Our effective tax rates were ~~23.1%~~0.4% and ~~(9.8)~~(7.8)% for the three and nine months ended March 31, 2022, compared to 28.2% and 22.6% during the three and nine months ended March 31, 2021, respectively. The effective tax rates during fiscal 2022 were impacted by a $14.2 million valuation allowance placed on our deferred tax assets during the second quarter. The tax benefit resulting from additional losses during the three months ended March 31, 2022 was offset by additional valuation allowances of $7.7 million. The income tax benefit recorded for the three months ended ~~September 30, 2021 and September 30, 2020, respectively.~~March 31, 2022 was the result of a change in estimate of our uncertain tax positions. The effective tax ~~rate for the three months ended September 30, 2020 was~~rates were negatively impacted by ~~a $1.0~~$1.9 million of valuation allowances on certain deferred tax ~~asset adjustment.~~assets in the third quarter of fiscal 2021, and $1.2 million of other deferred tax adjustments in the first half of fiscal 2021.

In determining the need for a valuation allowance on deferred tax assets, the accounting standards provide that the existence of a cumulative loss over a three-year period generally precludes the use of management’s projections of future taxable income. Consequently, we have recorded a full valuation allowance against the deferred tax assets in the U.S. taxable jurisdiction in the amount of $21.9 million during fiscal 2022. 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 the Company generates 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.

Net Operating Loss Carryback ~~and~~ Refund ~~of Prior Years Overpayment~~

Through provisions in the CARES Act, we had an income tax ~~benefits of $5.2 million during fiscal 2021 and $0.3 million during the three months ended September 30, 2021~~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 ~~$13.6~~$12.6 million tax refund in connection with this carryback, which is included in income taxes receivable in the Condensed Consolidated Balance Sheets.

Refund of Overpayment of Estimated Taxes

In ~~addition,~~January 2022, we ~~expect to receive~~received a $2.4 million tax refund in connection with overpayments of estimated taxes from prior ~~years, which is included in income taxes receivable in the Condensed Consolidated Balance Sheets.~~years.

Deferred Payroll Taxes

WeAs of March 31, 2022, we have ~~deferred $11.1~~a balance of $5.6 million ofremaining on U.S. payroll ~~tax as of September 30, 2021~~taxes we deferred through provisions of CARES Act. We ~~must repay~~paid half of the original deferred payroll tax ~~by December 31, 2021~~balance during the second quarter of fiscal 2022 and must repay the ~~remainder~~remaining balance by December 31, 2022. The ~~current portion~~remaining balance of deferred payroll taxes is included within accrued wages and benefits ~~and the non-current portion is included within other liabilities, non-current~~ in the Condensed Consolidated Balance Sheets.

Note 7 – Commitments and Contingencies

Insurance Reserves

We maintain insurance coverage for various aspects of ~~its~~our operations. However, we retain exposure to potential losses ~~is retained~~ through the use of deductibles, self-insured retentions and coverage limits.

~~-13-~~

~~Table of Contents~~

~~Matrix Service Company~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

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.

-15-

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Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Unpriced Change Orders and Claims

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of ~~$15.3~~$9.3 million at ~~September 30, 2021~~March 31, 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, collection of amounts related to unpriced change orders and claims is expected within twelve months. However, since customers may not pay these amounts until final resolution of related claims, collection of these amounts may extend beyond one year.

Other

During the third quarter of fiscal 2020, we commenced litigation in an effort to collect accounts receivable from an iron and steel customer following the deterioration of the relationship in the second quarter of fiscal 2020. The unpaid receivable balance at ~~September 30, 2021~~March 31, 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 ~~including a contract dispute with a customer involving the construction of a crude terminal,~~ will have a material impact on our financial position, results of operations or liquidity.

Note 8 – Earnings per Common Share

Basic earnings per share (“Basic EPS”) is calculated based on the weighted average shares outstanding during the period. Diluted earnings per share (“Diluted EPS”) includes the dilutive effect of stock options and nonvested deferred shares. In the event we report a loss, stock options and nonvested deferred shares are not included since they are anti-dilutive.

The computation of basic and diluted earnings per share is as follows:


		Three Months Ended					Three Months Ended				Nine Months Ended
		September 30, 2021		September 30, 2020					March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
		(In thousands, except per share data)				(In thousands, except per share data)
Basic EPS:	Basic EPS:							Basic EPS:
Net loss	Net loss	$	(17,538)	$	(3,037)			Net loss	$	(34,899)	$	(12,873)	$	(77,356)	$	(20,501)
Weighted average shares outstanding	Weighted average shares outstanding	26,611		26,265				Weighted average shares outstanding	26,783		26,515		26,714		26,422
Basic loss per share	Basic loss per share	$	(0.66)	$	(0.12)			Basic loss per share	$	(1.30)	$	(0.49)	$	(2.90)	$	(0.78)
Diluted EPS:	Diluted EPS:							Diluted EPS:

Diluted weighted average shares	Diluted weighted average shares	26,611		26,265				Diluted weighted average shares	26,783		26,515		26,714		26,422
Diluted loss per share	Diluted loss per share	$	(0.66)	$	(0.12)			Diluted loss per share	$	(1.30)	$	(0.49)	$	(2.90)	$	(0.78)

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Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 9 – Segment Information

We report our results of operations through three reportable segments: Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions.

•Utility and Power Infrastructure: consists of power delivery services provided to ~~investor owned~~investor-owned utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, upgrades and maintenance, as well as emergency and storm restoration services. We also provide engineering, fabrication, and construction services for LNG utility peak shaving facilities, and provide construction and maintenance services to a variety of power generation facilities, including natural gas fired facilities in simple or combined cycle ~~configuration, and provide engineering, fabrication, and construction services for LNG utility peak shaving facilities.~~configuration.

•Process and Industrial Facilities: primarily serves customers in the downstream and midstream petroleum industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas and natural gas liquids. We also serve customers in various other industries such as petrochemical, sulfur, mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and other industrial customers. Our services include plant maintenance, turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.

•Storage and Terminal Solutions: consists of work related to aboveground crude oil and refined product storage tanks and terminals. We also include work related to cryogenic and other specialty storage tanks and terminals, including LNG, liquid nitrogen/liquid oxygen, liquid petroleum, hydrogen and other specialty vessels such as spheres in this segment, as well as work related to marine structures and truck and rail loading/offloading facilities. Our services include engineering, fabrication, construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals. Finally, we offer tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

We evaluate performance and allocate resources based on operating income. We ~~record~~eliminate intersegment ~~sales and transfers at cost;~~sales; therefore, no intercompany profit or loss is recognized. ~~In addition, corporate~~Corporate selling, general and administrative expenses are ~~reported separately~~excluded from ~~the~~our three reportable ~~segments.~~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.

~~-15-~~-17-

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Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Results of Operations

(In thousands)


		Three Months Ended				Three Months Ended				Nine Months Ended
		September 30, 2021		September 30, 2020				March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Gross revenue	Gross revenue						Gross revenue
Utility and Power Infrastructure	Utility and Power Infrastructure	$	57,204	$	60,671		Utility and Power Infrastructure	$	59,341	$	44,720	$	171,298	$	157,414
Process and Industrial Facilities	Process and Industrial Facilities	45,210		46,728			Process and Industrial Facilities	69,786		43,095		167,033		141,570
Storage and Terminal Solutions	Storage and Terminal Solutions	68,312		77,596			Storage and Terminal Solutions	49,254		61,542		175,174		204,572

Total gross revenue	Total gross revenue	$	170,726	$	184,995		Total gross revenue	$	178,381	$	149,357	$	513,505	$	503,556
Less: Inter-segment revenue	Less: Inter-segment revenue						Less: Inter-segment revenue

Process and Industrial Facilities	Process and Industrial Facilities	$	1,305	$	797		Process and Industrial Facilities	$	815	$	261	$	3,841	$	1,543
Storage and Terminal Solutions	Storage and Terminal Solutions	1,328		1,427			Storage and Terminal Solutions	563		836		2,603		3,514

Total inter-segment revenue	Total inter-segment revenue	$	2,633	$	2,224		Total inter-segment revenue	$	1,378	$	1,097	$	6,444	$	5,057
Consolidated revenue	Consolidated revenue						Consolidated revenue
Utility and Power Infrastructure	Utility and Power Infrastructure	$	57,204	$	60,671		Utility and Power Infrastructure	$	59,341	$	44,720	$	171,298	$	157,414
Process and Industrial Facilities	Process and Industrial Facilities	43,905		45,931			Process and Industrial Facilities	68,971		42,834		163,192		140,027
Storage and Terminal Solutions	Storage and Terminal Solutions	66,984		76,169			Storage and Terminal Solutions	48,691		60,706		172,571		201,058

Total consolidated revenue	Total consolidated revenue	$	168,093	$	182,771		Total consolidated revenue	$	177,003	$	148,260	$	507,061	$	498,499
Gross profit (loss)	Gross profit (loss)						Gross profit (loss)
Utility and Power Infrastructure	Utility and Power Infrastructure	$	(6,107)	$	6,913		Utility and Power Infrastructure	$	(492)	$	(4,692)	$	(7,089)	$	7,818
Process and Industrial Facilities	Process and Industrial Facilities	2,871		3,659			Process and Industrial Facilities	(441)		(171)		6,663		11,352
Storage and Terminal Solutions	Storage and Terminal Solutions	413		3,778			Storage and Terminal Solutions	(458)		6,423		(216)		12,053
Corporate	Corporate	(685)		—			Corporate	(372)		—		(1,422)		—
Total gross profit (loss)	Total gross profit (loss)	$	(3,508)	$	14,350		Total gross profit (loss)	$	(1,763)	$	1,560	$	(2,064)	$	31,223
Selling, general and administrative expenses	Selling, general and administrative expenses						Selling, general and administrative expenses
Utility and Power Infrastructure	Utility and Power Infrastructure	$	3,050	$	2,222		Utility and Power Infrastructure	$	2,910	$	2,356	$	9,109	$	7,154
Process and Industrial Facilities	Process and Industrial Facilities	2,762		4,050			Process and Industrial Facilities	3,198		3,882		8,752		11,319
Storage and Terminal Solutions	Storage and Terminal Solutions	4,506		5,143			Storage and Terminal Solutions	4,063		4,792		12,850		13,854
Corporate	Corporate	6,311		6,713			Corporate	6,870		6,149		18,881		19,704
Total selling, general and administrative expenses	Total selling, general and administrative expenses	$	16,629	$	18,128		Total selling, general and administrative expenses	$	17,041	$	17,179	$	49,592	$	52,031
Restructuring costs
Goodwill impairment and restructuring costs							Goodwill impairment and restructuring costs
Utility and Power Infrastructure	Utility and Power Infrastructure	$	9	$	11		Utility and Power Infrastructure	$	2,659	$	403	$	2,705	$	1,226
Process and Industrial Facilities	Process and Industrial Facilities	7		(500)			Process and Industrial Facilities	6,856		781		6,839		3,645
Storage and Terminal Solutions	Storage and Terminal Solutions	(33)		13			Storage and Terminal Solutions	7,219		590		7,293		1,244
Corporate	Corporate	622		156			Corporate	—		86		1,197		470
Total restructuring costs		$	605	$	(320)
Total goodwill impairment and restructuring costs							Total goodwill impairment and restructuring costs	$	16,734	$	1,860	$	18,034	$	6,585
Operating income (loss)	Operating income (loss)						Operating income (loss)
Utility and Power Infrastructure	Utility and Power Infrastructure	$	(9,166)	$	4,680		Utility and Power Infrastructure	$	(6,061)	$	(7,451)	$	(18,903)	$	(562)
Process and Industrial Facilities	Process and Industrial Facilities	102		109			Process and Industrial Facilities	(10,495)		(4,834)		(8,928)		(3,612)
Storage and Terminal Solutions	Storage and Terminal Solutions	(4,060)		(1,378)			Storage and Terminal Solutions	(11,740)		1,041		(20,359)		(3,045)
Corporate	Corporate	(7,618)		(6,869)			Corporate	(7,242)		(6,235)		(21,500)		(20,174)
Total operating loss	Total operating loss	$	(20,742)	$	(3,458)		Total operating loss	$	(35,538)	$	(17,479)	$	(69,690)	$	(27,393)

~~-16-~~-18-

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Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Total assets by segment were as follows:


		September 30, 2021		June 30, 2021			March 31, 2022		June 30, 2021
Utility and Power Infrastructure	Utility and Power Infrastructure	$	107,077	$	81,717	Utility and Power Infrastructure	$	108,071	$	81,717
Process and Industrial Facilities	Process and Industrial Facilities	80,315		106,619		Process and Industrial Facilities	92,235		106,619
Storage and Terminal Solutions	Storage and Terminal Solutions	155,730		160,782		Storage and Terminal Solutions	133,969		160,782
Corporate	Corporate	107,155		118,438		Corporate	78,805		118,438
Total segment assets	Total segment assets	$	450,277	$	467,556	Total segment assets	$	413,080	$	467,556

Note 10 – Restructuring Costs

In fiscal 2020, we initiated a business improvement plan to increase profitability and reduce our cost structure ~~due~~in order to ~~our strategic initiative to exit~~help us become more competitive and deliver higher quality service. As a result of specific events, including the ~~domestic iron and steel industry and the decline in revenue caused by the ongoing~~ effects of the COVID-19 pandemic and related market ~~disruptions.~~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. ~~We incurred $0.6 million~~In fiscal 2022, we commenced a second phase of ~~restructuring costs during the three months ended September 30, 2021~~our plan to focus on centralization of support functions, including business development, accounting, human resources, procurement and ~~$21.4 million of restructuring costs since inception of the plan.~~project services into shared service centers. The restructuring costs consist primarily of severance costs, facility closure costs, consulting fees and other ~~liabilities as a result of exiting certain operations. We expect to substantially complete this initiative in fiscal 2022.~~liabilities.

~~-17-~~-19-

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Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Restructuring costs under our business improvement plan are classified as follows:

Three Months Ended Since Inception of Business Improvement Plan
September 30, 2021 September 30, 2020
(In thousands)
Utility and Power Infrastructure
Severance and other personnel-related costs $ 9 $ 7 $ 2,548
Facility costs — 4 349
Other intangible asset impairments — — 1,150
Total Utility and Power Infrastructure $ 9 $ 11 $ 4,047
Process and Industrial Facilities
Severance and other personnel-related costs $ 5 $ (492) $ 9,123
Facility costs — (119) 3,187
Other intangible asset impairments — — 375
Other costs 2 111 428
Total Process and Industrial Facilities $ 7 $ (500) $ 13,113
Storage and Terminal Solutions
Severance and other personnel-related costs $ (33) $ 13 $ 1,544
Facility costs — — 879
Total Storage and Terminal Solutions $ (33) $ 13 $ 2,423
Corporate
Severance and other personnel-related costs $ 44 $ 6 $ 1,128
Facility costs 16 150 98
Other costs 562 — 562
Total Corporate $ 622 $ 156 $ 1,788
Restructuring Costs by Type:
Severance and other personnel-related costs $ 25 $ (466) $ 14,343
Facility costs 16 35 4,513
Other intangible asset impairments — — 1,525
Other costs 564 111 990
Total restructuring costs $ 605 $ (320) $ 21,371

The restructuring reserve is included in other accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets. The table below is a reconciliation of the beginning and ending restructuring reserve balance under the business improvement plan (in thousands):


	Three Months Ended				Nine Months Ended				Since Inception of Business Improvement Plan
	March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
	(In thousands)
Utility and Power Infrastructure
Severance and other personnel-related costs	$	—	$	291	$	45	$	1,109	$	2,584
Facility costs	—		112		—		117		348
Other intangible asset impairments	—		—		—		—		1,150
Other costs	—		—		1		—		1
Total Utility and Power Infrastructure	$	—	$	403	$	46	$	1,226	$	4,083
Process and Industrial Facilities
Severance and other personnel-related costs	$	—	$	315	$	(22)	$	2,905	$	9,096
Facility costs	12		264		13		279		3,201
Other intangible asset impairments	—		—		—		—		375
Other costs(1)	(1,601)		202		(1,597)		461		(1,171)
Total Process and Industrial Facilities	$	(1,589)	$	781	$	(1,606)	$	3,645	$	11,501
Storage and Terminal Solutions
Severance and other personnel-related costs	$	—	$	423	$	69	$	1,076	$	1,647
Facility costs	—		167		—		168		879

Other costs	11		—		16		—		16
Total Storage and Terminal Solutions	$	11	$	590	$	85	$	1,244	$	2,542
Corporate
Severance and other personnel-related costs	$	—	$	3	$	44	$	164	$	1,127
Facility costs	—		83		16		306		98
Other costs	—		—		1,137		—		1,137
Total Corporate	$	—	$	86	$	1,197	$	470	$	2,362

Restructuring Costs by Type:
Severance and other personnel-related costs	$	—	$	1,032	$	136	$	5,254	$	14,454
Facility costs	12		626		29		870		4,526
Other intangible asset impairments	—		—		—		—		1,525
Other costs	(1,590)		202		(443)		461		(17)
Total restructuring costs	$	(1,578)	$	1,860	$	(278)	$	6,585	$	20,488

~~Balance as of June 30, 2021~~

~~2,435~~

~~Cash payments~~

(1)Other costs in the Process and Industrial Facilities segment consisted of a $1.6 million credit in the three and nine months ended March 31, 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.

~~(272)Other~~29 ~~Balance as of September 30, 2021~~$~~2,192~~

~~-18-~~-20-

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this Form 10-Q which address activities, events or developments which we expect, believe or anticipate will or may occur in the future are forward-looking statements. The words “believes,” “intends,” “expects,” “anticipates,” “projects,” “estimates,” “predicts” and similar expressions are also intended to identify forward-looking statements.

These forward-looking statements include, among others, such things as:

•~~the impact to our business of the COVID-19 pandemic;~~

•amounts and nature of future project awards, revenue and margins from each of our segments;

•our ability to generate sufficient cash from operations, access our credit facility, or raise cash in order to meet our short and long-term capital requirements;

•our ability to comply with the covenants in our ~~Credit Agreement;~~credit agreement;

•the impact to our business of changes in crude oil, natural gas and other commodity prices;

•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;

•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~~any risk factors discussed in ~~our~~this Form 10-Q, Form 10-K for the fiscal year ended June 30, 2021, and ~~listed from time to time~~ in our other filings with the Securities and Exchange Commission;

•economic, market or business conditions in general ~~(including the length and severity of the COVID-19 pandemic)~~ and in the oil, natural gas, power, petrochemical, agricultural and mining industries in particular;

•the transition to renewable energy sources and its impact on our current customer base;

•the under- or over-utilization of our work force;

•delays in the commencement or progression of major projects, whether due to ~~COVID-19 concerns,~~ permitting issues or other factors;

•reduced creditworthiness of our customer base and the higher risk of non-payment of receivables due to volatility of crude oil, natural gas, and other commodity prices which affect our customers' businesses;

•the inherently uncertain outcome of current and future litigation;

•the adequacy of our reserves for claims and contingencies; and

•changes in laws or regulations, including the imposition, cancellation or delay of tariffs on imported goods.

Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business operations. We assume no obligation to update publicly, except as required by law, any such forward-looking statements, whether as a result of new information, future events or otherwise.

~~-19-~~-21-

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RESULTS OF OPERATIONS

~~Operational Update~~

Throughout the course of the COVID-19 pandemic, our top priority has been to maintain a safe working environment for all employees, customers and business partners. Our project teams, in coordination with our clients, are monitoring the impact of new variants of COVID-19 and continue to operate under enhanced work processes to protect the health and safety of everyone on our job sites.

Since the beginning of the pandemic we have reduced our cost structure by more than $70 million, or approximately 27%, with 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. These cost savings were primarily the result of the business improvement plan that began in fiscal 2020 and continues to evolve based on our markets, organizational structure and outlook. We expect to complete the plan in fiscal 2022. See Item 1. Financial Statements, Note 10 - Restructuring Costs, for more information. Despite these significant reductions in construction overhead, our low revenue volume still has not allowed for the complete recovery of construction overhead or leveraging of SG&A costs. As we move through fiscal 2022, we expect the business improvement plan along with improving revenue volumes to positively impact earnings.

Overview

We report our results of operations through three reportable segments: Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions.

•Utility and Power Infrastructure: consists of power delivery services provided to ~~investor owned~~investor-owned utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, upgrades and maintenance, as well as emergency and storm restoration services. We also provide engineering, fabrication, and construction services for LNG utility peak shaving facilities, and provide construction and maintenance services to a variety of power generation facilities, including natural gas fired facilities in simple or combined cycle ~~configuration and provide engineering, fabrication, and construction services for LNG utility peak shaving facilities.~~configuration.

We evaluate performance and allocate resources based on operating income. We ~~record~~eliminate intersegment ~~sales and transfers at cost;~~sales; therefore, no intercompany profit or loss is recognized. ~~In addition, corporate~~Corporate selling, general and administrative expenses are ~~reported separately~~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.

Operational Update

Bidding activity and the volume of project awards have both improved as the economy emerges from the pandemic. However, we have not been able to generate enough revenue to fully recover construction overhead and SG&A costs despite the significant reductions in our cost structure. In addition, increased forecasted costs to complete certain projects have further pressured profitability during the fiscal year (see the discussion of our three ~~reportable segments.~~and nine months results for more details).

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 $82 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 Condensed Consolidated Statements of Income. See Item 1. Financial Statements, Note 10 - Restructuring Costs, for more information about our business improvement plan.

Based on improving market conditions and strong bidding activity, we are expecting project awards to pick up in the fourth quarter and continue the momentum into fiscal 2023. We expect this to result in higher revenue volume, increased cost leverage and improved earnings in the future.

~~-20-~~-22-

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Three Months Ended ~~September 30, 2021~~March 31, 2022 Compared to the Three Months Ended ~~September 30, 2020~~March 31, 2021

Consolidated

Consolidated revenue was ~~$168.1~~$177.0 million for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$182.8~~$148.3 million in the same period last year. On a segment basis, revenue ~~decreased~~increased in the Process and Industrial Facilities and Utility and Power Infrastructure segments by $26.1 million and $14.6 million, respectively. The increases were partially offset by a decrease in revenue of $12.0 million in the Storage and Terminal Solutions ~~Utility and Power Infrastructure, and Process and Industrial Facilities segments by $9.2 million, $3.5 million and $2.0 million, respectively.~~segment.

Consolidated gross profit (loss) decreased to ~~$(3.5)~~($1.8) million in the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$14.4~~$1.6 million in the same period last year. Gross margin (loss) decreased to ~~(2.1)%~~(1.0%) in the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~7.9%~~1.1% in the same period last year. Gross margins in the third quarter of fiscal 2022 were negatively impacted by low revenue volume, which led to the under recovery of construction overhead costs and an increase in forecasted costs on a midstream gas processing project in the Process and Industrial Facilities segment. Gross margins in fiscal 2021 were largely impacted negatively by a lower than previously forecasted margin on a large capital project in the Utility and Power Infrastructure segment. These negative impacts were partially offset by increases in estimated recoveries on other completed capital projects.

Consolidated SG&A expenses were $17.0 million in the three months ended March 31, 2022 compared to $17.2 million in the same period a year earlier.

In the third quarter, we recorded $18.3 million of goodwill impairment. See Item 1. Financial Statements, Note 4 - Goodwill and Other Intangible Assets, for more information.

As a result of restructuring activities, we recorded a credit of $1.6 million to restructuring costs in the three months ended March 31, 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. See Item 1. Financial Statements, Note 10 - Restructuring Costs, for more information.

Interest expense was $0.2 million in the three months ended March 31, 2022 compared to $0.3 million in the three months ended March 31, 2021. Interest expense in the three months ended March 31, 2022 consisted primarily of letter of credit fees, unused capacity fees and amortization of deferred debt issuance costs.

Our effective tax rates for the three months ended March 31, 2022 and March 31, 2021 were 0.4% and 28.2%, respectively. The effective tax rate during fiscal 2022 was impacted by valuation allowances of $7.7 million. The income tax benefit recorded for the three months ended March 31, 2022 was the result of a change in estimate of our uncertain tax positions. See Item 1. Financial Statements, Note 6 - Income Taxes, for more information about the valuation allowances. The effective tax rates were negatively impacted by $1.9 million of valuation allowances on certain deferred tax assets in the third quarter of fiscal 2021.

For the three months ended March 31, 2022, we had a net loss of $34.9 million, or $1.30 per fully diluted share, compared to a net loss of $12.9 million, or $0.49 per fully diluted share, in the three months ended March 31, 2021.

Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was $59.3 million in the three months ended March 31, 2022 compared to $44.7 million in the same period last year. The increase is primarily due to higher volumes of power delivery and power generation work.

The segment gross margin (loss) was (0.8%) in fiscal 2022 compared to (10.5%) in fiscal 2021. The segment gross margin for the third quarter of fiscal 2022 was negatively impacted by low revenue volume, which led to the under recovery of construction overhead costs, an increase in forecasted cost on a capital project, and lower margins on capital work bid competitively.

The fiscal 2021 segment gross margin was negatively impacted by an increase in the forecasted costs to complete a large capital project.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $69.0 million in the three months ended March 31, 2022 compared to $42.8 million in the same period last year. The increase was primarily due to higher volumes of refinery maintenance and turnaround work.

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The segment gross loss was (0.6%) for the three months ended March 31, 2022 compared to (0.4%) in the same period last year. The segment gross loss in the third quarter of fiscal 2022 was negatively impacted by an increase in forecasted costs to complete a midstream gas processing project, which resulted in a $4.8 million reduction to gross profit. The increase in forecasted costs was primarily due to performance of a, now terminated, subcontractor, which will require rework in order to meet our client's expectations. In addition, the mix of work, which was impacted by increased reimbursable maintenance activity also contributed to lower margins. The higher revenue led to improvement in the recovery of construction overhead costs, but the segment still had some under recovery that impacted the segment gross margin.

Project execution generally met our expectations in the third quarter of fiscal 2021. However, segment gross margin in the same period was negatively impacted by low volumes, which led to the under recovery of construction overhead costs, and an adjustment related to the Company's assessment of the amount due on a completed project.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $48.7 million in the three months ended March 31, 2022 compared to $60.7 million in the same period last year. The decrease in segment revenue is primarily a result of lower volumes of crude oil tank and terminal capital work, and tank repair and maintenance work.

The segment gross margin (loss) was (0.9%) for the three months ended March 31, 2022 compared to 10.6% in the same period last year. The fiscal 2022 segment gross margin was negatively impacted by low revenue volume, which led to under recovery of construction overhead costs, and smaller competitively priced capital projects.

The fiscal 2021 segment gross margin was positively impacted by additional estimated recoveries of unpriced change orders on a large crude oil terminal project following the achievement of mechanical completion and demobilization from the project site.

Corporate

Unallocated corporate expenses were $7.2 million during the three months ended March 31, 2022 compared to $6.2 million in the same period last year. The increase is primarily attributable to centralizing support costs under the second phase of our business improvement plan (see Item 1. Financial Statements, Note 10 - Restructuring Costs, and "Operational Update" in this Results of Operations section for more information).

Nine Months EndedMarch 31, 2022 Compared to the Nine Months Ended March 31, 2021

Consolidated revenue was $507.1 million for the nine months ended March 31, 2022, compared to $498.5 million in the same period last year. On a segment basis, revenue increased in the Process and Industrial Facilities and Utility and Power Infrastructure segments by $23.2 million and $13.9 million, respectively. The increases were partially offset by a decrease in revenue of $28.5 million in the Storage and Terminal Solutions segment.

Consolidated gross profit (loss) decreased to ($2.1) million in the nine months ended March 31, 2022 compared to $31.2 million in the same period last year. Gross margin (loss) decreased to (0.4%) in the nine months ended March 31, 2022 compared to 6.3% in the same period last year. Gross margins in fiscal 2022 were negatively impacted by ~~a lower than previously forecasted margin on a large capital project and an unfavorable settlement~~low revenue volume, which led to the under recovery of a claim with a customer, both in the Utility and Power Infrastructure segment, and by lower than previously forecasted margins on a limited number of projects in the Storage and Terminal Solutions segment.construction overhead costs. In addition, the competitive environment and project adjustments negatively impacted gross margins. Gross margins in fiscal 2021 were ~~also~~ negatively impacted by lower than forecasted volumes, which led to under recovery of construction overhead ~~costs.~~costs as well as a lower than previously forecasted margin on a large capital project in the Utility and Power Infrastructure segment.

Consolidated SG&A expenses were ~~$16.6~~$49.6 million in the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$18.1~~$52.0 million in the same period a year earlier. The decrease is primarily attributable to implemented cost reductions.

In the third quarter, we recorded $18.3 million of goodwill impairment. See Item 1. Financial Statements, Note 4 - Goodwill and Other Intangible Assets, for more information.

As a result of restructuring activities, we recorded ~~$0.6~~($0.3) million of restructuring costs in the ~~three~~nine months ended ~~September 30, 2021.~~March 31, 2022. The credit included a $1.6 million favorable settlement of a restructuring obligation related to our exit from the domestic iron and steel industry in fiscal 2020. See Item 1. Financial Statements, Note 10 - Restructuring Costs, for more information.

Interest expense was ~~$2.0~~$2.7 million in the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$0.4~~$1.1 million in the ~~three~~nine months ended ~~September 30, 2020.~~March 31, 2021. Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees ~~associated with the Prior Credit Agreement~~ (see Item 1. 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 and amortization of deferred debt issuance costs.

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Our effective tax rates for the ~~three~~nine months ended ~~September 30,~~March 31, 2022 and March 31, 2021 were (7.8%) and ~~September 30, 2020 were 23.1% and (9.8)%~~22.6%, respectively. The effective tax rate during fiscal 2022 was impacted by a $21.9 million valuation allowance placed on our deferred tax assets. See Item 1. Financial Statements, Note 6 - Income Taxes, for more information about the ~~three months ended September 30, 2020 was~~valuation allowances. The effective tax rates were negatively impacted by ~~a $1.0~~$1.9 million of valuation allowances on certain deferred tax ~~asset adjustment.~~assets in the third quarter of fiscal 2021, and $1.2 million of other deferred tax adjustments in the first half of fiscal 2021.

For the ~~three~~nine months ended ~~September 30, 2021,~~March 31, 2022, we had a net loss of ~~$17.5~~$77.4 million, or ~~$0.66~~$2.90 per fully diluted share, compared to a net loss of ~~$3.0~~$20.5 million, or ~~$0.12~~$0.78 per fully diluted share, in the ~~three~~nine months ended ~~September 30, 2020.~~March 31, 2021.

Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was ~~$57.2~~$171.3 million in the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$60.7~~$157.4 million in the same period last year. The ~~decrease~~increase is primarily due to ~~lower~~higher volumes of power generation and power delivery ~~and~~work, partially offset by lower volumes of natural gas utility peak shaving ~~work, partially offset by higher volumes of~~and storm response service work.

The segment gross margin (loss) was ~~(10.7)%~~(4.1%) in fiscal 2022 compared to ~~11.4%~~5.0% in fiscal 2021. The segment gross margin in fiscal 2022 was negatively impacted by low revenue volume, which led to the under recovery of construction overhead costs. In addition, the fiscal 2022 segment gross margin was ~~negatively~~materially impacted by ~~an increase~~changes in the forecasted costs to complete a large capital ~~project, which~~project. Improved execution during the third quarter of fiscal 2022 resulted in ~~a decrease~~an increase in gross profit of ~~$5.9 million.~~$0.8 million on this project during the three months ended March 31, 2022. However, increases in the forecasted costs to complete the project during the first half of fiscal 2022 resulted in the project reducing gross profit by $5.1 million during the nine months ended March 31, 2022. The ~~change~~increase in ~~estimate~~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 induring the second quarter of fiscal 2022, which significantly reduced our financial ~~exposure.~~exposure on the project. We expect to complete the project during the fourth quarter of fiscal 2022. In addition, segment gross margin was negatively impacted by an unfavorable settlement of a claim with a ~~customer, and~~customer.

The fiscal 2021 segment gross margin was negatively impacted by an increase in the forecasted costs to complete a large capital project. In addition, segment gross margin was negatively impacted by low volumes, 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.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was ~~$43.9~~$163.2 million in the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$45.9~~$140.0 million in the same period last year. The ~~decrease is~~increase was primarily due to ~~lower volumes~~higher levels of ~~thermal vacuum chamber~~refinery maintenance and ~~capital work, largely offset by an increase in refinery~~ turnaround ~~and maintenance~~ work.

The segment gross margin was ~~6.5%~~4.1% for the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 compared to ~~8.0%~~8.1% in the same period last year. ~~Project~~Despite generally strong project execution and higher volumes, the segment gross margin in fiscal 2022 was negatively impacted by under recovered construction overhead costs and a $4.8 million increase in forecasted costs to complete a midstream gas processing project. The increase in forecasted costs was primarily due to performance of a, now terminated, subcontractor, which will require rework in order to meet our client's expectations.

Segment gross margin in fiscal 2021 was ~~strong, but gross margin was negatively~~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 volumes, which led to the under recovery of construction overhead costs. ~~The lower segment gross margin in fiscal 2022 was the result of lower direct margins largely offset by improved recovery of construction overhead costs.~~

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Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was ~~$67.0~~$172.6 million in the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$76.2~~$201.1 million in the same period last year. The decrease in segment revenue is primarily a result of lower volumes of crude oil tank and terminal capital ~~work, partially offset by an increase in tank repair and maintenance~~ work.

The segment gross margin (loss) was ~~0.6%~~(0.1%) for the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 compared to ~~5.0%~~6.0% in the same period last year. The fiscal 2022 segment gross margin was negatively impacted by lower than previously forecasted margins on a limited number of projects and a higher percentage of lower margin maintenance work. While recovery of construction overhead costs improved in fiscal 2022,low revenue ~~volumes were still not sufficient~~volume, which led to ~~allow full recovery. The fiscal 2021 segment gross margin was negatively impacted by the~~ 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 $5.5 million. In addition, segment gross margin was negatively impacted by smaller competitively priced capital projects.

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The fiscal 2021 segment gross margin was negatively impacted by increases in the costs to complete a large crude oil ~~storage~~ terminal ~~capital~~ project, ~~that reached substantial completion~~partially offset by an increase in ~~fiscal 2021.~~the estimated recovery of those costs.

Corporate

Unallocated corporate expenses were ~~$7.6~~$21.5 million during the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$6.9~~$20.2 million in the same period last year. The increase is primarily attributable to an increase in legal costs for outstanding litigation (see Item 1. Financial Statements, Note 7 - Commitment and Contingencies, for more information) ~~and~~, 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.

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 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 limited notice to proceed ("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.

The following table provides a summary of changes in our backlog for the three months ended ~~September 30, 2021:~~March 31, 2022:


		Utility and Power Infrastructure		Process and Industrial Facilities		Storage and Terminal Solutions			Total			Utility and Power Infrastructure		Process and Industrial Facilities		Storage and Terminal Solutions		Total
		(In thousands)						(In thousands)
Backlog as of June 30, 2021		$	170,043	$	134,777	$	157,741		$	462,561
Backlog as of December 31, 2021											Backlog as of December 31, 2021	$	150,368	$	250,970	$	190,222	$	591,560
Project awards	Project awards	64,037		94,562		108,288			266,887		Project awards	23,366		104,729		51,575		179,670

Revenue recognized	Revenue recognized	(57,204)		(43,905)		(66,984)			(168,093)		Revenue recognized	(59,341)		(68,971)		(48,691)		(177,003)
Backlog as of September 30, 2021		$	176,876	$	185,434	$	199,045		$	561,355
Backlog as of March 31, 2022											Backlog as of March 31, 2022	$	114,393	$	286,728	$	193,106	$	594,227
Book-to-bill ratio(1)	Book-to-bill ratio(1)	1.1		2.2		1.6			1.6		Book-to-bill ratio(1)	0.4		1.5		1.1		1.0

(1)Calculated by dividing project awards by revenue recognized during the period.

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The following table provides a summary of changes in our backlog for the nine months ended March 31, 2022:


	Utility and Power Infrastructure		Process and Industrial Facilities		Storage and Terminal Solutions		Total
	(In thousands)
Backlog as of June 30, 2021	$	170,043	$	134,777	$	157,741	$	462,561
Project awards	115,648		315,143		207,936		638,727


Revenue recognized	(171,298)		(163,192)		(172,571)		(507,061)
Backlog as of March 31, 2022	$	114,393	$	286,728	$	193,106	$	594,227
Book-to-bill ratio(1)	0.7		1.9		1.2		1.3

(1)Calculated by dividing project awards by revenue recognized during the period.

Strong bidding activity has led to project awards of $179.7 million and $638.7 million during the three and nine months ended March 31, 2022, respectively, leading to a book-to-bill ratios of 1.0 and 1.3 for the three and nine months ended March 31, 2022, respectively. Project awards through the first half of fiscal 2022 surpassed project awards for the full year of fiscal 2021. Total backlog increased by 0.5% and 28.5% during the three and nine months ended March 31, 2022, respectively.

In the Utility and Power Infrastructure segment, ~~bidding~~backlog decreased by 23.9% as we booked $23.4 million of project awards during the three months ended March 31, 2022. Backlog decreased by 32.7% as we booked $115.6 million of project awards during the nine months ended March 31, 2022. Bidding activity is strong in the power delivery portion of the business. During ~~the first quarter of~~ fiscal 2022, we received several key contracts for electrical infrastructure services including substation and transmission line rebuilds, relay upgrades, and fiber installation. ~~Similarly, our~~Our opportunity pipeline for LNG peak shaving projects is also building, however those awards, while significant, can be less frequent. In addition, we expect the ~~new~~ $1.2 trillion Infrastructure Investment and Jobs Act ~~recently~~ passed by congress will lead to increased opportunities in this segment.

In the Process and Industrial Facilities segment, ~~client~~backlog increased by 14.2% as we booked $104.7 million of project awards during the three months ended March 31, 2022. Backlog increased by 112.7% as we booked $315.1 million of project awards during the nine months ended March 31, 2022. Client spending related to refinery maintenance operations has returned to near-normal levels. During ~~the first quarter of~~ fiscal 2022, we received a key ~~award~~awards for ~~the construction of a~~two thermal vacuum ~~chamber.~~chamber projects, a midstream gas processing plant, a borate mining facility, 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, ~~oil~~backlog increased by 1.5% as we booked $51.6 million of project awards during the three months ended March 31, 2022. Backlog increased by 22.4% as we booked $207.9 million of project awards during the nine months ended March 31, 2022. Oil and natural gas producers have remained cautious with capital spending, which has limited new production volumes and opportunities in crude oil tanks and terminals. However, ~~we received key capital construction contracts for an LNG tank and a storage tank package consisting~~the price of ~~seven biodiesel tanks, in~~crude oil increased significantly during the ~~first~~third quarter of fiscal ~~2022.~~2022 primarily due to increased foreign supply pressures from the sanctions against Russia. While the impact of the price increase remains uncertain, if sustained, we expect it could strengthen our existing opportunities for crude oil tanks and terminals, and export facilities in the coming quarters. This segment also includes significant opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, hydrogen, NGLs and other forms of renewable energy.

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. The level of awards presented above only represents an interim period and may not be indicative of full year awards.

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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 ~~operations are also impacted by the COVID-19 pandemic, which has led to the loss of productivity, among other issues. Our~~ business can also be affected, both positively and negatively, by seasonal factors such as energy demand or weather conditions including hurricanes, snowstorms, wildfires and abnormally low or high temperatures. Some of these seasonal factors may cause some of our offices and projects to close or reduce activities temporarily. In addition to the above noted factors, the general timing of project starts and completions could exhibit significant fluctuations. Accordingly, results for any interim period may not necessarily be indicative of operating results for the full year.

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 usually leads to over or under recovery of fixed overhead costs, which can have a material impact on our gross margin and profitability.

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Non-GAAP Financial Measures

Adjusted Net Loss

In order to more clearly depict our core profitability, the following tables present our operating results after certain adjustments:

Reconciliation of Adjusted Net Loss and Diluted Loss per Common Share(1)

(In thousands, except per share data)


		Three Months Ended				Three Months Ended				Nine Months Ended
		September 30, 2021		September 30, 2020				March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Net loss, as reported	Net loss, as reported	$	(17,538)	$	(3,037)		Net loss, as reported	$	(34,899)	$	(12,873)	$	(77,356)	$	(20,501)
Restructuring costs incurred	Restructuring costs incurred	605		(320)			Restructuring costs incurred	(1,578)		1,860		(278)		6,585

Goodwill impairment							Goodwill impairment	18,312		—		18,312		—
Accelerated amortization of deferred debt amendment fees(2)	Accelerated amortization of deferred debt amendment fees(2)	1,518		—			Accelerated amortization of deferred debt amendment fees(2)	—		—		1,518		—
Deferred tax asset valuation allowance(3)							Deferred tax asset valuation allowance(3)	7,671		—		21,869		—
Tax impact of adjustments	Tax impact of adjustments	(546)		82			Tax impact of adjustments	(2,911)		(479)		(3,636)		(1,695)
Adjusted net loss	Adjusted net loss	$	(15,961)	$	(3,275)		Adjusted net loss	$	(13,405)	$	(11,492)	$	(39,571)	$	(15,611)

Loss per fully diluted share, as reported	Loss per fully diluted share, as reported	$	(0.66)	$	(0.12)		Loss per fully diluted share, as reported	$	(1.30)	$	(0.49)	$	(2.90)	$	(0.78)
Adjusted loss per fully diluted share	Adjusted loss per fully diluted share	$	(0.60)	$	(0.12)		Adjusted loss per fully diluted share	$	(0.50)	$	(0.43)	$	(1.48)	$	(0.59)

(1)This table presents non-GAAP financial measures of our adjusted net loss and adjusted diluted loss per common share for the three and nine months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021. The most directly comparable financial measures are net loss and net loss per diluted share, respectively, presented in the Condensed 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 loss and adjusted diluted loss per common share are not measures of performance calculated in accordance with GAAP, they should be considered in addition to, rather than as a substitute for, the most directly comparable GAAP financial measures.

(2)Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees (see Item 1. Financial Statements, Note 5 - Debt, for more information).

(3)See Item 1. Financial Statements, Note 6 - Income Taxes, for more information about the deferred tax asset valuation allowance.

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Adjusted EBITDA

We have presented Adjusted EBITDA, which we define as net loss before restructuring costs, 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 Condensed 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 impairment to goodwill. While impairment to goodwill is a non-cash expense in the period recognized, cash or other consideration was still transferred in exchange for goodwill in the period of the acquisition. Any measure that excludes impairment to goodwill has material limitations since this expense represents the loss of an asset that was acquired in exchange for cash or other assets.

•It does not include restructuring costs. Restructuring costs represent material costs that were 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 acquisitions, pay commitment fees to maintain our credit facility, and incur fees to issue letters of credit under the 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.

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•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.

A reconciliation of Adjusted EBITDA to net loss follows:


		Three Months Ended					Three Months Ended				Nine Months Ended
		September 30, 2021		September 30, 2020					March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
		(In thousands)				(In thousands)
Net loss	Net loss	$	(17,538)	$	(3,037)			Net loss	$	(34,899)	$	(12,873)	$	(77,356)	$	(20,501)

Goodwill impairment								Goodwill impairment	18,312		—		18,312		—
Restructuring costs	Restructuring costs	605		(320)				Restructuring costs	(1,578)		1,860		(278)		6,585
Stock-based compensation	Stock-based compensation	1,869		2,218				Stock-based compensation	2,088		2,214		5,823		6,413
Interest expense	Interest expense	1,999		375				Interest expense	204		322		2,705		1,055
Provision (benefit) from income taxes		(5,265)		270
Provision (benefit) for income taxes								Provision (benefit) for income taxes	(147)		(5,060)		5,564		(6,002)
Depreciation and amortization	Depreciation and amortization	4,052		4,639				Depreciation and amortization	3,716		4,352		11,557		13,639
Adjusted EBITDA	Adjusted EBITDA	$	(14,278)	$	4,145			Adjusted EBITDA	$	(12,304)	$	(9,185)	$	(33,673)	$	1,189

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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 ~~September 30, 2021~~March 31, 2022 were unrestricted cash and cash equivalents on hand, capacity under our ~~credit agreement,~~ABL Facility, and cash generated from operations. Unrestricted cash and cash equivalents at ~~September 30, 2021~~March 31, 2022 totaled ~~$34.7~~$34.1 million and availability under the ABL Facility totaled ~~$32.1~~$52.7 million, resulting in total liquidity of ~~$66.8~~$86.8 million. ~~We expect letters of credit outstanding to decrease by approximately $20.0 million in the second quarter of fiscal 2022, which will increase availability under the ABL Facility by the same amount.~~


		September 30, 2021		June 30, 2021			March 31, 2022		June 30, 2021
Cash and cash equivalents	Cash and cash equivalents	$	34,678	$	83,878	Cash and cash equivalents	$	34,092	$	83,878
Restricted cash, current		2,600		—
Restricted cash, non-current		25,000		—

Restricted cash						Restricted cash	25,000		—
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	62,278	$	83,878	Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	59,092	$	83,878

While ~~we saw improvement in our~~bidding activity and the volume of project awards ~~and business environment during~~have both improved as the ~~first quarter of fiscal 2022, the near- and intermediate-term business impacts~~economy emerges from the ~~COVID-19~~ pandemic, ~~and its disruption of our markets are~~the market environment is still uncertain. Therefore we continue to maintain a strong balance sheet, which we believe is sufficient to support our near- to intermediate-term needs. We are continuing to take the following actions:

•strategically reviewing business processes and organizational structure;

•proactively managing our the cost structure and working capital; and

•~~eliminating all non-critical~~limiting capital ~~expenditures.~~expenditures to critical needs.

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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.

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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 ABL Facility and maintaining compliance with all covenants contained in the ABL Facility;

•acquisitions and disposals of businesses; and

•purchases of shares under our stock buyback program.

ABL Credit Facility and Senior Secured Revolving Credit Facility

ABL Credit Facility

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Senior Secured Revolving Credit Facility

Cash Flow for the ~~Three~~Nine Months Ended ~~September 30, 2021~~March 31, 2022

Cash Flows Used by Operating Activities

Cash used by operating activities for the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 totaled ~~$19.2~~$22.5 million. The various components are as follows:

Net Cash Used by Operating Activities

(In thousands)


Net loss	$	~~(17,538)~~(77,356)
Non-cash expenses	~~7,342~~18,276
Goodwill impairment	18,312
Deferred income tax	~~(5,343)~~5,323
Cash effect of changes in operating assets and liabilities	~~(3,614)~~12,825
Other	103
Net cash used by operating activities	$	~~(19,153)~~(22,517)

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Cash effect of changes in operating assets and liabilities at ~~September 30, 2021~~March 31, 2022 in comparison to June 30, 2021 include the following:

•Accounts receivable ~~net of credit losses recognized during the period and other adjustments,~~ decreased ~~$3.1~~$10.3 million during the ~~three~~nine months ended ~~September 30, 2021,~~March 31, 2022, which increased cash flows from operating activities. The variance is primarily attributable to the timing of billing and collections.

•Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") increased ~~$3.0~~$15.6 million, which decreased cash flows from operating activities. Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") ~~decreased $2.9~~increased $20.0 million, which ~~decreased~~increased cash flows from operating activities. CIE and BIE balances can experience significant fluctuations based on business volumes and the timing of when job costs are incurred and the timing of customer billings and payments.

•Inventories, income taxes receivable, other current assets, operating right-of-use lease assets and other assets, non-current, ~~increased $3.3~~decreased $1.0 million during the ~~three~~nine months ended ~~September 30, 2021,~~March 31, 2022, which ~~decreased~~increased 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; lease commencement, passage of time, expiration, or termination of operating leases; business volumes; and other timing differences.

•Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current ~~increased~~decreased by ~~$2.8~~$1.8 million during the ~~three~~nine months ended ~~September 30, 2021,~~March 31, 2022, which ~~increased~~decreased cash flows from operating activities. These operating liabilities can fluctuate based on the timing of vendor payments; accruals; lease commencement, lease payments, expiration, or termination of operating leases; business volumes; and other timing differences.

Cash Flows Used by Investing Activities

Investing activities used $0.1 million of cash in the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 primarily due to ~~$0.2~~$1.4 million of capital expenditures, partially offset by ~~$0.1~~$1.3 million of proceeds from other asset sales.

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Cash Flows Used by Financing Activities

Financing activities used ~~$1.8~~$1.9 million of cash in the ~~three~~nine months ended ~~September 30, 2021~~March 31, 2022 primarily due to $1.1 million paid in fees to enter into our ABL Facility and $0.9 million paid to repurchase our stock for payment of withholding taxes due on equity-based ~~compensation and $0.9 million paid in fees to enter into our ABL Facility.~~compensation.

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 ~~and Treasury Shares~~

~~Treasury Shares~~

The terms of our Credit Agreement 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. We may repurchase common stock pursuant to the Stock Buyback Program, which was approved by the board of directors in November 2018. Under the program, the aggregate number of shares repurchased may not exceed 2,707,175 shares. We may repurchase our stock from time to time in the open market at prevailing market prices or in privately negotiated transactions and are not obligated to purchase any shares. The program will continue unless and until it is modified or revoked by the Board of Directors. We made no repurchases under the program in the ~~first quarter of fiscal~~nine months ended March 31, 2022 and have no current plans to repurchase ~~stock in the near-term.~~

stock. As of ~~September 30, 2021,~~March 31, 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 ~~1,191,189~~1,104,952 treasury shares as of ~~September 30, 2021~~March 31, 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.

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CRITICAL ACCOUNTING POLICIES

There have been no material changes in our critical accounting policies from those reported in our fiscal 2021 Annual Report on Form 10-K filed with the SEC. For more information on our critical accounting policies, see Part II, Item 7 of our fiscal 2021 Annual Report on Form 10-K. The following section provides certain information with respect to our critical accounting policies as of the close of our most recent quarterly period.

Revenue Recognition

General Information about our Contracts with Customers

Our revenue comes from contracts to provide engineering, procurement, fabrication and construction, repair and maintenance and other services. Our engineering, procurement and fabrication and construction services are usually provided in association with capital projects, which are commonly fixed-price contracts that are billed based on project milestones. Our repair and maintenance services typically are cost reimbursable or time and material based contracts and are billed monthly or, for projects of short duration, at the conclusion of the project. The elapsed time from award to completion of performance may exceed one year for capital projects.

Step 1: Contract Identification

We do not recognize revenue unless we have identified a contract with a customer. A contract with a customer exists when it has approval and commitment from both parties, the rights and obligations of the parties are identified, payment terms are identified, the contract has commercial substance, and collectibility is probable. We also evaluate whether a contract should be combined with other contracts and accounted for as a single contract. This evaluation requires judgment and could change the timing of the amount of revenue and profit recorded for a given period.

Step 2: Identify Performance Obligations

Next, we identify each performance obligation in the contract. A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services to the customer. Revenue is recognized separately for each performance obligation in the contract. Many of our contracts have one clearly identifiable performance obligation. However, many of our contracts provide the customer an integrated service that includes two or more of the following services: engineering, procurement, fabrication, construction, repair and maintenance services. For these contracts, we do not consider the integrated services to be distinct within the context of the contract when the separate scopes of work combine into a single commercial objective or capability for the customer. Accordingly, we generally identify one performance obligation in our contracts. The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period.

Step 3: Determine Contract Price

After determining the performance obligations in the contract, we determine the contract price. The contract price is the amount of consideration we expect to receive from the customer for completing the performance obligation(s). In a fixed-price contract, the contract price is a single lump-sum amount. In reimbursable and time and materials based contracts, the contract price is determined by the agreed upon rates or reimbursements for time and materials expended in completing the performance obligation(s) in the contract.

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.

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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 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 Condensed Consolidated 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.

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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, but 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 as of May 31st of each fiscal year, or in between annual tests if impairment indicators are present, 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 compared to our market capitalization.

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 condensed consolidated financial statements, or are otherwise disclosed, in accordance with Accounting Standard Codification ("ASC") Topic 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 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in market risk faced by us from those reported in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed with the Securities and Exchange Commission. For more information on market risk, see Part II, Item 7A in our fiscal 2021 Annual Report on Form 10-K.

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Item 4. 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).

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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 ~~September 30, 2021.~~March 31, 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 ~~September 30, 2021.~~March 31, 2022.

There have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting during the quarter ended ~~September 30, 2021.~~March 31, 2022.

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PART II

OTHER INFORMATION

Item 1. 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 1A. Risk Factors

We have amended the following Risk Factor that appeared in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. This amended Risk Factor should be considered along with the other Risk Factors that appeared in our Annual Report for the fiscal year ended June 30, 2021. Except as set forth below, there have been no material changes to the risk factors involving us from those previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

The COVID-19 pandemic has adversely affected our business and operations.

The COVID-19 pandemic has adversely affected our business and operations and the business and operations of our customers. We have experienced unpredictable reductions in demand for our services. In response to the COVID-19 pandemic, companies within the oil and natural gas and other industries (including our customers) have announced spending cuts and/or project delays which, in turn, have resulted in decreased awards of new contracts or adjustments, reductions, suspensions or cancellations of ~~existing~~ contracts. ~~Such continued delays have impacted our business, results of operations and financial condition.~~

The ongoing pandemic has also resulted in disruptions to labor and global supply chains, which have led to labor shortages and higher prices for some of the materials we need to run our business, including, but not limited to, structural steel, steel piping, rebar, valves, copper, and delivery freight. We ~~have been proactive with managing our workforce and procurement processes to help reduce the impacts of labor shortages and rising materials prices on our business and to help ensure we~~ continue to ~~have the labor and materials we need available. However, rising prices and~~monitor the potential for ~~labor and materials shortages have created additional risk into bidding and executing work profitably.~~

~~On September 9, 2021, President Biden announced a proposed new rule~~regulation requiring ~~all employers with at least 100~~our employees to ~~require that their employees be fully~~get vaccinated and/or tested ~~weekly. On November 4, 2021, the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) issued an emergency~~frequently for COVID-19. No such regulation ~~to carry out this mandate, which~~ is ~~expected to take effect on January 4, 2022. As a company with more than 100 employees, we are subject to the OSHA regulation concerning COVID-19 vaccination. At~~in place at this time, itbut we have prepared for the possibility that we must comply with such regulation. It is not possible to predict with certainty the exact impact that ~~the new~~such regulation ~~will~~would have on us or on our workforce. ~~The proposed new regulation may~~However, vaccine and testing mandates could result in employee attrition and difficulty securing future labor needs which could have an adverse effect on our business, results of operations and/or cash flows.

~~Because the~~The duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to ~~predict, the impact on our business, financial condition and results of operations remains uncertain.~~predict. While we expect the COVID-19 pandemic to continue to have an adverse effect on our business, financial condition, liquidity, cash flow and results of operations, we are unable to predict the ~~extent,~~ nature, ~~or duration~~timing and extent of these impacts at this time.

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.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The table below sets forth information with respect to purchases we made of our common stock during the ~~first~~third quarter of fiscal year 2022.

Total Number
of Shares
Purchased Average Price
Paid
Per Share Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs Maximum
Number of
Shares That
May Yet Be
Purchased
Under the Plans
or Programs (C)
July 1 to July 31, 2021
Stock Buyback Program (A) — $ — — 1,349,037
Employee Transactions (B) — —
August 1 to August 31, 2021
Stock Buyback Program (A) — $ — — 1,349,037
Employee Transactions (B) 76,703 $ 11.11 — —
September 1 to September 30, 2021
Stock Buyback Program (A) — $ — — 1,349,037
Employee Transactions (B) — $ — — —


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (C)
January 1 to January 31, 2022
Stock Buyback Program (A)	—	$	—	—	1,349,037
Employee Transactions (B)	—	$	—	—	—
February 1 to February 28, 2022
Stock Buyback Program (A)	—	$	—	—	1,349,037
Employee Transactions (B)	—	$	—	—	—
March 1 to March 31, 2022
Stock Buyback Program (A)	—	$	—	—	1,349,037
Employee Transactions (B)	—	$	—	—	—

(A)Represents shares purchased under our Stock Buyback Program.

(B)Represents shares withheld to satisfy the employee’s tax withholding obligation that is incurred upon the vesting of deferred shares granted under our stock incentive plans.

(C)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. The terms of our ABL Facility also limit share repurchases to $2.5 million per fiscal year provided that we meet certain availability thresholds and we do not violate our Fixed Charge Coverage Ratio financial covenant. We made no repurchases under the program in the ~~first~~third quarter of fiscal 2022 and have no current plans to repurchase ~~stock in the near-term.~~stock.

Dividend Policy

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Section 1503(a) 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 the owner of any mines, but as a result of our performing services or construction at mine sites as an independent contractor, we are 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 quarterly report under Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95.

Item 5. Other Information

None

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Item 6. Exhibits:

The following documents are included as exhibits to this Quarterly Report on Form 10-Q. Any exhibits below incorporated by reference herein are indicated as such by the information supplied in the parenthetical hereafter.


Exhibit No.						Description

*+Exhibit ~~10.1~~10.1:						~~Credit Agreement dated as of September 9, 2021 by~~Amended and ~~among,~~Restated 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 (File No. 1-15461) filed September 13, 2021).2021 Severance Plan for Executives.

Exhibit 31.1:						Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 – CEO.

Exhibit 31.2:						Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 – CFO.

Exhibit 32.1:						Certification Pursuant to 18 U.S.C. 1350 (section 906 of Sarbanes-Oxley Act of 2002) – CEO.

Exhibit 32.2:						Certification Pursuant to 18 U.S.C. 1350 (section 906 of Sarbanes-Oxley Act of 2002) – CFO.

Exhibit 95:						Mine Safety Disclosure.

Exhibit 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.

Exhibit 101.SCH:						XBRL Taxonomy Schema Document.

Exhibit 101.CAL:						XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.DEF:						XBRL Taxonomy Extension Definition Linkbase Document.

Exhibit 101.LAB:						XBRL Taxonomy Extension Labels Linkbase Document.

Exhibit 101.PRE:						XBRL Taxonomy Extension Presentation Linkbase Document.

Exhibit 104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith.

+Management Contract or Compensatory Plan.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		MATRIX SERVICE COMPANY

Date:	~~November 9, 2021~~May 10, 2022	By: /s/ Kevin S. Cavanah
		Kevin S. Cavanah Vice President and Chief Financial Officer signing on behalf of the registrant and as the registrant’s principal financial officer

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		At September 30, 2021
	Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(Years)	(In thousands)
Intellectual property	10 to 15	$	2,483	$	(2,074)	$	409
Customer-based	6 to 15	17,260		(11,575)		5,685


Total amortizing intangible assets		$	19,743	$	(13,649)	$	6,094