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 December 31, ~~2022~~2023


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

For the transition period from to

Commission File No. 1-15461

MATRIX SERVICE COMPANY

(Exact name of registrant as specified in its charter)


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

15 East 5th Street, Suite 1100, Tulsa, Oklahoma 74103

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (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 February 7, ~~2023~~2024 there were ~~27,037,556~~27,304,734 shares of the Company's common stock, $0.01 par value per share, 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 Six Months Ended December 31, ~~2022~~2023 and ~~2021~~2022	1

	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, ~~2022~~2023 and ~~2021~~2022	2

	Condensed Consolidated Balance Sheets as of December 31, ~~2022~~2023 and June 30, ~~2022~~2023	3

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, ~~2022~~2023 and ~~2021~~2022	5

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended December 31, ~~2022~~2023 and ~~2021~~2022	7

	Notes to Condensed Consolidated Financial Statements	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2017

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3530

Item 4.	Controls and Procedures	3630

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	3731

Item 1A.	Risk Factors	3731

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3731

Item 3.	Defaults Upon Senior Securities	3731

Item 4.	Mine Safety Disclosures	3831

Item 5.	Other Information	3831

Item 6.	Exhibits	3831

Signature		3933

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				Six Months Ended
		December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021
	Three Months Ended										Three Months Ended			Six Months Ended
	December 31, 2023									December 31, 2023		December 31, 2022	December 31, 2023		December 31, 2022
Revenue	Revenue	$	193,840	$	161,965	$	402,271	$	330,058
Cost of revenue	Cost of revenue	195,142		158,758		390,565		330,359
Gross profit (loss)	Gross profit (loss)	(1,302)		3,207		11,706		(301)
Selling, general and administrative expenses	Selling, general and administrative expenses	17,545		15,922		34,356		32,551
Goodwill impairment	Goodwill impairment	12,316		—		12,316		—
Restructuring costs	Restructuring costs	1,278		695		2,565		1,300
Operating loss	Operating loss	(32,441)		(13,410)		(37,531)		(34,152)
Other income (expense):	Other income (expense):
Interest expense	Interest expense	(916)		(502)		(1,288)		(2,501)
Interest expense
Interest expense
Interest income	Interest income	46		29		70		50
Other		484		(60)		(590)		(143)
Other (Note 3)
Loss before income tax expense	Loss before income tax expense	(32,827)		(13,943)		(39,339)		(36,746)
Provision for federal, state and foreign income taxes	Provision for federal, state and foreign income taxes	—		10,976		—		5,711
Net loss	Net loss	$	(32,827)	$	(24,919)	$	(39,339)	$	(42,457)

Basic loss per common share	Basic loss per common share	$	(1.22)	$	(0.93)	$	(1.46)	$	(1.59)
Basic loss per common share
Basic loss per common share
Diluted loss per common share	Diluted loss per common share	$	(1.22)	$	(0.93)	$	(1.46)	$	(1.59)
Weighted average common shares outstanding:	Weighted average common shares outstanding:
Basic	Basic	26,999		26,749		26,916		26,680
Basic
Basic
Diluted	Diluted	26,999		26,749		26,916		26,680

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				Six Months Ended				Three Months Ended			Six Months Ended
		December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021
	December 31, 2023										December 31, 2023	December 31, 2022		December 31, 2023	December 31, 2022
Net loss	Net loss	$	(32,827)	$	(24,919)	$	(39,339)	$	(42,457)
Other comprehensive loss, net of tax:
Foreign currency translation gain (loss) (net of tax expense (benefit) of $0 for the three and six months ended December 31, 2022 and $(8) and $46 for the three and six months ended December 31, 2021, respectively)		1,265		99		(488)		(696)
Other comprehensive income (loss), net of tax:
Foreign currency translation loss
Foreign currency translation loss
Foreign currency translation loss
Comprehensive loss	Comprehensive loss	$	(31,562)	$	(24,820)	$	(39,827)	$	(43,153)

See accompanying notes.

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Table of Contents

Matrix Service Company

Condensed Consolidated Balance Sheets

(In thousands)

(unaudited)


		December 31, 2022		June 30, 2022
	December 31, 2023					December 31, 2023	June 30, 2023
Assets	Assets
Current assets:	Current assets:
Current assets:
Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	31,464	$	52,371
Accounts receivable, less allowances (December 31, 2022—$1,112 and June 30, 2022—$1,320)		182,054		153,879
Cash and cash equivalents
Cash and cash equivalents
Accounts receivable, less allowances (December 31, 2023—$408 and June 30, 2023—$1,061)
Costs and estimated earnings in excess of billings on uncompleted contracts	Costs and estimated earnings in excess of billings on uncompleted contracts	46,588		44,752
Inventories	Inventories	7,981		9,974
Income taxes receivable	Income taxes receivable	13,546		13,547
Prepaid expenses	Prepaid expenses	8,104		4,024
Other current assets	Other current assets	4,745		8,865
Total current assets	Total current assets	294,482		287,412
Restricted cash	Restricted cash	25,000		25,000
Property, plant and equipment - net	Property, plant and equipment - net	50,684		53,869
Operating lease right-of-use assets	Operating lease right-of-use assets	23,938		22,067
Goodwill	Goodwill	29,733		42,135
Other intangible assets, net of accumulated amortization	Other intangible assets, net of accumulated amortization	3,931		4,796

Other assets, non-current	Other assets, non-current	10,350		5,514
Other assets, non-current
Other assets, non-current
Total assets	Total assets	$	438,118	$	440,793

See accompanying notes.

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Table of Contents

Matrix Service Company

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)


		December 31, 2022		June 30, 2022
	December 31, 2023						December 31, 2023	June 30, 2023
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:
Current liabilities:
Current liabilities:
Accounts payable
Accounts payable
Accounts payable	Accounts payable	$	80,561	$	74,886
Billings on uncompleted contracts in excess of costs and estimated earnings	Billings on uncompleted contracts in excess of costs and estimated earnings	99,762		65,106
Accrued wages and benefits	Accrued wages and benefits	12,352		21,526

Accrued insurance	Accrued insurance	5,818		6,125
Accrued insurance
Accrued insurance
Operating lease liabilities	Operating lease liabilities	4,534		5,715

Other accrued expenses
Other accrued expenses
Other accrued expenses	Other accrued expenses	5,525		4,427
Total current liabilities	Total current liabilities	208,552		177,785
Deferred income taxes	Deferred income taxes	27		26
Operating lease liabilities	Operating lease liabilities	22,713		19,904
Borrowings under asset-backed credit facility	Borrowings under asset-backed credit facility	15,000		15,000
Other liabilities, non-current	Other liabilities, non-current	374		372
Total liabilities	Total liabilities	246,666		213,087
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Stockholders’ equity:	Stockholders’ equity:

Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of December 31, 2022 and June 30, 2022; 27,027,323 and 26,790,514 shares outstanding as of December 31, 2022 and June 30, 2022, respectively		279		279
Matrix Service Company stockholders' equity:
Matrix Service Company stockholders' equity:
Matrix Service Company stockholders' equity:
Common stock—$0.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of December 31, 2023 and June 30, 2023; 27,300,485 and 27,047,318 shares outstanding as of December 31, 2023 and June 30, 2023, respectively
Common stock—$0.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of December 31, 2023 and June 30, 2023; 27,300,485 and 27,047,318 shares outstanding as of December 31, 2023 and June 30, 2023, respectively
Common stock—$0.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of December 31, 2023 and June 30, 2023; 27,300,485 and 27,047,318 shares outstanding as of December 31, 2023 and June 30, 2023, respectively
Additional paid-in capital	Additional paid-in capital	137,989		139,854
Retained earnings	Retained earnings	71,939		111,278
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(8,663)		(8,175)
		201,544		243,236
Treasury stock, at cost — 860,894 shares as of December 31, 2022, and 1,097,703 shares as of June 30, 2022		(10,092)		(15,530)
	185,101
Treasury stock, at cost — 587,732 shares as of December 31, 2023, and 840,899 shares as of June 30, 2023
Total stockholders' equity	Total stockholders' equity	191,452		227,706
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	438,118	$	440,793

See accompanying notes.

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Table of Contents

Matrix Service Company

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


		Six Months Ended				Six Months Ended
		December 31, 2022		December 31, 2021
	December 31, 2023						December 31, 2023	December 31, 2022
Operating activities:	Operating activities:
Net loss	Net loss	$	(39,339)	$	(42,457)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Net loss
Net loss
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization
Depreciation and amortization
Depreciation and amortization	Depreciation and amortization	7,177		7,841
Goodwill impairment	Goodwill impairment	12,316		—
Stock-based compensation expense	Stock-based compensation expense	3,747		3,735

Deferred income tax		—		5,340

Loss (gain) on sale of property, plant and equipment		42		(102)
Provision for uncollectible accounts		(50)		(35)
Accelerated amortization of deferred debt amendment fees		—		1,518

Loss (gain) on sale of property, plant and equipment (Note 3)

Loss (gain) on sale of property, plant and equipment (Note 3)

Loss (gain) on sale of property, plant and equipment (Note 3)

Other

Other

Other	Other	132		45
Changes in operating assets and liabilities increasing (decreasing) cash:	Changes in operating assets and liabilities increasing (decreasing) cash:
Accounts receivable
Accounts receivable
Accounts receivable	Accounts receivable	(28,125)		26,464
Costs and estimated earnings in excess of billings on uncompleted contracts	Costs and estimated earnings in excess of billings on uncompleted contracts	(1,836)		(3,729)
Inventories	Inventories	1,993		1,045
Other assets and liabilities	Other assets and liabilities	(5,170)		(3,784)
Accounts payable	Accounts payable	5,253		(4,866)
Billings on uncompleted contracts in excess of costs and estimated earnings	Billings on uncompleted contracts in excess of costs and estimated earnings	34,656		31,027
Accrued expenses	Accrued expenses	(8,381)		(10,657)
Net cash provided (used) by operating activities	Net cash provided (used) by operating activities	(17,585)		11,385
Investing activities:	Investing activities:
Capital expenditures	Capital expenditures	(2,843)		(569)
Capital expenditures
Capital expenditures

Proceeds from asset sales		31		108
Net cash used by investing activities		$	(2,812)	$	(461)
Proceeds from asset sales (Note 3)

Proceeds from asset sales (Note 3)

Proceeds from asset sales (Note 3)
Net cash provided (used) by investing activities

See accompanying notes.

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Table of Contents

Matrix Service Company

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Six Months Ended						Six Months Ended
	December 31, 2023					December 31, 2023		December 31, 2022
Financing activities:
Advances under asset-backed credit facility
Advances under asset-backed credit facility
Advances under asset-backed credit facility
Repayments of advances under asset-backed credit facility

		Six Months Ended
		December 31, 2022		December 31, 2021
Financing activities:
Advances under asset-backed credit facility		$	10,000	$	—
Repayments of advances under asset-backed credit facility		(10,000)		—
Payment of debt amendment fees		—		(1,010)

Issuances of common stock		—		199
Proceeds from issuance of common stock under employee stock purchase plan

Proceeds from issuance of common stock under employee stock purchase plan

Proceeds from issuance of common stock under employee stock purchase plan	Proceeds from issuance of common stock under employee stock purchase plan	136		143
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	(310)		(853)
Other Treasury Share Purchases		—		(236)

Net cash used by financing activities

Net cash used by financing activities

Net cash used by financing activities	Net cash used by financing activities	(174)		(1,757)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(336)		(405)
Net increase (decrease) in cash, cash equivalents and restricted cash		(20,907)		8,762
Net decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	77,371		83,878
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	56,464	$	92,640
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:	Cash paid (received) during the period for:
Cash paid (received) during the period for:
Cash paid (received) during the period for:
Income taxes	Income taxes	$	—	$	(341)
Interest, including payment of debt amendment fees		$	1,056	$	1,798
Income taxes
Income taxes
Interest

Non-cash investing and financing activities:	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
Purchases of property, plant and equipment on account	Purchases of property, plant and equipment on account	$	476	$	5

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													Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Treasury Stock	Total
Balances, September 30, 2023
Net loss
Other comprehensive income

		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total
Issuance of restricted stock (86,783 shares)

Issuance of restricted stock (86,783 shares)

Issuance of restricted stock (86,783 shares)
Treasury shares sold to Employee Stock Purchase Plan (3,864 shares)

Stock-based compensation expense

Stock-based compensation expense

Stock-based compensation expense
Balances, December 31, 2023

Balances, September 30, 2022
Balances, September 30, 2022
Balances, September 30, 2022	Balances, September 30, 2022	$	279	$	137,651	$	104,766	$	(9,928)	$	(11,517)	$	221,251
Net loss	Net loss	—		—		(32,827)		—		—		(32,827)
Other comprehensive income	Other comprehensive income	—		—		—		1,265		—		1,265

Issuance of deferred shares (54,702 shares)		—		(1,085)		—		—		1,085		—
Issuance of restricted stock (54,702 shares)

Issuance of restricted stock (54,702 shares)

Issuance of restricted stock (54,702 shares)
Treasury shares sold to Employee Stock Purchase Plan (17,111 shares)	Treasury shares sold to Employee Stock Purchase Plan (17,111 shares)	—		(269)		—		—		340		71

Stock-based compensation expense	Stock-based compensation expense	—		1,692		—		—		—		1,692
Balances, December 31, 2022		$	279	$	137,989	$	71,939	$	(8,663)	$	(10,092)	$	191,452

Balances, September 30, 2021		$	279	$	135,308	$	157,640	$	(7,544)	$	(17,385)	$	268,298
Net loss		—		—		(24,919)		—		—		(24,919)
Other comprehensive income		—		—		—		99		—		99
Exercise of stock options (19,550 shares)		—		(189)		—		—		388		199

Issuance of deferred shares (51,319 shares)		—		(1,018)		—		—		1,018		—
Treasury shares sold to Employee Stock Purchase Plan (6,078 shares)		—		(54)		—		—		121		67

Stock-based compensation expense	Stock-based compensation expense	—		1,866		—		—		—		1,866
Balances, December 31, 2021		$	279	$	135,913	$	132,721	$	(7,445)	$	(15,858)	$	245,610

Stock-based compensation expense
Balances, December 31, 2022


	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total
Balances, June 30, 2023	$	279	$	140,810	$	58,917	$	(8,769)	$	(9,753)	$	181,484
Net loss	—		—		(6,018)		—		—		(6,018)
Other comprehensive income	—		—		—		24		—		24


Issuance of restricted stock (297,026 shares)	—		(3,868)		—		—		3,868		—
Treasury shares sold to Employee Stock Purchase Plan (11,465 shares)	—		(59)		—		—		150		91

Treasury shares purchased to satisfy tax withholding obligations (55,324 shares)	—		—		—		—		(456)		(456)
Stock-based compensation expense	—		3,785		—		—		—		3,785
Balances, December 31, 2023	$	279	$	140,668	$	52,899	$	(8,745)	$	(6,191)	$	178,910

Balances, June 30, 2022	$	279	$	139,854	$	111,278	$	(8,175)	$	(15,530)	$	227,706
Net loss	—		—		(39,339)		—		—		(39,339)
Other comprehensive loss	—		—		—		(488)		—		(488)


Issuance of restricted stock (259,529 shares)	—		(5,149)		—		—		5,149		—
Treasury shares sold to Employee Stock Purchase Plan (30,144 shares)	—		(463)		—		—		599		136

Treasury shares purchased to satisfy tax withholding obligations (52,864 shares)	—		—		—		—		(310)		(310)
Stock-based compensation expense	—		3,747		—		—		—		3,747
Balances, December 31, 2022	$	279	$	137,989	$	71,939	$	(8,663)	$	(10,092)	$	191,452

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~~Table of Contents~~

Common
Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Balances, June 30, 2022 $ 279 $ 139,854 $ 111,278 $ (8,175) $ (15,530) $ 227,706
Net loss — — (39,339) — — (39,339)
Other comprehensive loss — — — (488) — (488)
Issuance of deferred shares (259,529 shares) — (5,149) — — 5,149 —
Treasury shares sold to Employee Stock Purchase Plan (30,144 shares) — (463) — — 599 136
Treasury shares purchased to satisfy tax withholding obligations (52,864 shares) — — — — (310) (310)
Stock-based compensation expense — 3,747 — — — 3,747
Balances, December 31, 2022 $ 279 $ 137,989 $ 71,939 $ (8,663) $ (10,092) $ 191,452
Balances, June 30, 2021 $ 279 $ 137,575 $ 175,178 $ (6,749) $ (20,744) $ 285,539
Net loss — — (42,457) — — (42,457)
Other comprehensive income loss — — — (696) — (696)
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 (13,287 shares) — (106) — — 249 143
Treasury shares purchased to satisfy tax withholding obligations (76,703 shares) — — — — (853) (853)
Stock-based compensation expense — 3,735 — — — 3,735
Balances, December 31, 2021 $ 279 $ 135,913 $ 132,721 $ (7,445) $ (15,858) $ 245,610

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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, ~~2022,~~2023, included in our Annual Report on Form 10-K for the year then ended. The results of operations for the three and six month periods ended December 31, ~~2022~~2023 may not necessarily be indicative of the results of operations for the full year ending June 30, ~~2023.~~2024.

Significant Accounting Policies

Our significant accounting policies are detailed in “Note 1 - Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended June 30, ~~2022.~~2023.

Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The update will be effective for annual periods beginning after December 15, 2023 (fiscal 2025). We are assessing the effect of this update on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024 (fiscal 2026). We are assessing the effect of this update on our consolidated financial statements and related disclosures.

Other accounting pronouncements issued but not effective until after December 31, 2023 are not expected to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

Note 2 – Revenue

Remaining Performance Obligations

We had ~~$574.6~~$749.4 million of remaining performance obligations yet to be satisfied as of December 31, ~~2022.~~2023. We expect to recognize ~~$432.8~~$437.1 million of our remaining performance obligations as revenue within the next twelve months.

Contract Balances

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

December 31,
2022 June 30,
2022 Change
(in thousands)
Costs and estimated earnings in excess of billings on uncompleted contracts $ 46,588 $ 44,752 $ 1,836
Billings on uncompleted contracts in excess of costs and estimated earnings (99,762) (65,106) (34,656)
Net contract liabilities $ (53,174) $ (20,354) $ (32,820)

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Table of Conten t s


	December 31, 2023		June 30, 2023		Change
	(In thousands)
Costs and estimated earnings in excess of billings on uncompleted contracts	$	40,426	$	44,888	$	(4,462)
Billings on uncompleted contracts in excess of costs and estimated earnings	(117,273)		(85,436)		(31,837)
Net contract liabilities	$	(76,847)	$	(40,548)	$	(36,299)

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 billings on the associated contract. The amount of revenue recognized during the six months ended December 31, ~~2022~~2023 that was included in the June 30, ~~2022~~2023 BIE balance was ~~$52.3~~$78.3 million. This revenue consists primarily of work performed during the period on contracts with customers that had advance billings.

~~-9-~~

~~Table of Contents~~

~~Matrix Service Company~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Progress billings in accounts receivable at December 31, ~~2022~~2023 and June 30, ~~2022~~2023 included retentions to be collected within one year of ~~$19.7~~$14.7 million and ~~$16.1~~$16.3 million, respectively. Contract retentions collectible beyond one year are included in other assets, non-current in the Condensed Consolidated Balance Sheets and totaled ~~$9.0~~$17.6 million as of December 31, ~~2022~~2023 and ~~$4.0~~$10.0 million as of June 30, ~~2022.~~2023.

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 $11.8 million at December 31, 2023 and $9.7 million at June 30, 2023. The amounts ultimately realized may be significantly different than the recorded amounts resulting in a material adjustment to future earnings. The determination of our legal basis for a claim requires significant judgment. Generally, collection of amounts related to unpriced change orders and claims is expected within twelve months. However, since customers may not pay these amounts until final resolution of related claims, collection of these amounts may extend beyond one year.

Disaggregated Revenue

Revenue disaggregated by reportable segment is presented in Note 109 - Segment Information. The following tables presents revenue disaggregated by geographic area where the work was performed and by contract type:

Geographic Disaggregation:




		Three Months Ended				Six Months Ended				Three Months Ended			Six Months Ended
		December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021			December 31, 2023	December 31, 2022		December 31, 2023	December 31, 2022
		(In thousands)									(In thousands)
United States	United States	$	170,290	$	145,917	$	346,470	$	299,201
Canada	Canada	20,885		15,260		45,810		28,770
Other international	Other international	2,665		788		9,991		2,087
Total Revenue	Total Revenue	$	193,840	$	161,965	$	402,271	$	330,058

Contract Type Disaggregation:


	Three Months Ended				Six Months Ended
	December 31, 2023		December 31, 2022		December 31, 2023		December 31, 2022
	(In thousands)
Fixed-price contracts	$	97,711	$	105,283	$	214,468	$	214,756
Time and materials and other cost reimbursable contracts	77,331		88,557		158,233		187,515
Total Revenue	$	175,042	$	193,840	$	372,701	$	402,271

Three Months Ended Six Months Ended
December 31,
2022 December 31,
2021 December 31,
2022 December 31,
2021
(In thousands)
Fixed-price contracts $ 105,283 $ 100,841 $ 214,756 $ 202,906
Time and materials and other cost reimbursable contracts 88,557 61,124 187,515 127,152
Total Revenue $ 193,840 $ 161,965 $ 402,271 $ 330,058

-9-

~~Typically, we assume more risk with fixed-price contracts since increases in costs to perform the work may not be recoverable. However, these types~~

Table 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.Conten t s

Revisions in Estimates

~~Subsequent~~During fiscal 2023, unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete and closeout certain midstream gas processing construction work in the ~~end~~Process and Industrial Facilities segment resulted in a reduction of gross profit of $9.6 million and $9.4 million during the three and six months ended December 31, 2022, respectively. This was primarily the result of the ~~second quarter of fiscal 2023, we received notice from a~~ client ~~that they would~~ not ~~approve~~approving adequate compensation to us for the impact that excessive scope changes had on our ability to progress the work ~~on a midstream gas processing project~~ according to forecast ~~as well as~~and for the ~~impact that~~impacts of global supply chain issues and inflation had on the project. The project is included in the Process and Industrial Facilities segment and reduced gross profit by $9.6 million and $9.4 million during the three and six months ended December 31, 2022, respectively. We have accrued the full expected loss for the project, which we expect to be mechanically complete in the fourth quarter of fiscal 2023.

~~-10-~~

inflation.

~~Table of Contents~~

~~Matrix Service Company~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Note 3 – Property, Plant and Equipment

Building Disposals

During the second quarter of fiscal 2024, we sold a facility in Catoosa, Oklahoma for $2.7 million in net proceeds, which resulted in a gain of $2.0 million. Proceeds were received in January 2024. The ~~following table presents the components of our property, plant and equipment - net at December 31, 2022 and June 30, 2022:~~

December 31,
2022 June 30,
2022
(In thousands)
Property, plant and equipment - at cost:
Land and buildings $ 36,391 $ 34,788
Construction equipment 91,954 93,036
Transportation equipment 48,908 48,999
Office equipment and software 41,984 43,823
Construction in progress 828 1,646
Total property, plant and equipment - at cost 220,065 222,292
Accumulated depreciation (169,381) (168,423)
Property, plant and equipment - net $ 50,684 $ 53,869

~~Note 4 – Leases~~

~~We enter into lease arrangements for real estate, construction equipment and information technology equipment~~gain was included in the normal course of business. Real estate leases accounted for approximately 98% of all right-of-use assets as of December 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 one year to 13 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~~Other income in the Condensed Consolidated Statements of ~~Income are~~Income. The facility was previously utilized for our industrial cleaning business, which was sold during the fourth quarter of fiscal 2023. The Catoosa, Oklahoma facility was closed as ~~follows:~~

Three Months Ended Six Months Ended
December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021
Lease expense Location of Expense (in thousands)
Operating lease expense Cost of revenue and Selling, general and administrative expenses $ 1,788 $ 1,878 $ 3,551 $ 3,970
Short-term lease expense(1)
Cost of revenue 7,534 5,292 14,817 10,863
Total lease expense $ 9,322 $ 7,170 $ 18,368 $ 14,833

~~(1)Primarily represents~~it was no longer strategic to the ~~lease expense~~future of ~~construction equipment that is subject to month-to-month rental agreements with expected rental durations of less than one year.~~the business.

~~-11-~~

~~Table~~During the first quarter 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~~fiscal 2024, we sold a previously utilized facility in ~~our Condensed Consolidated Balance Sheets, were as follows:~~


	~~December 31, 2022~~
~~Maturity Analysis:~~	~~(in thousands)~~
~~Remainder of Fiscal 2023~~	$	~~2,863~~
~~Fiscal 2024~~	~~5,634~~
~~Fiscal 2025~~	~~4,269~~
~~Fiscal 2026~~	~~4,246~~
~~Fiscal 2027~~	~~4,161~~
~~Thereafter~~	~~12,843~~
~~Total future operating lease payments~~	~~34,016~~
~~Imputed interest~~	~~(6,769)~~
~~Net present value of future lease payments~~	~~27,247~~
~~Less: current portion of operating lease liabilities~~	~~4,534~~
~~Non-current operating lease liabilities~~	$	~~22,713~~

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


~~Weighted-average remaining lease term (in years)~~	~~6.8 years~~
~~Weighted-average discount rate~~	~~6.1~~	%

~~Supplemental cash flow information related to leases is as follows:~~


	~~Six Months Ended~~
	~~December 31, 2022~~
	~~(in thousands)~~
~~Cash paid for amounts included in the measurement of lease liabilities:~~
~~Operating lease payments~~	$	~~3,617~~
~~Right-of-use assets obtained in exchange for lease liabilities:~~
~~Operating leases~~	$	~~5,219~~

~~Note 5 – Goodwill and Other Intangible Assets~~

~~Goodwill~~

~~The changes~~Burlington, Ontario for $2.7 million in ~~the carrying value of goodwill by segment are as follows:~~

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal Solutions Total
(In thousands)
Net balance at June 30, 2022 $ 4,263 $ 18,427 $ 19,445 $ 42,135
Goodwill impairment — (12,316) — (12,316)
Translation adjustment(1)
(29) — (57) (86)
Net balance at December 31, 2022 $ 4,234 $ 6,111 $ 19,388 $ 29,733

~~(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.

~~-12-~~

~~Table of Contents~~

~~Matrix Service Company~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~We performed our annual goodwill impairment test as of May 31, 2022,~~net proceeds, which resulted in ~~no impairment.~~a gain of $2.5 million. The fiscal 2022 test indicated that four reporting units with a combined total of $33.8 million of goodwill as of June 30, 2022 were at higher risk of future impairment. Recent negative operating results of one of our reporting units at higher risk of impairment indicated that itgain was ~~more likely than not that its goodwill was impaired. This reporting unit is~~included in Other income in the Process and Industrial Facilities segment and includes the midstream gas processing project referenced in Note 2 - Revenue, Revisions in Estimates, which experienced a material adverse change in gross profitCondensed Consolidated Statements of Income. We closed this previously utilized facility during the second quarter of fiscal ~~2023. Based on~~2023 because it was no longer strategic to the ~~indicated outcome~~future of ~~this project~~the business.

Note 4 – Goodwill

During the second quarter of fiscal 2023,we had indicators of a potential impairment and ~~our near-term outlook for the reporting unit, we~~ performed an interim impairment test ~~for~~within the ~~unit~~Process and Industrial Facilities segment. We concluded that its $12.3 million of goodwill was fully ~~impaired. The~~impaired and recognized the impairment ~~was recognized~~ in operating income during the three and six months ended December 31, 2022.

Based on the totality of both positive and negative factors, no impairment indicators related to the other reporting units existed at December 31, 2022. However, if our view of project opportunities or gross margins deteriorates, particularly for the remaining higher risk reporting units, then we may need to perform an interim goodwill impairment test, which could result in an impairment.

~~Other Intangible Assets~~

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

At December 31, 2022

Useful Life Gross Carrying
Amount Accumulated
Amortization Net Carrying
Amount
(Years) (In thousands)
Intellectual property 10 to 15 $ 2,483 $ (2,286) $ 197
Customer-based(1)
6 to 15 13,144 (9,410) 3,734
Total amortizing intangible assets $ 15,627 $ (11,696) $ 3,931

~~(1)Customer-based intangible assets have been adjusted in fiscal 2023 to remove $4.2 million of customer relationships that have been fully amortized.~~

At June 30, 2022
Useful Life Gross Carrying
Amount Accumulated
Amortization Net Carrying
Amount
(Years) (In thousands)
Intellectual property 10 to 15 $ 2,558 $ (2,276) $ 282
Customer-based 6 to 15 17,331 (12,817) 4,514
Total amortizing intangible assets $ 19,889 $ (15,093) $ 4,796

~~Amortization expense totaled $0.4 million and $0.9 million~~ We did not record any impairments during the three and six months ended December 31, ~~2022 and $0.4 million and $1.0 million during the three and six months ended December 31, 2021, respectively.~~2023.

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


~~Period ending:~~
~~Remainder of Fiscal 2023~~	$	~~864~~
~~Fiscal 2024~~	~~1,416~~
~~Fiscal 2025~~	~~1,096~~
~~Fiscal 2026~~	~~555~~

~~Total estimated remaining amortization expense at December 31, 2022~~	$	~~3,931~~

~~-13-~~

~~Table of Contents~~

~~Matrix Service Company~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Note 65 – Debt

On September 9, 2021, the Company and our primary U.S. and Canada operating subsidiaries entered into an asset-based credit agreement, which was amended on October 5, 2022 and December 29, 2023 (as amended, the "ABL Facility"), with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer, and the lenders named therein. The maximum amount of loans under the ABL Facility is limited to $90.0 million. The ABL ~~Facility~~Facility's available borrowings may be increased by an amount not to exceed $15.0 million, subject to certain conditions, including obtaining additional commitments. The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes. Our obligations under the ABL Facility are guaranteed by ~~us and~~ substantially all of our U.S. and Canadian subsidiaries and are secured by a first lien on all our assets and the assets of our co-borrowers and guarantors under the ABL Facility. The ABL Facility matures, and any outstanding amounts become due and payable, on September 9, 2026.

The maximum amount that we may borrow under the ABL Facility is subject to a borrowing base, which is based on restricted cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced for certain reserves. We are required to maintain a minimum of $25.0 million of restricted cash at all times, but such amounts are also included in the borrowing base. The ~~ABL Facility matures,~~borrowing base is recalculated on a monthly basis and ~~any outstanding amounts become due and payable, on September 9, 2026. At~~at December 31, ~~2022,~~2023, our borrowing base was ~~$83.2 million, we had $15.0 million of~~$69.1 million. During the quarter ended December 31, 2023, the Company repaid all outstanding borrowings ~~and we~~under the ABL Facility. The Company had ~~$19.2~~$10.0 million in letters of credit outstanding as of December 31, 2023, which resulted in availability of ~~$49.0~~$59.1 million under the ABL Facility.

Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate of either a base rate (“Base Rate”), an Adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR"), or at the Canadian Prime Rate, plus an applicable margin. The Adjusted Term SOFR is defined as (i) the SOFR plus (ii) 11.448 basis points for a one-month tenor and 26.161 basis points for a three-month tenor; provided that the Adjusted Term SOFR cannot be below zero. The Base Rate is defined as a fluctuating interest rate equal to the greater of: (i) rate of interest announced by Bank of Montreal from time to time as its prime rate; (ii) the U.S. federal funds rate plus 0.50%; (iii) Adjusted Term SOFR for one month period plus 1.00%; or (iv) 1.00%. Depending on the amount of average availability, the applicable margin is between 1.00% to 1.50% for Base Rate and Canadian Prime Rate borrowings, which includes either U.S. or Canadian prime rate, and between 2.00% and 2.50% for Adjusted Term SOFR borrowings. Interest is payable either (i) monthly for Base Rate or

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Table of Conten t s

Canadian Prime Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility. The fee for undrawn amounts is 0.25% per annum and is due quarterly. ~~The interest rate in effect for borrowings outstanding at December 31, 2022, including applicable margin, was 8.75%.~~

The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that restrict our ability to sell assets, engage in mergers and acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay cash dividends, issue equity instruments, make distribution or redeem or repurchase capital stock. In the event that our availability is less than the greater of (i) $15.0 million and (ii) 15.00% of the commitments under the ABL Facility then in effect, a consolidated Fixed Charge Coverage Ratio of at least 1.00 to 1.00 must be maintained. We were in compliance with all covenants of the ABL Facility as of December 31, ~~2022.~~2023.

Note 76 – Income Taxes

Effective Tax Rate

Our effective tax rates were zero ~~percent~~ for each of the three and six months ended December 31, ~~2022, compared to (78.7)%~~2023 and ~~(15.5)%~~2022. The effective tax rates during fiscal 2024 were impacted by valuation allowances of $1.2 million and $1.4 million placed on deferred tax assets during the three and six months ended December 31, ~~2021,~~2023, respectively. The effective tax rates during fiscal 2023 were impacted by valuation allowances of $8.4 million and $9.8 million placed on deferred tax assets during the three and six months ended December 31, 2022, respectively.

~~Full~~ Valuation Allowance

We placed a ~~full~~ valuation allowance on our deferred tax assets in the second quarter of fiscal 2022 due to the existence of a cumulative loss over a three-year period. We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided to the extent we generate taxable income in the ~~future, or cumulative losses are no longer present and our future projections for growth or tax planning strategies are demonstrated.~~

~~-14-~~

~~Table of Contents~~

~~Matrix Service Company~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Net Operating Loss Carryback Refund~~

Through provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the "CARES Act"), we had an income tax benefit from the ability to carryback the fiscal 2021 federal net operating loss to a period with a higher statutory federal income tax rate. We estimate that we will receive a $12.6 million tax refund in connection with this carryback, which is included in income taxes receivable in the Condensed Consolidated Balance Sheets.

~~Deferred Payroll Taxes~~

During the second quarter of fiscal 2023, we repaid the remaining $5.6 million of U.S. payroll taxes we deferred through provisions of the CARES Act. The balance of deferred payroll taxes was included within accrued wages and benefits in the Condensed Consolidated Balance Sheets.future.

Note 87 – Commitments and Contingencies

Insurance Reserves

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

Typically, our contracts require us to indemnify our customers for injury, damage or loss arising from the performance of our services and provide warranties for materials and workmanship. We may also be required to name the customer as an additional insured up to the limits of insurance available, or we may be required to purchase special insurance policies or surety bonds for specific customers or provide letters of credit in lieu of bonds to satisfy performance and financial guarantees on some projects. We maintain a performance and payment bonding line sufficient to support the business. We generally require our subcontractors to indemnify us and our customer and name us as an additional insured for activities arising out of the subcontractors’ work. We also require certain subcontractors to provide additional insurance policies, including surety bonds in favor of us, to secure the subcontractors’ work or as required by the subcontract.

There can be no assurance that our insurance and the additional insurance coverage provided by our subcontractors will fully protect us against a valid claim or loss under the contracts with our customers.

~~Unpriced Change Orders and Claims~~

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $18.2 million at December 31, 2022 and $8.9 million at June 30, 2022. The amounts ultimately realized may be significantly different than the recorded amounts resulting in a material adjustment to future earnings. The determination of our legal basis for a claim requires significant judgment. Generally, collection of amounts related to unpriced change orders and claims is expected within twelve months. However, since customers may not pay these amounts until final resolution of related claims, collection of these amounts may extend beyond one year.

~~Other~~Litigation

During ~~the third quarter of~~ fiscal 2020, we commenced litigation in an effort to collect ~~accounts~~an account receivable from an iron and steel customer on a reimbursable contract following the deterioration of the ~~relationship~~relationship. In connection with our suit, the customer filed certain counterclaims against us. In September 2023, a jury returned a verdict in our favor and awarded us the ~~second quarter~~full contract balance. We received full payment of $16.8 million in October 2023.

During fiscal ~~2020.~~2023, we completed cost reimbursable construction services for a customer at a mining and minerals facility. In late fiscal 2023, after numerous attempts to collect outstanding receivables, we filed a notice of default for lack of payment of outstanding balances, and in early fiscal 2024, we filed a lien on the facility. The ~~unpaid account~~customer responded by commencing litigation against us, alleging breach of contract and breach of express warranty. We deny all claims and filed a countersuit against the customer for failure to pay outstanding amounts of accounts receivable, ~~balance at~~which totaled $5.6 million as of December 31, ~~2022 was $17.0 million.~~2023. 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.

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Table of Conten t s

During fiscal 2022, we filed an arbitration demand in an effort to collect outstanding balances of $32.7 million from a customer for which we completed a crude oil storage terminal project. The customer has filed counterclaims for liquidated damages and miscellaneous warranty items. We deny all claims and believe we are entitled to collect the full amount owed under the contract. Our hearing for this matter is currently scheduled for October 2024.

We believe we have set appropriate reserves for the matters described above based on our evaluation of the possible outcomes of the litigation. We and our subsidiaries are participants in various other legal actions. It is the opinion of management that none of the other known legal actions will have a material impact on our financial position, results of operations or liquidity.

Note 98 – 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~~restricted stock shares. In the event we report a loss, ~~stock options and~~ nonvested ~~deferred~~restricted stock shares are not included since they are anti-dilutive.

~~-15-~~

~~Table of Contents~~

~~Matrix Service Company~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

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


		Three Months Ended				Six Months Ended				Three Months Ended			Six Months Ended
		December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021
	December 31, 2023										December 31, 2023	December 31, 2022		December 31, 2023	December 31, 2022
		(In thousands, except per share data)								(In thousands, except per share data)
Basic EPS:	Basic EPS:
Net loss
Net loss
Net loss	Net loss	$	(32,827)	$	(24,919)	$	(39,339)	$	(42,457)
Weighted average shares outstanding	Weighted average shares outstanding	26,999		26,749		26,916		26,680
Basic loss per share	Basic loss per share	$	(1.22)	$	(0.93)	$	(1.46)	$	(1.59)
Diluted EPS:	Diluted EPS:
Net loss	Net loss	$	(32,827)	$	(24,919)	$	(39,339)	$	(42,457)
Net loss
Net loss

Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	26,999		26,749		26,916		26,680

Diluted weighted average shares outstanding

Diluted weighted average shares outstanding
Diluted loss per share	Diluted loss per share	$	(1.22)	$	(0.93)	$	(1.46)	$	(1.59)

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

Three Months Ended

Six Months Ended

December 31,
2023

December 31,
2022

December 31,
2023

December 31,
2022

(In thousands)

Nonvested restricted stock shares

949

757

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Table of Conten t s

Note 109 – Segment Information

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

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

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

•Storage and Terminal Solutions: primarily consists of engineering, procurement, fabrication, and construction services related to cryogenic and other specialty tanks and terminals for LNG, NGLs, hydrogen, ammonia, propane, butane, liquid nitrogen/liquid oxygen, and liquid petroleum. We also perform work related to traditional aboveground crude oil and refined product storage tanks and terminals. WeThis segment also ~~include~~includes terminal balance of plant 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,~~facilities, and marine structures as well as storage tank and terminal maintenance and ~~repair, which includes planned and emergency services for both tanks and full terminals.~~repair. Finally, we ~~offer~~manufacture and sell precision engineered specialty tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

•Utility and Power Infrastructure: primarily consists of engineering, procurement, fabrication, and construction services to support growing demand for LNG utility peak shaving facilities. We also perform traditional electrical work for public and private utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, and upgrades and maintenance including live wire work. Work may also include emergency and storm restoration services. We also provide construction services to a variety of power generation facilities, including natural gas fired facilities in simple or combined cycle configurations.

•Process and Industrial Facilities: primarily consists of plant maintenance, repair, and turnarounds in the downstream and midstream markets for energy clients including refining and processing of crude oil, fractionating, and marketing of natural gas and natural gas liquids. We also perform engineering, procurement, fabrication, and construction for refinery upgrades and retrofits for renewable fuels. We also construct thermal vacuum test chambers for aerospace and defense industries and other infrastructure for industries including petrochemical, sulfur, mining and minerals primarily in the extraction of non-ferrous metals, cement, agriculture, wastewater treatment facilities and other industrial customers.

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

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Table of ~~Contents~~Conten t s

Matrix Service Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

Results of Operations

(In thousands)


		Three Months Ended				Six Months Ended				Three Months Ended		Six Months Ended
		December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021		December 31, 2023	December 31, 2022		December 31, 2023	December 31, 2022
Gross revenue	Gross revenue
Storage and Terminal Solutions
Storage and Terminal Solutions
Storage and Terminal Solutions
Utility and Power Infrastructure	Utility and Power Infrastructure	$	50,589	$	54,752	$	95,459	$	111,956
Process and Industrial Facilities	Process and Industrial Facilities	80,789		52,037		167,526		97,247
Storage and Terminal Solutions		63,130		57,607		140,420		125,919

Corporate
Total gross revenue	Total gross revenue	$	194,508	$	164,396	$	403,405	$	335,122
Less: Inter-segment revenue	Less: Inter-segment revenue
Storage and Terminal Solutions
Storage and Terminal Solutions
Storage and Terminal Solutions
Utility and Power Infrastructure	Utility and Power Infrastructure	$	54	$	—	$	54	$	—
Process and Industrial Facilities	Process and Industrial Facilities	—		1,721		109		3,026
Storage and Terminal Solutions		614		710		971		2,038

Corporate
Total inter-segment revenue	Total inter-segment revenue	$	668	$	2,431	$	1,134	$	5,064
Consolidated revenue	Consolidated revenue
Storage and Terminal Solutions
Storage and Terminal Solutions
Storage and Terminal Solutions
Utility and Power Infrastructure	Utility and Power Infrastructure	$	50,535	$	54,752	$	95,405	$	111,956
Process and Industrial Facilities	Process and Industrial Facilities	80,789		50,316		167,417		94,221
Storage and Terminal Solutions		62,516		56,897		139,449		123,881

Corporate
Corporate
Corporate
Total consolidated revenue	Total consolidated revenue	$	193,840	$	161,965	$	402,271	$	330,058
Gross profit (loss)	Gross profit (loss)
Storage and Terminal Solutions
Storage and Terminal Solutions
Storage and Terminal Solutions
Utility and Power Infrastructure	Utility and Power Infrastructure	$	2,426	$	(491)	$	4,139	$	(6,598)
Process and Industrial Facilities	Process and Industrial Facilities	(5,131)		4,235		(801)		7,106
Corporate
Total gross profit
Selling, general and administrative expenses
Storage and Terminal Solutions	Storage and Terminal Solutions	1,648		(172)		9,213		241
Corporate		(245)		(365)		(845)		(1,050)
Total gross profit (loss)		$	(1,302)	$	3,207	$	11,706	$	(301)
Selling, general and administrative expenses
Storage and Terminal Solutions
Storage and Terminal Solutions
Utility and Power Infrastructure	Utility and Power Infrastructure	$	1,787	$	3,150	$	3,525	$	6,200
Process and Industrial Facilities	Process and Industrial Facilities	3,682		2,792		7,752		5,554
Storage and Terminal Solutions		5,450		4,280		9,608		8,786
Corporate	Corporate	6,626		5,700		13,471		12,011
Total selling, general and administrative expenses	Total selling, general and administrative expenses	$	17,545	$	15,922	$	34,356	$	32,551
Goodwill impairment and restructuring costs
Goodwill impairment & restructuring costs
Storage and Terminal Solutions
Storage and Terminal Solutions
Storage and Terminal Solutions
Utility and Power Infrastructure	Utility and Power Infrastructure	$	—	$	37	$	37	$	46
Process and Industrial Facilities	Process and Industrial Facilities	12,698		(24)		13,012		(17)
Corporate
Total goodwill impairment & restructuring costs
Operating income (loss)
Storage and Terminal Solutions	Storage and Terminal Solutions	383		107		906		74
Corporate		513		575		926		1,197
Total goodwill impairment and restructuring costs		$	13,594	$	695	$	14,881	$	1,300
Operating income (loss)
Storage and Terminal Solutions
Storage and Terminal Solutions
Utility and Power Infrastructure	Utility and Power Infrastructure	$	639	$	(3,678)	$	577	$	(12,844)
Process and Industrial Facilities	Process and Industrial Facilities	(21,511)		1,467		(21,565)		1,569
Storage and Terminal Solutions		(4,185)		(4,559)		(1,301)		(8,619)
Corporate	Corporate	(7,384)		(6,640)		(15,242)		(14,258)
Total operating loss	Total operating loss	$	(32,441)	$	(13,410)	$	(37,531)	$	(34,152)

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Table of ~~Contents~~Conten t s

~~Matrix Service Company~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Total assets by segment were as ~~follows:~~follows (in thousands):


			December 31, 2022		June 30, 2022
		December 31, 2023					December 31, 2023	June 30, 2023
Storage and Terminal Solutions
Utility and Power Infrastructure	Utility and Power Infrastructure		$	89,480	$	94,059
Process and Industrial Facilities	Process and Industrial Facilities		119,401		104,078
Storage and Terminal Solutions			144,561		141,084
Corporate	Corporate		84,676		101,572
Total segment assets	Total segment assets		$	438,118	$	440,793

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Table of Conten t s

Note 1110 – Restructuring Costs

In fiscal 2020, we initiated a business improvement plan to increase profitability and reduce our cost structure in order to help us become more competitive and deliver higher quality service. As a result of specific events, including the effects of the COVID-19 pandemic and related market disruptions, the Company expanded its business improvement plan.

The business improvement plan ~~consists~~consisted of an initial phase of discretionary cost reductions, workforce reductions, reduction of capital expenditures and the reduction in size or closure of certain offices in order to increase the utilization of our staff and bring the cost structure of the business in line with revenue volumes. In fiscal 2022, we commenced a second phase of our plan to focus on centralization of support functions, including business development, accounting, human resources, procurement and project services into shared service centers. During the ~~second quarter~~three and six months ended December 31, 2022, we incurred restructuring costs of ~~fiscal 2023, we closed an underperforming office~~$1.3 million and ~~ceased its associated operations, which resulted in $0.7~~$2.6 million, ~~of restructuring costs. We expect to complete these restructuring efforts in fiscal 2023 or early fiscal 2024.~~respectively. The restructuring costs ~~consist~~were primarily ofrelated to severance ~~costs, facility closure costs, consulting fees~~ and other ~~liabilities.~~

personnel-related costs in connection with the second phase of our plan as well as the closure of an underperforming operating location. Our restructuring efforts were substantially complete as of June 30, 2023.

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~~Table of Contents~~

~~Matrix Service Company~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

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

Three Months Ended Six Months Ended Since Inception of Business Improvement Plan
December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021
(In thousands)
Utility and Power Infrastructure
Severance and other personnel-related costs $ — $ 36 $ 37 $ 45 $ 2,621
Facility costs — — — — 348
Other intangible asset impairments — — — — 1,150
Other costs — 1 — 1 1
Total Utility and Power Infrastructure $ — $ 37 $ 37 $ 46 $ 4,120
Process and Industrial Facilities
Severance and other personnel-related costs $ 354 $ (27) $ 666 $ (22) $ 9,762
Facility costs — 1 2 1 3,208
Other intangible asset impairments — — — — 375
Other costs 28 2 28 4 (1,143)
Total Process and Industrial Facilities $ 382 $ (24) $ 696 $ (17) $ 12,202
Storage and Terminal Solutions
Severance and other personnel-related costs $ 379 $ 102 $ 902 $ 69 $ 2,548
Facility costs — — — — 879
Other costs 4 5 4 5 32
Total Storage and Terminal Solutions $ 383 $ 107 $ 906 $ 74 $ 3,459
Corporate
Severance and other personnel-related costs $ 311 $ — $ 708 $ 44 $ 2,295
Facility costs 126 — 126 16 224
Other costs 76 575 92 1,137 1,677
Total Corporate $ 513 $ 575 $ 926 $ 1,197 $ 4,196
Restructuring Costs by Type:
Severance and other personnel-related costs $ 1,044 $ 111 $ 2,313 $ 136 $ 17,226
Facility costs 126 1 128 17 4,659
Other intangible asset impairments — — — — 1,525
Other costs 108 583 124 1,147 567
Total restructuring costs $ 1,278 $ 695 $ 2,565 $ 1,300 $ 23,977

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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:

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

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

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

•the impact to our business from economic, market or business conditions in general and in the ~~oil,~~ natural gas, power, oil, petrochemical, agricultural and mining industries in particular;

•the impact of inflation on our operating expenses and our business operations;

•the likely impact of new or existing regulations or market forces on the demand for our services;

•the impact to our business from disruptions to supply chains, inflation and availability of materials and labor;

•our expectations with respect to the likelihood of a future impairment;

•our expectations regarding pending litigation; and

•expansion and other trends of the industries we serve.

These statements are based on certain assumptions and analyses we made in light of our experience and our historical trends, current conditions and expected future developments as well as other factors we believe are appropriate. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ materially from our expectations, including:

•any risk factors discussed in this Form 10-Q, Form 10-K for the fiscal year ended June 30, ~~2022,~~2023, and in our other filings with the Securities and Exchange Commission;

•economic, market or business conditions in general and in the ~~oil,~~ natural gas, power, oil, petrochemical, agricultural and mining industries in particular;

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

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

•delays in the commencement or progression of major projects, whether due to permitting issues or other factors;

•reduced creditworthiness of our customer base and the higher risk of non-payment of receivables;

•the inherently uncertain outcome of current and future litigation;

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

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

Consequently, all of the forward-looking statements made in this 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

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update publicly, except as required by law, any such forward-looking statements, whether as a result of new information, future events or otherwise.

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~~Table of Contents~~

RESULTS OF OPERATIONS

Overview

Operational Update

~~Project award volumes~~During the second quarter of fiscal 2024, we continued to ~~improve from~~make progress on efforts to position the ~~two-year~~company for profitable growth. Another quarter of strong project awards contributed to a total of $1.4 billion of project awards in the last 12 months, and the highest backlog in the company's history. Many of these project awards are large construction projects that will generate revenues over a multi-year period ~~impacted~~with expected gross margins at our pre-pandemic historical gross margin range. While the time to convert these awards to revenue is dependent on a variety of factors, many outside of our control, we expect modest growth in the third quarter of this fiscal year, and a substantial recovery of revenues in the fourth quarter and beyond. We have also improved project execution, resulting in strong direct gross margins in all three of our segments. We tightly managed costs, with selling, general and administrative expenses at their lowest level since 2014. These efforts have produced a cost structure that we expect to leverage for enhanced gross margins and operating income as revenue volumes return. We have also closely managed our balance sheet. During the second quarter of fiscal 2024, we repaid all outstanding borrowings on our ABL Facility while simultaneously growing our cash balance by $19.8 million. The result is a strong financial position, which will provide the ~~pandemic.~~ foundation for future growth. The combination of these factors positions the company for significantly improved financial performance in the near term.

Backlog

We define backlog as the total dollar amount of revenue that we expect to recognize as a result of performing work that has been awarded to us through a signed contract, limited notice to proceed ("LNTP") or other type of assurance that we consider firm. The following arrangements are considered firm:

•fixed-price awards;

•minimum customer commitments on cost plus arrangements; and

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•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 ~~$318.7~~a LNTP, we include the entire scope of work in our backlog if we conclude that the likelihood of the full project proceeding is probable. For all other arrangements, we calculate backlog as the estimated contract amount less revenue recognized as of the reporting date.

The following table provides a summary of changes in our backlog for the three months ended December 31, 2023:


	Storage and Terminal Solutions		Utility and Power Infrastructure		Process and Industrial Facilities		Total
	(In thousands)
Backlog as of September 30, 2023	$	595,160	$	450,212	$	344,461	$	1,389,833
Project awards	125,249		41,374		64,176		230,799


Revenue recognized	(62,360)		(40,144)		(71,305)		(173,809)
Backlog as of December 31, 2023	$	658,049	$	451,442	$	337,332	$	1,446,823
Book-to-bill ratio(1)	2.0		1.0		0.9		1.3

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

The following table provides a summary of changes in our backlog for the six months ended December 31, 2023:


	Storage and Terminal Solutions		Utility and Power Infrastructure		Process and Industrial Facilities		Total
	(In thousands)
Backlog as of June 30, 2023	$	270,659	$	459,518	$	359,921	$	1,090,098
Project awards	539,894		64,463		123,836		728,193


Revenue recognized	(152,504)		(72,539)		(146,425)		(371,468)
Backlog as of December 31, 2023	$	658,049	$	451,442	$	337,332	$	1,446,823
Book-to-bill ratio(1)	3.5		0.9		0.8		2.0

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

In the Storage and Terminal Solutions segment, we booked $125.2 million of project awards during the second quarter of fiscal 2024. Included in project awards was scope growth on an existing LNG storage construction project award, and a tank and terminal construction project. During the six months ended December 31, 2023, we booked $539.9 million of project awards, which isincluded a significant LNG storage construction project. This segment includes significant opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, hydrogen, NGLs and other forms of renewable energy. We believe LNG and hydrogen projects will be key growth drivers for this segment. Bidding activity on LNG projects has been strong.

In the ~~highest quarterly award amount since the first quarter~~Utility and Power Infrastructure segment, we booked $41.4 million of ~~fiscal 2020. However, subsequent to the end of~~project awards during the second quarter of fiscal 2024. Included in project awards was a significant power delivery construction project. During the six months ended December 31, 2023, we ~~received notice from a client that they would not approve adequate compensation to us~~booked $64.5 million of project awards. Project opportunities and bidding activity are strong for both the ~~impact that excessive scope changes had on our ability to progress work on a midstream gas processing project according to forecast, as well as for~~power delivery portion of the ~~impact that global supply chain issues~~business and ~~inflation had on the project. The project is included in~~LNG peak shaving.

In the Process and Industrial Facilities segment, ~~and reduced gross profit~~backlog decreased by ~~$9.6~~2.1% as we booked $64.2 million ~~during the quarter. We have accrued the full expected loss for the~~of project ~~which we expect to be mechanically complete in the fourth quarter of fiscal 2023.~~

~~Revenue of $193.8 million~~awards during the second quarter of fiscal ~~2023 was lower than revenue of $208.4 million~~2024. Project awards during the ~~first~~ quarter were driven by contract growth on a refinery retrofit project at a biodiesel facility and spending related to refinery maintenance and turnaround operations. During the six months ended December 31, 2023, we booked $123.8 million of ~~fiscal~~project awards. We continue to see increasing opportunities in mining and minerals, chemicals, aerospace, and renewables. In addition, we are pursuing opportunities for hydrogen and carbon capture projects across a number of different markets.

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Project awards in all segments are cyclical and are typically the result of a sales process that can take several months or years to complete. It is common for awards to shift from one period to another as the timing of awards is dependent upon a number of factors including changes in market conditions, permitting, off take agreements, project financing and other factors. Backlog volatility may increase for some segments from time to time when individual project awards are less frequent, but more significant. There is an inherent lag between the time a project is awarded and when it begins to have a material impact on revenue. In some cases, this lag can be between three and six months or longer, depending on finalization of scopes, contracts, permits, and facility process requirements. Additionally, awards for larger construction projects may be recognized as revenue over a multi-year period as the projects may take a few years to complete.

Three months ended December 31, 2023 ~~as certain projects awarded in prior periods are working off while~~Compared to the ~~newly awarded projects' contribution~~Three months ended December 31, 2022

Consolidated

Consolidated revenue was $175.0 million for the three months ended December 31, 2023, compared to ~~revenue is limited as they progress through contract finalization, engineering, and planning stages. Revenue levels were also lower than expected as a large LNG project that was expected to be awarded~~$193.8 million in the ~~first half of fiscal 2023 has not been awarded~~same period last year. The decrease was primarily related to the Process and ~~award timing is unknown. Lastly, normal seasonality resulted in lower volumes of work as we moved through the quarter. We are anticipating revenue volumes~~Industrial Facilities and Utility Power and Infrastructure segments, which decreased by $9.5 million and $10.4 million, respectively.

Consolidated gross profit increased to $10.6 million in the ~~third quarter~~three months ended December 31, 2023 compared to a gross loss of ~~fiscal 2023 to be relatively unchanged from the second quarter of fiscal 2023 and to increase meaningfully~~$1.3 million in the ~~fourth quarter of fiscal 2023 as newly awarded projects enter the revenue stream.~~

same period last year. Gross margin (loss) ~~was (0.7%)~~increased to 6.0% in the three months ended December 31, 2023 compared to (0.7)% in the same period last year. Gross margins in the second quarter of fiscal ~~2023 compared to 6.2% in the first quarter of fiscal 2023. Our results of operations~~2024 were ~~materially~~positively impacted by strong project execution partially offset by the ~~$9.6 million project adjustment referenced above.~~under-recovery of construction overhead costs. Gross margins ~~during~~in the second quarter of fiscal 2023 were also negatively impacted by the ~~under recovery~~under-recovery of construction overhead costs, ~~due~~as well as unfavorable changes in the estimated recovery of change orders and increased forecasted costs to ~~lower revenue~~complete certain midstream gas processing projects, and continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Consolidated SG&A expenses were $15.7 million in the three months ended December 31, 2023 compared to $17.5 million in the same period last year. SG&A expenses continue to benefit from the Company's cost control measures. In addition, the timing of project pursuits resulted in lower pursuit costs in the quarter ended December 31, 2023. We remain active in the market as we pursue additional project opportunities.

In the prior year quarter ended December 31, 2022, we recorded a goodwill impairment of $12.3 million. We did not have any goodwill impairment in the quarter based upon the improved market and performance outlook. See Item 1. Financial Statements, Note 4 - Goodwill, for more information about the impairment.

The Company did not incur any restructuring costs during the second quarter of fiscal 2024. During the second quarter of fiscal 2023, we closed an underperforming office and ceased its associated operations, which resulted in $1.3 million of restructuring costs. See Item 1. Financial Statements, Note 10 - Restructuring Costs, for more information about our business improvement plan. Our restructuring efforts were substantially complete as of June 30, 2023.

Interest expense was $0.3 million in the three months ended December 31, 2023 compared to $0.9 million in the three months ended December 31, 2022. Interest expense in the three months ended December 31, 2023 and December 31, 2022 consisted primarily of interest on debt outstanding, unused capacity fees, amortization of deferred debt issuance costs, letter of credit fees and other interest. Interest expense decreased due to the repayment of borrowing under the ABL credit facility during the second quarter of fiscal 2024.

Other income during the three months ended December 31, 2023 included a gain of $2.0 million on the sale of a facility in Catoosa, Oklahoma. We received $2.7 million in net proceeds from the sale. The proceeds were received in January 2024. The facility was previously utilized for our industrial cleaning business, which was sold during the fourth quarter of fiscal 2023. This completes the divestiture and closure of a non-core service offering of the business as part of our strategy to focus the business on core markets.

Our effective tax rates for the three months ended December 31, 2023 and December 31, 2022 were zero. The effective tax rates during both periods were impacted by valuation allowances of $1.2 million and $8.4 million, respectively, placed on deferred tax assets generated during the quarters. We placed a valuation allowance on our deferred tax assets due to the existence of a cumulative loss over a three-year period. We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided to the extent we generate taxable income in the future.

For the three months ended December 31, 2023, we had a net loss of $2.9 million, or $0.10 per fully diluted share, compared to a net loss of $32.8 million, or $1.22 per fully diluted share, in the three months ended December 31, 2022.

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Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $62.4 million in the three months ended December 31, 2023 compared to $62.5 million in the same period last year. The revenue volume in the recent quarter was impacted by low levels of material procurement on recently awarded projects. The Company expects higher revenue volume as it moves through the remainder of fiscal 2024 and into fiscal 2025 as it transitions recent large specialty storage project awards through contracting, project planning and mobilization.

The segment gross margin was 2.9% for the three months ended December 31, 2023 compared to a gross margin of 2.6% in the same period last year. Strong direct margins during the quarter were offset by under-recovery of construction overhead costs. We have allocated additional resources to this segment to support recent awards and anticipated higherrevenue volume in the second half of fiscal 2024. We expect continued award strength in this segment in the next two quarters that will increase revenue volumes and provide more stability in future quarters. With revenue increases in this segment, we expect to reach full recovery of construction overhead costs in the fourth quarter of fiscal 2024.

Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was $40.1 million in the three months ended December 31, 2023 compared to $50.5 million in the same period last year. The decrease is primarily due to lower volumes of power delivery and power generation work. The Company expects higher revenue volume as it moves through the remainder of fiscal 2024 and into fiscal 2025 as it transitions recent large LNG peak shaver project awards through contracting, project planning and mobilization.

The segment gross margin was 3.5% in the second quarter of fiscal 2024 compared to a gross margin of 4.8% in the same period last year. In the current quarter, strong project execution in this segment was offset by under-recovery of construction overhead costs due to lower revenue volumes. The segment gross margin in the second quarter of fiscal 2023 was negatively impacted by previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $71.3 million in the three months ended December 31, 2023 compared to $80.8 million in the same period last year. Decreases in revenue volumes from midstream gas processing, industrial cleaning, and mining and minerals work were partially offset by increases in work for a renewable energy facility and thermal vacuum chambers.

The segment gross margin (loss) was 9.4% for the three months ended December 31, 2023 compared to (6.4)% in the same period last year. Project execution improved in the second quarter of fiscal 2024 resulting in a significantly improved gross margin despite the lower revenue volume. The segment gross margin (loss) in the second quarter of fiscal 2023 was negatively impacted by unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete certain midstream gas processing construction work. The project reduced gross profit by $9.6 million during the three months ended December 31, 2022. The segment gross margin (loss) in the second quarter of fiscal 2023 was also negatively impacted by the under recovery of construction overhead costs and continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Corporate

Unallocated corporate revenue and expenses were $6.5 million during the three months ended December 31, 2023 compared to $7.4 million in the same period last year. The decrease was primarily due to the favorable resolution of a long-standing legal dispute with an iron and steel customer, which resulted in the recognition of $1.2 million of revenue.

Six Months Ended December 31, 2023 Compared to the Six Months Ended December 31, 2022

Consolidated

Consolidated revenue was $372.7 million for the six months ended December 31, 2023, compared to $402.3 million in the same period last year. On a segment basis, revenue decreased in the Utility and Power Infrastructure and Process and Industrial Facilities segments by $22.9 million and $21.0 million, respectively. These decreases were partially offset by a $13.1 million increase in revenue in the Storage and Terminal Solutions segment.

Consolidated gross profit increased to $22.4 million in the six months ended December 31, 2023 compared to a gross profit of $11.7 million in the same period last year. Gross margin increased to 6.0% in the six months ended December 31, 2023 compared to a gross margin of 2.9% in the same period last year. Gross margins in the first six months of fiscal 2024 were

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positively impacted by strong project execution, partially offset by the under-recovery of construction overhead costs. We expect this under-recovery to be temporary as we have maintained overhead resources at levels needed to support higher revenue volumes in the fourth quarter of fiscal 2024. Gross margins in the first six months of fiscal 2023 were also negatively impacted by the under-recovery of construction overhead costs, as well as unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete certain midstream gas processing projects, continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Consolidated SG&A expenses were $32.8 million in the six months ended December 31, 2023 compared to $34.4 million in the same period last year. Consolidated SG&A expenses for the first half of fiscal 2024 continue to benefit from the Company's cost control measures, with lower costs in a number of categories, including pursuit costs, salaries, professional fees, depreciation, and rent. These decreases were partially offset by an additional $1.9 million of expense associated with the variable accounting for cash-settled stock-based compensation, which increased due to a higher stock price.

In the prior year period ended December 31, 2022, we recorded a goodwill impairment of $12.3 million. We did not have any goodwill impairment in the current period based upon the improved market and performance outlook. See Item 1. Financial Statements, Note 4 - Goodwill, for more information about the impairment.

The Company did not incur any restructuring costs during the six months ended December 31, 2023. During the six months ended December 31, 2022, we incurred $2.6 million of restructuring costs, which included severance and other personnel-related costs in connection with our restructuring plan. Additionally, we closed an underperforming office and ceased its associated operations, which resulted in $0.7 million of restructuring costs. See Item 1. Financial Statements, Note 10 - Restructuring Costs, for more information about our business improvement plan. Our restructuring efforts were substantially complete as of June 30, 2023.

Interest expense was $0.6 million in the six months ended December 31, 2023 compared to $1.3 million in the six months ended December 31, 2022. Interest expense in both periods consisted primarily of interest on debt outstanding, unused capacity fees, amortization of deferred debt issuance costs and letter of credit fees. Interest expense decreased due to lower average outstanding borrowings.

Other income during the six months ended December 31, 2023, included a gain of $2.0 million from the sale of a facility in Catoosa, Oklahoma for $2.7 million in net proceeds. The proceeds were received in January 2024. The facility was previously utilized for our industrial cleaning business, which was sold during the fourth quarter of fiscal 2023. Additionally, in the first quarter of fiscal 2024, we recognized a gain of $2.5 million on the sale of a previously utilized facility in Burlington, Ontario. We received $2.7 million in net proceeds from the sale. We closed this previously utilized facility during the second quarter of fiscal 2023 because it was no longer strategic to the future of the business.

Our effective tax rates for the six months ended December 31, 2023 and December 31, 2022 were zero. The effective tax rates during both periods were impacted by valuation allowances of $1.4 million and $9.8 million, respectively, placed on deferred tax assets generated during the quarters. We placed a valuation allowance on our deferred tax assets in the second quarter of fiscal 2022 due to the existence of a cumulative loss over a three-year period. We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided to the extent we generate taxable income in the future.

For the six months ended December 31, 2023, we had a net loss of $6.0 million or $0.22 per fully diluted share, compared to a net loss of $39.3 million, or $1.46 per fully diluted share, in the six months ended December 31, 2022.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $152.5 million in the six months ended December 31, 2023 compared to $139.4 million in the same period last year. The increase in segment revenue is primarily a result of work on large construction projects awarded in the previous fiscal year, partially offset by lower volumes of work on tanks and terminals projects.

The segment gross margin was 4.5% for the six months ended December 31, 2023 compared to a gross margin of 6.6% in the same period last year. Strong direct margins during the period were offset by under-recovery of construction overhead costs. We have allocated additional resources to this segment to support recent awards and additional revenue in the fourth quarter of fiscal 2024. As these revenues increase, we expect to reach full recovery of construction overhead costs in the second half of fiscal 2024. The fiscal 2023 segment gross margin was positively impacted by strong project execution, partially offset by low revenue volume, which led to under-recovery of construction overhead costs.

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Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was $72.5 million in the six months ended December 31, 2023 compared to $95.4 million in the same period last year. The decrease is primarily due to a decrease in of power generation and power delivery work.

The segment gross margin was 7.0% for the six months ended December 31, 2023 compared to a gross margin of 4.3% in the same period last year. The segment gross margin for the first half of fiscal 2024 was positively impacted by strong project execution which led to favorable project closeouts. This was partially offset by the under-recovery of construction overhead costs due low revenue volumes. The segment gross margin for second quarter ended December 31, 2023 was negatively impacted by previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $146.4 million in the six months ended December 31, 2023 compared to $167.4 million in the same period last year. Decreases in revenue volumes from midstream gas processing, industrial facilities, mining and minerals, and refinery turnarounds work were partially offset by increases in work for a renewable energy facility and thermal vacuum chambers.

The segment gross margin was 8.0% for the six months ended December 31, 2023 compared to a gross loss of (0.5)% in the same period last year. Project execution was significantly improved in the second quarter of fiscal 2024 resulting in a significantly improved gross margin despite the lower revenue volume. The segment gross margin in the first half of fiscal 2024 was negatively impacted by the under-recovery of construction overhead costs due to low revenue volume. Otherwise, project execution was generally strong in this segment including the completion of a midstream gas processing project in line with our previous forecast. The segment gross margin in the first half of fiscal 2023 was negatively impacted by work on a midstream gas processing project that experienced increases in forecasted costs to complete in the prior year, which reduced the remaining margin realized on the project. In addition, low revenue volumes resulted in under-recovery of construction overhead costs, which negatively impacted segment gross margin.

Corporate

Unallocated corporate revenues and expenses were $16.3 million during the six months ended December 31, 2023 compared to $15.2 million in the same period last year. The increase was primarily due to higher cash-settled stock-based compensation due to an increase in the price of our stock and legal costs related to a jury trial that resulted in a verdict in our favor, partially offset by the recognition of $1.2 million of revenue due to the favorable resolution of that dispute, see Note 7 - Commitments and Contingencies, Litigation, for more information.

Non-GAAP Financial Measures

Adjusted Net Loss

We have presented Adjusted net loss, which we define as Net loss before restructuring costs, gain on sale of assets, and the tax impact of these adjustments, because we believe it better depicts our core operating results. 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 net loss. Since Adjusted net loss 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 loss as an indicator of operating performance. Adjusted net loss, 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 net loss 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 net loss, has certain material limitations as follows:

•It does not include impairments to goodwill. While impairments to intangible assets are non-cash expenses in the period recognized, cash or other consideration was still transferred in exchange for the intangible assets in the period of the acquisition. Any measure that excludes impairments to intangible assets has material limitations since these expenses represent the loss of an asset that was acquired in exchange for cash or other assets.

•It does not include restructuring costs. Restructuring costs represent material costs that were incurred and are oftentimes cash expenses. Therefore, any measure that excludes restructuring costs has material limitations.

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•It does not include gain on the sale of assets. While these sales occurred outside the normal course of business, any measure that excludes this gain has inherent limitations since the sales resulted in material inflows of cash.

A reconciliation of Net loss to ~~more clearly depict our core profitability, the following tables present our operating results after certain adjustments:~~Adjusted net loss follows:

Reconciliation of Net Loss to Adjusted Net Loss(1)

(In thousands, except per share data)


			Three Months Ended				Six Months Ended
			December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021
		Three Months Ended										Three Months Ended			Six Months Ended
		December 31, 2023									December 31, 2023		December 31, 2022	December 31, 2023		December 31, 2022
Net loss, as reported	Net loss, as reported		$	(32,827)	$	(24,919)	$	(39,339)	$	(42,457)
Goodwill impairment	Goodwill impairment		12,316		—		12,316		—
Restructuring costs	Restructuring costs		1,278		695		2,565		1,300
Accelerated amortization of deferred debt amendment fees(2)			—		—		—		1,518
Tax impact of goodwill impairment, restructuring costs and accelerated amortization of debt amendment fees			(3,499)		(179)		(3,830)		(725)
Deferred tax asset valuation allowance(3)			8,370		14,198		9,764		14,198
Gain on sale of assets(2)

Tax impact of adjustments(3)
Tax impact of adjustments(3)
Tax impact of adjustments(3)

Adjusted net loss
Adjusted net loss
Adjusted net loss	Adjusted net loss		$	(14,362)	$	(10,205)	$	(18,524)	$	(26,166)

Loss per share, as reported	Loss per share, as reported		$	(1.22)	$	(0.93)	$	(1.46)	$	(1.59)
Loss per share, as reported
Loss per share, as reported
Adjusted loss per share	Adjusted loss per share		$	(0.53)	$	(0.38)	$	(0.69)	$	(0.98)

(1)~~This table presents non-GAAP financial measures~~Beginning with the first quarter of ~~our adjusted~~fiscal 2024, the definition of Adjusted net loss and ~~adjusted~~Adjusted loss per share ~~for~~was updated to no longer include changes in the ~~three and six months ended December 31, 2022 and 2021. The most directly comparable financial measures are~~valuation allowance of deferred tax assets. Prior period information has been adjusted to conform to the updated definition of Adjusted net loss and Adjusted loss per 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 loss per 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.share.

(2)~~Interest expense~~Represents gain on the sale of our Burlington, ON office in ~~fiscal 2022 included $1.5 million~~the first quarter of ~~accelerated amortization~~FY24 and the gain on the sale of ~~deferred debt amendment fees.~~our Catoosa, OK facility in the second quarter of FY24. See Item 1, Note 3 - Property, Plant and Equipment, Building Disposals, for more information.

(3)~~See Item 1. Financial Statements, Note 7 - Income Taxes, for more information about~~Represents the tax impact of the adjustments to Net loss, calculated using the applicable effective tax rate of the adjustment, including the impacts related to our valuation allowance on deferred tax ~~asset valuation allowance.~~

assets.

Adjusted EBITDA

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

•It does not include gain on the sale of assets. While this sale occurred outside the normal course of business, any measure that excludes this gain has inherent limitations since the sale resulted in a material inflow of cash.

•It does not include equity-settled stock-based ~~compensation.~~compensation expense. 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 historically release vested shares out of our treasury stock, which has ~~historically~~ been replenished by

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using cash to periodically repurchase our stock. Therefore, any measure that excludes stock-based compensation has material limitations.

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•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.~~

•~~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 Net loss to Adjusted EBITDA ~~to net loss~~ follows:


		Three Months Ended				Six Months Ended				Three Months Ended		Six Months Ended
		December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021		December 31, 2023	December 31, 2022		December 31, 2023	December 31, 2022
		(In thousands)								(In thousands)
Net loss	Net loss	$	(32,827)	$	(24,919)	$	(39,339)	$	(42,457)
Goodwill impairment	Goodwill impairment	12,316		—		12,316		—
Restructuring costs	Restructuring costs	1,278		695		2,565		1,300
Gain on sale of assets(1)
Stock-based compensation(2)	Stock-based compensation(2)	1,692		1,866		3,747		3,735
Interest expense	Interest expense	916		502		1,288		2,501
Provision for federal, state and foreign income taxes		—		10,976		—		5,711
Provision (benefit) for federal, state and foreign income taxes
Depreciation and amortization	Depreciation and amortization	3,535		3,789		7,177		7,841
Adjusted EBITDA	Adjusted EBITDA	$	(13,090)	$	(7,091)	$	(12,246)	$	(21,369)

(1)

~~Three Months Ended December 31, 2022 Compared to~~Represents gain on the ~~Three Months Ended December 31, 2021~~

~~Consolidated~~

~~Consolidated revenue was $193.8 million for the three months ended December 31, 2022, compared to $162.0 million~~sale of our Burlington, ON office in the ~~same period last year. On a segment basis, revenue increased in~~first quarter of FY24 and the ~~Process and Industrial Facilities and Storage and Terminal Solutions segments by $30.5 million and $5.6 million, respectively. The increases were partially offset by a decrease in revenue~~gain on the sale of ~~$4.2 million in the Utility and Power Infrastructure segment.~~

Consolidated gross profit decreased to a loss of $1.3 million in the three months ended December 31, 2022 compared to a gross profit of $3.2 million in the same period last year. Gross margin (loss) decreased to (0.7%) in the three months ended December 31, 2022 compared to 2.0% in the same period last year. Gross marginsour Catoosa, OK facility in the second quarter of fiscal 2023 were negatively impacted by a client not approving adequate compensation to us for the impact that excessive scope changes had on our ability to progress work on a midstream gas processing project according to forecast, as well as for the impact that global supply chain issues and inflation had on the project. The project reduced gross profit by $9.6 million during the three months ended December 31, 2022. We have accrued the full expected loss for the project, which we expect to be mechanically complete in the fourth quarter of fiscal 2023. In addition, gross margins during the second quarter of fiscal 2023 were negatively impacted by the under recovery of construction overhead costs, continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period, and increased forecasted costs to complete a smaller capital storage project. While we are still not fully recovering construction overhead costs, higher revenue volumes in fiscal 2023 have resulted in improved overhead cost recovery. Gross margins in the second quarter of fiscal 2022 were negatively impacted by low revenue volumes, which led to the under recovery of construction overhead costs, and by a lower than previously forecasted margin on a tank repair and maintenance project in the Storage and Terminal Solutions segment.

Consolidated SG&A expenses were $17.5 million in the three months ended December 31, 2022 compared to $15.9 million in the same period last year. The increase was primarily attributable to higher project pursuit costs and other costs to support higher revenue volumes.

~~We recorded a goodwill impairment of $12.3 million in the three months ended December 31, 2022.~~FY24. See Item ~~1. Financial Statements,~~1, Note 53 - ~~Goodwill~~Property, Plant and ~~Other Intangible Assets, Goodwill,~~Equipment, Building Disposals, for more ~~information about the impairment.~~

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information.

~~Table~~(2)Represents only the equity-settled portion of ~~Contents~~our stock-based compensation expense.

We recorded restructuring costs of $1.3 million in the three months ended December 31, 2022 compared to $0.7 million in the same period last year. During the second quarter of fiscal 2023, we closed an underperforming office and ceased its associated operations, which resulted in $0.7 million of restructuring costs. See Item 1. Financial Statements, Note 11 - Restructuring Costs, for more information about our business improvement plan.

Interest expense was $0.9 million in the three months ended December 31, 2022 compared to $0.5 million in the three months ended December 31, 2021. Interest expense in the three months ended December 31, 2022 consisted primarily of interest on debt outstanding, unused capacity fees, amortization of deferred debt issuance costs, letter of credit fees and other interest.

Our effective tax rates for the three months ended December 31, 2022 and December 31, 2021 were zero and (78.7)%, respectively. The effective tax rate during the three months ended December 31, 2022 was impacted by a $8.4 million valuation allowance placed on deferred tax assets. We placed a full valuation allowance on our deferred tax assets in the second quarter of fiscal 2022 due to the existence of a cumulative loss over a three-year period. We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided to the extent we generate taxable income in the future, or cumulative losses are no longer present and our future projections for growth or tax planning strategies are demonstrated.

For the three months ended December 31, 2022, we had a net loss of $32.8 million, or $1.22 per fully diluted share, compared to a net loss of $24.9 million, or $0.93 per fully diluted share, in the three months ended December 31, 2021.

~~Utility and Power Infrastructure~~

Revenue for the Utility and Power Infrastructure segment was $50.5 million in the three months ended December 31, 2022 compared to $54.8 million in the same period last year. The decrease is primarily due to lower volumes of LNG peak shaving work, partially offset by higher volumes of power delivery work.

The segment gross margin was 4.8% in the second quarter of fiscal 2023 compared to a loss of (0.9%) in the same period last year. While this was an improvement compared to the prior quarter, gross margin was negatively impacted by previously-booked projects with reduced gross margins awarded in a highly competitive time period. This was partially offset by better than expected outcomes on other recently awarded projects in the segment.

The segment gross margin (loss) for the three months ended December 31, 2021 was negatively impacted by lower margins on power delivery work bid competitively and revenue recognized on a large capital project at a margin reduced in prior periods. In addition, segment gross margin in the second quarter of fiscal 2022 was also negatively impacted by low volumes, which led to the under recovery of construction overhead costs.

~~Process and Industrial Facilities~~

Revenue for the Process and Industrial Facilities segment was $80.8 million in the three months ended December 31, 2022 compared to $50.3 million in the same period last year. The increase was primarily due to higher volumes of midstream gas processing capital work, higher volumes of refinery maintenance and turnaround activity, work on a capital project at a biodiesel facility, and work on a capital project at a small-scale boron facility.

The segment gross margin (loss) was (6.4%) for the three months ended December 31, 2022 compared to 8.4% in the same period last year. The segment gross margin (loss) in the second quarter of fiscal 2023 was negatively impacted by a client not approving adequate compensation to us for the impact that excessive scope changes had on our ability to progress work on a midstream gas processing project according to forecast, as well as for the impact that global supply chain issues and inflation had on the project. The project reduced gross profit by $9.6 million during the three months ended December 31, 2022. We have accrued the full expected loss for the project, which we expect to be mechanically complete in the fourth quarter of fiscal 2023. The segment gross margin (loss) in the second quarter of fiscal 2023 was also negatively impacted by the under recovery of construction overhead costs and continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period. This was partially offset by better than expected outcomes on other projects in the segment.

Despite generally strong project execution, the lower segment gross margin for the three months ended December 31, 2021 was the result of low volumes, which lead to under recovery of construction overhead costs.

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~~Storage and Terminal Solutions~~

Revenue for the Storage and Terminal Solutions segment was $62.5 million in the three months ended December 31, 2022 compared to $56.9 million in the same period last year. The increase in segment revenue is primarily a result of higher volumes of specialty vessel capital projects along with higher volumes of tank repair and maintenance work. However, revenue levels were still lower than expected as a large LNG project that was expected to be awarded in the first half of fiscal 2023 has not been awarded and award timing is unknown. Other storage project awards have been strong and are expected to significantly improve revenue in the latter part of the fiscal year.

The segment gross margin was 2.6% for the three months ended December 31, 2022 compared to a loss of (0.3)% in the same period last year. The fiscal 2023 segment gross margin was negatively impacted by the under recovery of construction overhead costs and increased forecasted costs to complete a smaller capital storage project.

The segment gross margin (loss) for the three months ended December 31, 2021 was negatively impacted by 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 $2.8 million. The segment gross margin (loss) in the second quarter of fiscal 2022 was also negatively impacted by low volumes, which led to the under recovery of construction overhead costs.

~~Corporate~~

Unallocated corporate expenses were $7.4 million during the three months ended December 31, 2022 compared to $6.6 million in the same period last year. The increase in fiscal 2023 is primarily due to a project that commenced in fiscal 2022 to centralize certain support functions to corporate including accounting, human resources and project support that were previously included in operating segment expenses.

~~Six Months Ended December 31, 2022 Compared to the Six Months Ended December 31, 2021~~

~~Consolidated~~

Consolidated revenue was $402.3 million for the six months ended December 31, 2022, compared to $330.1 million in the same period last year. On a segment basis, revenue increased in the Process and Industrial Facilities and Storage and Terminal Solutions segments by $73.2 million and $15.6 million, respectively. The increases were partially offset by a decrease in revenue of $16.6 million in the Utility and Power Infrastructure segment.

Consolidated gross profit increased to $11.7 million in the six months ended December 31, 2022 compared to a gross loss of $0.3 million in the same period last year. Gross margin increased to 2.9% in the six months ended December 31, 2022 compared to a loss of (0.1)% in the same period last year. Gross margins in the first six months of fiscal 2023 were negatively impacted by a client not approving adequate compensation to us for the impact that excessive scope changes had on our ability to progress work on a midstream gas processing project according to forecast, as well as for the impact that global supply chain issues and inflation had on the project. The project reduced gross profit by $9.4 million during the six months ended December 31, 2022. We have accrued the full expected loss for the project, which we expect to be mechanically complete in the fourth quarter of fiscal 2023. In addition, gross margins during the first six months of fiscal 2023 were negatively impacted by the under recovery of construction overhead costs, continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period, and increased forecasted costs to complete a smaller capital storage project. While we are still not fully recovering construction overhead costs, higher revenue volumes in fiscal 2023 have resulted in improved overhead cost recovery. Gross margins in the first six months of fiscal 2022 were negatively impacted by a lower than previously forecasted margin on a large capital project and an unfavorable settlement of a claim with a customer, both in the Utility and Power Infrastructure segment, and a lower than previously forecasted margin on a tank repair and maintenance project in the Storage and Terminal Solutions segment. In addition, gross margins were also negatively impacted by lower than forecasted volumes, which led to the under recovery of construction overhead costs.

Consolidated SG&A expenses were $34.4 million in the six months ended December 31, 2022 compared to $32.6 million in the same period last year. The increase was primarily attributable to higher project pursuit costs and other costs to support higher revenue volumes.

We recorded a goodwill impairment of $12.3 million in the three months ended December 31, 2022. See Item 1. Financial Statements, Note 5 - Goodwill and Other Intangible Assets, Goodwill, for more information about the impairment.

We recorded restructuring costs of $2.6 million in the six months ended December 31, 2022 compared to $1.3 million in the same period last year. During the second quarter of fiscal 2023, we closed an underperforming office and ceased its associated

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~~operations, which resulted in $0.7 million of restructuring costs. See Item 1. Financial Statements, Note 11 - Restructuring Costs, for more information about our business improvement plan.~~

Interest expense was $1.3 million in the six months ended December 31, 2022 compared to $2.5 million in the six months ended December 31, 2021. Interest expense in fiscal 2023 consisted primarily of interest on debt outstanding, unused capacity fees, amortization of deferred debt issuance costs, letter of credit fees and other interest. Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees associated with terminating our prior credit facility along with a similar level of other interest costs.

Our effective tax rates for the six months ended December 31, 2022 and December 31, 2021 were zero and (15.5)%, respectively. The effective tax rate during the six months ended December 31, 2022 was impacted by a $9.8 million valuation allowance placed on deferred tax assets. We placed a full valuation allowance on our deferred tax assets in the second quarter of fiscal 2022 due to the existence of a cumulative loss over a three-year period. We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided to the extent we generate taxable income in the future, or cumulative losses are no longer present and our future projections for growth or tax planning strategies are demonstrated.

For the six months ended December 31, 2022, we had a net loss of $39.3 million or $1.46 per fully diluted share, compared to a net loss of $42.5 million, or $1.59 per fully diluted share, in the six months ended December 31, 2021.

~~Utility and Power Infrastructure~~

Revenue for the Utility and Power Infrastructure segment was $95.4 million in the six months ended December 31, 2022 compared to $112.0 million in the same period last year. The decrease is primarily due to lower volumes of LNG peak shaving and storm work, partially offset by higher volumes of power delivery work.

The segment gross margin was 4.3% for the six months ended December 31, 2022 compared to a loss of (5.9)% in the same period last year. The segment gross margin for the first six months of fiscal 2023 was negatively impacted by continued work on projects with previously reduced gross margins and projects that were bid competitively.

The segment gross margin for the six months ended December 31, 2021 was negatively impacted by an increase in the forecasted costs to complete a large capital project in the first quarter, which resulted in a decrease in gross profit of $5.9 million. The change in forecasted costs was principally due to unexpected equipment repairs during commissioning that delayed the scheduled completion and increased the estimated costs to complete. In addition, segment gross margin was negatively impacted by an unfavorable settlement of a claim with a customer, and low volumes, which led to the under recovery of construction overhead costs.

~~Process and Industrial Facilities~~

Revenue for the Process and Industrial Facilities segment was $167.4 million in the six months ended December 31, 2022 compared to $94.2 million in the same period last year. The increase was primarily due to higher volumes of midstream gas processing capital work, work on a capital project at a biodiesel facility, higher volumes of refinery maintenance and turnaround activity, and work on a capital project at a small-scale boron facility.

The segment gross margin was (0.5)% for the six months ended December 31, 2022 compared to 7.5% in the same period last year. The segment gross margin in the first six months of fiscal 2023 was negatively impacted by a client not approving adequate compensation to us for the impact that excessive scope changes had on our ability to progress work on a midstream gas processing project according to forecast, as well as for the impact that global supply chain issues and inflation had on the project. The project reduced gross profit by $9.4 million during the six months ended December 31, 2022. We have accrued the full expected loss for the project, which we expect to be mechanically complete in the fourth quarter of fiscal 2023. The segment gross margin (loss) in the first six months of fiscal 2023 was also negatively impacted by the under recovery of construction overhead costs and continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period. This was partially offset by better than expected outcomes on other projects in the segment.

Despite generally strong project execution, the low segment gross margin in the first six months of fiscal 2022 was the result of low volumes, which led to the under recovery of construction overhead costs.

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~~Storage and Terminal Solutions~~

Revenue for the Storage and Terminal Solutions segment was $139.4 million in the six months ended December 31, 2022 compared to $123.9 million in the same period last year. The increase in segment revenue is primarily a result of higher volumes of specialty vessel and tank and terminal capital projects along with higher volumes of tank repair and maintenance work. However, revenue levels were still lower than expected as a large LNG project that was expected to be awarded in the first half of fiscal 2023 has not been awarded and award timing is unknown. Other storage project awards have been strong and are expected to significantly improve revenue in the latter part of the fiscal year.

The segment gross margin was 6.6% for the six months ended December 31, 2022 compared to 0.2% in the same period last year. The segment gross margin for the six months ended December 31, 2022 was negatively impacted by the under recovery of construction overhead costs and increased forecasted costs to complete a smaller capital storage project.

The segment gross margin for the six months ended December 31, 2021 was negatively impacted by 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, the fiscal 2022 segment gross margin was also negatively impacted by low volumes, which led to the under recovery of construction overhead costs.

~~Corporate~~

Unallocated corporate expenses were $15.2 million during the six months ended December 31, 2022 compared to $14.3 million in the same period last year. The increase in fiscal 2023 is primarily due to a project that commenced in fiscal 2022 to centralize certain support functions to corporate including accounting, human resources and project support that were previously included in operating segment expenses.

~~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 December 31, 2022:~~

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal Solutions Total
(In thousands)
Backlog as of September 30, 2022 $ 99,807 $ 265,641 $ 250,209 $ 615,657
Project awards 98,033 105,153 115,466 318,652
Revenue recognized (50,535) (80,789) (62,516) (193,840)
Backlog as of December 31, 2022 $ 147,305 $ 290,005 $ 303,159 $ 740,469
Book-to-bill ratio(1)
1.9 1.3 1.8 1.6

~~(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 six months ended December 31, 2022:~~

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal Solutions Total
(In thousands)
Backlog as of June 30, 2022 $ 102,059 $ 292,287 $ 195,114 $ 589,460
Project awards 140,651 165,135 247,494 553,280
Revenue recognized (95,405) (167,417) (139,449) (402,271)
Backlog as of December 31, 2022 $ 147,305 $ 290,005 $ 303,159 $ 740,469
Book-to-bill ratio(1)
1.5 1.0 1.8 1.4

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

~~Backlog increased $124.8 million or 20.3% in the second quarter of fiscal 2023 on project awards of $318.7 million and a book-to-bill ratio of 1.6.~~

In the Utility and Power Infrastructure segment, backlog increased by 47.6% as we booked $98.0 million of project awards during the second quarter of fiscal 2023. Project awards are primarily comprised of a project for the engineering, procurement, and construction of upgrades being made to an existing LNG peak shaving facility and power delivery work. Our opportunity pipeline for LNG peak shaving projects continues to be promising, however those awards, while significant, can be less frequent. Project opportunities and bidding activity are strong for both the power delivery portion of the business and LNG peak shaving.

In the Process and Industrial Facilities segment, backlog increased by 9.2% as we booked $105.2 million of project awards during the second quarter of fiscal 2023. Client spending related to refinery maintenance and turnaround operations has continued to be strong. We continue to see demand for thermal vacuum chambers in the coming quarters, as well as increasing opportunities in mining and minerals, chemicals, and renewables. In addition, we are continuing to pursue opportunities for midstream gas work, including some larger scale projects.

In the Storage and Terminal Solutions segment, backlog increased by 21.2% as we booked $115.5 million of project awards during the second quarter of fiscal 2023. We were awarded a large-scale specialty vessel project in the second quarter following a similar award in the first quarter. This segment includes significant opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, hydrogen, NGLs and other forms of renewable energy. We believe LNG and hydrogen projects in particular will be key growth drivers for this segment. Bidding activity on LNG projects has been strong and we have been positioning ourselves for growth in hydrogen by entering into key relationships, such as the signing of a memorandum of understanding ("MOU") with Korea Gas Corporation in August 2022 to support South Korea’s development of a hydrogen economy as it transforms itself from natural gas and the signing of a MOU with Chart Industries, Inc. in January of 2021 to support the development of hydrogen solutions.

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. These same factors also impact the timing of project starts and the associated revenue recognized. 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.

Seasonality and Other Factors

Our operating results can exhibit seasonal fluctuations, especially in our Process and Industrial Facilities ~~segment,~~and Utility and Power Infrastructure segments, for a variety of reasons. Turnarounds and planned outages at customer facilities are typically scheduled in the spring ~~and the~~or fall, when the demand for energy is lower. Within the Utility and Power Infrastructure segment, transmission and distribution work is generally scheduled by the public utilities when the demand for electricity is at its lowest. Therefore, revenue volume in the summer months is typically lower than in other periods throughout the year.

Our business can also be affected, both positively and negatively, by seasonal factors such as energy demand or weather conditions including hurricanes, snowstorms, 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.

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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~~under-recovery of fixed overhead costs, which can have a material impact on our gross margin and profitability.

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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 December 31, ~~2022~~2023 were unrestricted cash and cash equivalents on hand, capacity under our ABL Facility, and cash generated from operations. Unrestricted cash and cash equivalents at December 31, ~~2022~~2023 totaled ~~$31.5~~$47.2 million and availability under the ABL Facility totaled ~~$49.0~~$59.1 million, resulting in total liquidity of ~~$80.5~~$106.3 million. During the second quarter of fiscal 2024, cash and cash equivalents increased $19.8 million and total liquidity increased $26.0 million as a result of cash provided by operating activities partially offset by the repayment of borrowings under the ABL credit facility.

The following table provides ~~a trend of~~ cash and cash equivalents, restricted cash and ~~restricted~~total cash in the Condensed Consolidated Balance Sheets ~~during fiscal 2023:~~(in thousands):

December 31,
2022 September 30,
2022 June 30,
2022
Cash and cash equivalents $ 31,464 $ 14,342 $ 52,371
Restricted cash 25,000 25,000 25,000
Total cash, cash equivalents and restricted cash $ 56,464 $ 39,342 $ 77,371


	December 31, 2023		September 30, 2023		June 30, 2023
Cash and cash equivalents	$	47,160	$	27,359	$	54,812

Restricted cash	25,000		25,000		25,000
Total cash, cash equivalents and restricted cash	$	72,160	$	52,359	$	79,812

The following table provides a summary of changes in our liquidity for the three months ended December 31, ~~2022~~2023 (in thousands):


Liquidity at September 30, ~~2022~~2023	$	~~56,616~~80,252
Cash provided by operating activities	~~17,644~~29,604
Proceeds from asset sales	188
Capital expenditures	~~(1,265)~~(381)
Increase in availability under ABL Facility	~~6,731~~6,217
Cash ~~provided~~used by financing activities	71 (9,954)
~~Other~~Effect of exchange rate changes on cash	~~672~~344
Liquidity at December 31, ~~2022~~2023	$	~~80,469~~106,270

The following table provides a summary of changes in our liquidity for the six months ended December 31, ~~2022~~2023 (in thousands):


Liquidity at June 30, ~~2022~~2023	$	~~94,831~~92,554
Cash ~~used~~provided by operating activities	~~(17,585)~~729
Proceeds from asset sales	2,806
Capital expenditures	~~(2,843)~~(859)
Increase in availability under ABL Facility	~~6,545~~21,368
Cash used by financing activities	~~(174)~~(10,365)
~~Other~~Effect of exchange rate changes on cash	~~(305)~~37
Liquidity at December 31, ~~2022~~2023	$	~~80,469~~106,270

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As a result of rising revenue volumes, especially for cost-reimbursable and maintenance-type work, we invested heavily into working capital during the first quarter of fiscal 2023, which led to a significant decrease in liquidity in that quarter. However, advanced billings on newly awarded capital projects in the second quarter of fiscal 2023 and a larger credit facility borrowing base driven by higher accounts receivable balances have led to an improvement of liquidity since the first quarter. We expect our liquidity position to continue to improve for several reasons, including expected improved operating results in our fourth fiscal quarter, the receipt of approximately $13 million of tax refunds in the third fiscal quarter, and positive cash flow from newly-awarded capital projects.

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;

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◦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. Retentions are normally held until certain contractual milestones are achieved;

•other changes in working capital, including the timing of tax payments and refunds; and

•capital expenditures.

Other factors that may impact both short and long-term liquidity include:

•contract ~~disputes, which can be significant;~~disputes;

•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 or divestitures of existing ~~operations.~~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;

•~~changes to our capital structure;~~

•acquisitions and disposals of ~~businesses;~~businesses or assets; and

•purchases of shares under our stock buyback program.

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ABL Credit Facility

The maximum amount that we may borrow under the ABL Facility is subject to a borrowing base, which is based on restricted cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced for certain reserves. We are required to maintain a minimum of $25.0 million of restricted cash at all times, but such amounts are also included in the borrowing base. The ~~ABL Facility matures,~~borrowing base is recalculated on a monthly basis and ~~any outstanding amounts become due and payable, on September 9, 2026. At~~at December 31, ~~2022,~~2023, our borrowing base was ~~$83.2 million, we had $15.0 million of~~$69.1 million. During the quarter ended December 31, 2023, the Company repaid all outstanding borrowings ~~and we~~under the ABL Facility. The Company had ~~$19.2~~$10.0 million in letters of credit outstanding, which resulted in availability of ~~$49.0~~$59.1 million under the ABL Facility.

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Cash Flow for the Six Months Ended December 31, ~~2022~~2023

Cash Flows ~~Used~~provided by Operating Activities

Cash ~~used~~provided by operating activities for the six months ended December 31, ~~2022~~2023 totaled ~~$17.6~~$0.7 million. The various components are as follows:

Net Cash Used by Operating Activities

(In thousands)


Net loss	$	~~(39,339)~~(6,018)
Depreciation and amortization	~~7,177~~5,692
~~Goodwill impairment~~	~~12,316~~
Stock-based compensation	~~3,747~~3,785
Other non-cash expenses	~~124~~125
Gain on sale of property, plant and equipment	(4,589)

Cash effect of changes in operating assets and liabilities	~~(1,610)~~1,734

Net cash ~~used~~provided by operating activities	$	~~(17,585)~~729

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Cash effect of changes in operating assets and liabilities at December 31, ~~2022~~2023 in comparison to June 30, ~~2022~~2023 include the following:

•Accounts receivable, excluding credit losses recognized during the period, increased by ~~$28.1~~$19.8 million during the six months ended December 31, ~~2022,~~2023, which decreased 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 $1.8~~decreased $4.5 million, which ~~decreased~~increased cash flows from operating activities. Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased ~~$34.7~~$31.8 million, which increased cash flows from operating activities. CIE and BIE balances can experience significant fluctuations based on business volumes and the timing of when job costs are incurred and the timing of customer billings and payments.

•Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, increased ~~$4.7~~$0.1 million during the six months ended December 31, ~~2022,~~2023, which decreased cash flows from operating activities. These operating assets can fluctuate based on the timing of inventory builds and draw-downs, accrual and receipt of income taxes receivable; prepayments of certain expenses; 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 decreased by ~~$1.1~~$14.7 million during the six months ended December 31, ~~2022,~~2023, which 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.

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Cash Flows ~~Used~~Provided by Investing Activities

Investing activities ~~used $2.8~~provided $1.9 million of cash in the six months ended December 31, ~~2022~~2023 primarily due to proceeds from asset sales, partially offset by capital expenditures.

In the first quarter of fiscal 2024, we sold a previously utilized facility in Burlington, Ontario for $2.7 million in net proceeds. In the second quarter of fiscal 2024, we sold a facility in Catoosa, Oklahoma. Proceeds from this sale of $2.7 million were received in January 2024 and will be reflected in our cash flows in the third quarter of fiscal 2024. We closed these previously utilized facilities as they was no longer strategic to the future of the business. Capital expenditures of $0.9 million during the first quarter of fiscal 2024 primarily consisted of transportation equipment.

Cash Flows Used by Financing Activities

Financing activities used ~~$0.2~~$10.4 million of cash in the six months ended December 31, ~~2022~~2023 primarily due to ~~$0.3~~$10.0 million ~~paid to repurchase~~in advances and $20.0 million in repayments under our ~~stock for payment~~ABL facility. As of ~~withholding taxes due on equity-based compensation.~~December 31, 2023, we have no outstanding borrowings under our ABL facility.

Dividend Policy

We have never paid cash dividends on our common stock and the terms of our ABL Facility limit dividends to stock dividends only. Any future dividend payments will depend on the terms of our ABL Facility, our financial condition, capital requirements and earnings as well as other relevant factors.

Stock Repurchase Program

We may repurchase common stock pursuant to the Stock Buyback Program, which was approved by the board of directors in November 2018. Under the program, the aggregate number of shares repurchased may not exceed 2,707,175 shares. We may repurchase our stock from time to time in the open market at prevailing market prices or in privately negotiated transactions and are not obligated to purchase any shares. The program will continue unless and until it is modified or revoked by the Board of Directors. We made no repurchases under the program in the ~~six~~three months ended ~~December 31, 2022~~September 30, 2023 and have no current plans to repurchase stock. As of December 31, ~~2022,~~2023, 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 ~~860,894~~587,732 treasury shares as of December 31, ~~2022~~2023 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 ~~2022~~2023 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 ~~2022~~2023 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 collectability is probable. We also evaluate whether a contract should be combined with other contracts and accounted for as a single contract. This evaluation requires judgment and could change the timing of the amount of revenue and profit recorded for a given period.

~~Step 2: Identify Performance Obligations~~

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

~~Step 3: Determine Contract Price~~

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

A number of our contracts contain various cost and performance incentives and penalties that can either increase or decrease the contract price. These variable consideration amounts are generally earned or incurred based on certain performance metrics, most commonly related to project schedule or cost targets. We estimate variable consideration at the most likely amount of additional consideration to be received (or paid in the case of penalties), provided that meeting the variable condition is probable. We include estimated amounts of variable consideration in the contract price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the contract price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. We reassess the amount of variable consideration each accounting period until the uncertainty associated with the variable consideration is resolved. Changes in the assessed amount of variable consideration are accounted for prospectively as a cumulative adjustment to revenue recognized in the current period.

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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 8 - 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 8 - 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 fair value of the net identifiable tangible and intangible assets acquired at the acquisition date. 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.

~~See Item 1. Financial Statements, Note 5 - Goodwill and Other Intangible Assets, Goodwill, for disclosure information about our goodwill balances the results of impairment tests.~~

~~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, ~~2022,~~2023, filed with the Securities and Exchange Commission. For more information on market risk, see Part II, Item 7A in our fiscal ~~2022~~2023 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).

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 December 31, ~~2022.~~2023. 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 December 31, ~~2022.~~2023.

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 December 31, ~~2022.~~2023.

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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~~See Part I., Item 1. Financial Statements, Note 7 - Commitments and ~~number of these proceedings are typical~~Contingencies, Litigation, for a ~~company~~description 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.~~ongoing litigation.

Item 1A. Risk Factors

There were no material changes in our Risk Factors from those reported in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2022.~~2023.

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 second quarter of fiscal year 2023.~~

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)

~~October 1 to October 31, 2022~~

~~Stock Buyback Program (A)~~

—

~~1,349,037~~

~~Employee Transactions (B)~~

—

~~November 1 to November 30, 2022~~

~~Stock Buyback Program (A)~~

—

~~1,349,037~~

~~Employee Transactions (B)~~

—

~~December 1 to December 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. As of December 31, 2023, 1,349,037 shares were available for repurchase under the stock buyback program. 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 stock buyback program in the second quarter of fiscal ~~2023~~2024 and have no current plans to repurchase stock.

Dividend Policy

Item 3. Defaults Upon Senior Securities

None

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~~Table of Contents~~

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~~During the three months ended December 31, 2023, none of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or Non-Rule 10b5-1, as each term is defined under Item 408(a) of Regulation S-K.

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.

-31-

Table of Contents


Exhibit No.						Description

Exhibit ~~3.1~~10.1:						~~Amended and Restated Bylaws of Matrix Service Company (Exhibit 3.1 to the Company's Current Report on Form 8-K Filed December 7, 2022).~~

~~Exhibit 10.1~~						~~First~~Second Amendment ~~and Waiver~~ to Credit Agreement ~~Dated October 5, 2022~~dated December 29, 2023 by and ~~Among~~among, Matrix Service Company and ~~Certain Subsidiaries Thereof, Certain Financial Institutions~~certain subsidiaries thereof, certain financial institutions as ~~Lenders,~~lenders, and Bank of Montreal, as ~~Administrative Agent (Exhibit 10.1 to the Company's Current Report on Form 8-K Filed October 7, 2022).~~administrative agent

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).

~~-38-~~-32-

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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:	February ~~9, 2023~~8, 2024	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~~

~~-39-~~-33-


		At December 31, 2022
	Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(Years)	(In thousands)
Intellectual property	10 to 15	$	2,483	$	(2,286)	$	197
Customer-based(1)	6 to 15	13,144		(9,410)		3,734


Total amortizing intangible assets		$	15,627	$	(11,696)	$	3,931


		At June 30, 2022
	Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(Years)	(In thousands)
Intellectual property	10 to 15	$	2,558	$	(2,276)	$	282
Customer-based	6 to 15	17,331		(12,817)		4,514


Total amortizing intangible assets		$	19,889	$	(15,093)	$	4,796


	Three Months Ended				Six Months Ended				Since Inception of Business Improvement Plan
	December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021
	(In thousands)
Utility and Power Infrastructure
Severance and other personnel-related costs	$	—	$	36	$	37	$	45	$	2,621
Facility costs	—		—		—		—		348
Other intangible asset impairments	—		—		—		—		1,150
Other costs	—		1		—		1		1
Total Utility and Power Infrastructure	$	—	$	37	$	37	$	46	$	4,120
Process and Industrial Facilities
Severance and other personnel-related costs	$	354	$	(27)	$	666	$	(22)	$	9,762
Facility costs	—		1		2		1		3,208
Other intangible asset impairments	—		—		—		—		375
Other costs	28		2		28		4		(1,143)
Total Process and Industrial Facilities	$	382	$	(24)	$	696	$	(17)	$	12,202
Storage and Terminal Solutions
Severance and other personnel-related costs	$	379	$	102	$	902	$	69	$	2,548
Facility costs	—		—		—		—		879

Other costs	4		5		4		5		32
Total Storage and Terminal Solutions	$	383	$	107	$	906	$	74	$	3,459
Corporate
Severance and other personnel-related costs	$	311	$	—	$	708	$	44	$	2,295
Facility costs	126		—		126		16		224
Other costs	76		575		92		1,137		1,677
Total Corporate	$	513	$	575	$	926	$	1,197	$	4,196

Restructuring Costs by Type:
Severance and other personnel-related costs	$	1,044	$	111	$	2,313	$	136	$	17,226
Facility costs	126		1		128		17		4,659
Other intangible asset impairments	—		—		—		—		1,525
Other costs	108		583		124		1,147		567
Total restructuring costs	$	1,278	$	695	$	2,565	$	1,300	$	23,977


	December 31, 2022		September 30, 2022		June 30, 2022
Cash and cash equivalents	$	31,464	$	14,342	$	52,371

Restricted cash	25,000		25,000		25,000
Total cash, cash equivalents and restricted cash	$	56,464	$	39,342	$	77,371