mtrx-20241231

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, 2024


☐			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 5, 2025 there were 27,606,852 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 D ecember 31 , 2024 and 2023	1

	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31 , 2024 and 2023	2

	Condensed Consolidated Balance Sheets as of December 31 , 2024 and June 30, 2024	3

	Condensed Consolidated Statements of Cash Flows for the S ix Months Ended Decem ber 31 , 2024 and 2023	5

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended December 31 , 2024 and 2023	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	31

Item 6.	Exhibits	31

Signature		33

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, 2024		December 31, 2023		December 31, 2024		December 31, 2023
Revenue	$	187,169	$	175,042	$	352,748	$	372,701
Cost of revenue	176,277		164,453		334,043		350,253
Gross profit	10,892		10,589		18,705		22,448
Selling, general and administrative expenses	17,286		15,731		35,866		32,844


Operating loss	(6,394)		(5,142)		(17,161)		(10,396)
Other income (expense):
Interest expense	(145)		(319)		(234)		(644)
Interest income	1,578		162		3,150		312
Other (Note 3)	(556)		2,454		(495)		4,716
Loss before income tax expense	(5,517)		(2,845)		(14,740)		(6,012)
Provision for federal, state and foreign income taxes	16		6		16		6
Net loss	$	(5,533)	$	(2,851)	$	(14,756)	$	(6,018)

Basic loss per common share	$	(0.20)	$	(0.10)	$	(0.53)	$	(0.22)
Diluted loss per common share	$	(0.20)	$	(0.10)	$	(0.53)	$	(0.22)
Weighted average common shares outstanding:
Basic	27,801		27,377		27,680		27,314
Diluted	27,801		27,377		27,680		27,314

See accompanying notes.

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Matrix Service Company

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(unaudited)


	Three Months Ended				Six Months Ended
	December 31, 2024		December 31, 2023		December 31, 2024		December 31, 2023
Net loss	$	(5,533)	$	(2,851)	$	(14,756)	$	(6,018)
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)	(1,363)		562		(927)		24
Comprehensive loss	$	(6,896)	$	(2,289)	$	(15,683)	$	(5,994)

See accompanying notes.

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Matrix Service Company

Condensed Consolidated Balance Sheets

(In thousands)

(unaudited)


	December 31, 2024		June 30, 2024
Assets
Current assets:
Cash and cash equivalents	$	156,777	$	115,615
Accounts receivable, net of allowance for credit losses	134,726		138,987
Costs and estimated earnings in excess of billings on uncompleted contracts	34,711		33,893
Inventories	7,157		8,839
Income taxes receivable	179		180
Prepaid expenses and other current assets	10,372		4,077
Total current assets	343,922		301,591
Restricted cash	25,000		25,000
Property, plant and equipment, net	41,392		43,498
Operating lease right-of-use assets	18,160		19,150
Goodwill	28,883		29,023
Other intangible assets, net of accumulated amortization	1,103		1,651

Other assets, non-current (Note 2)	55,385		31,438
Total assets	$	513,845	$	451,351

See accompanying notes.

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Matrix Service Company

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)


	December 31, 2024		June 30, 2024
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	79,976	$	65,629
Billings on uncompleted contracts in excess of costs and estimated earnings	237,537		171,308
Accrued wages and benefits	13,288		15,878

Accrued insurance	4,473		4,605
Operating lease liabilities	3,781		3,739

Other accrued expenses	2,044		3,956
Total current liabilities	341,099		265,115
Deferred income taxes	23		25
Operating lease liabilities	18,194		19,156

Other liabilities, non-current	2,595		2,873
Total liabilities	361,911		287,169
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock — $0.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued at December 31, 2024 and June 30, 2024, respectively; 27,602,825 and 27,308,795 shares outstanding as of December 31, 2024 and June 30, 2024, respectively;	279		279
Additional paid-in capital	145,608		145,580
Retained earnings	19,185		33,941
Accumulated other comprehensive loss	(10,462)		(9,535)
Treasury stock, at cost — 285,392 and 579,422 shares as of December 31, 2024 and June 30, 2024, respectively;	(2,676)		(6,083)
Total stockholders' equity	151,934		164,182
Total liabilities and stockholders’ equity	$	513,845	$	451,351

See accompanying notes.

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Matrix Service Company

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Six Months Ended
	December 31, 2024		December 31, 2023
Operating activities:
Net loss	$	(14,756)	$	(6,018)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and amortization	5,025		5,692

Stock-based compensation expense	4,568		3,785

Gain on disposal of property, plant and equipment (Note 3)	(64)		(4,589)

Other	(19)		125
Changes in operating assets and liabilities increasing (decreasing) cash:
Accounts receivable, net of allowance for credit losses	(18,930)		(19,752)
Costs and estimated earnings in excess of billings on uncompleted contracts	(818)		4,462
Inventories	1,682		(1,004)
Other assets and liabilities	(6,963)		(1,763)
Accounts payable	14,474		(14,303)
Billings on uncompleted contracts in excess of costs and estimated earnings	66,229		31,837
Accrued expenses	(4,912)		2,257
Net cash provided by operating activities	45,516		729
Investing activities:
Capital expenditures	(2,859)		(859)
Proceeds from sale of property, plant and equipment (Note 3)	163		2,806
Net cash provided (used) by investing activities	(2,696)		1,947
Financing activities:
Advances under asset-backed credit facility	—		10,000
Repayments of advances under asset-backed credit facility	—		(20,000)




Proceeds from issuance of common stock under employee stock purchase plan	102		91
Repurchase of common stock for payment of statutory taxes due on equity-based compensation	(1,235)		(456)

Net cash used by financing activities	(1,133)		(10,365)
Effect of exchange rate changes on cash	(525)		37
Net increase (decrease) in cash and cash equivalents	41,162		(7,652)
Cash, cash equivalents and restricted cash, beginning of period	140,615		79,812
Cash, cash equivalents and restricted cash, end of period	$	181,777	$	72,160
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes	$	18	$	(43)
Interest	$	232	$	647

Non-cash investing and financing activities:
Purchases of property, plant and equipment on account	$	13	$	71

See accompanying notes.

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Matrix Service Company

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share data)

(unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock
	Shares	Amount								Shares	Amount		Total
September 30, 2024	27,888,217	$	279	$	143,765	$	24,718	$	(9,099)	338,015	$	(3,146)	$	156,517
Net loss	—	—		—		(5,533)		—		—	—		(5,533)
Other comprehensive income	—	—		—		—		(1,363)		—	—		(1,363)
Issuance of restricted stock	—	—		(428)		—		—		(47,946)	428		—
Treasury shares sold to Employee Stock Purchase Plan	—	—		14		—		—		(4,677)	42		56

Stock-based compensation expense	—	—		2,257		—		—		—	—		2,257
December 31, 2024	27,888,217	$	279	$	145,608	$	19,185	$	(10,462)	285,392	$	(2,676)	$	151,934

September 30, 2023	27,888,217	$	279	$	139,773	$	55,750	$	(9,307)	678,379	$	(7,372)	$	179,123
Net loss	—	—		—		(2,851)		—		—	—		(2,851)
Other comprehensive loss	—	—		—		—		562		—	—		562
Issuance of restricted stock	—	—		(1,131)		—		—		(86,783)	1,131		—
Treasury shares sold to Employee Stock Purchase Plan	—	—		(4)		—		—		(3,864)	50		46

Stock-based compensation expense	—	—		2,030		—		—		—	—		2,030
December 31, 2023	27,888,217	$	279	$	140,668	$	52,899	$	(8,745)	587,732	$	(6,191)	$	178,910

	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock
	Shares	Amount								Shares	Amount		Total
June 30, 2024	27,888,217	$	279	$	145,580	$	33,941	$	(9,535)	579,422	$	(6,083)	$	164,182
Net loss	—	—		—		(14,756)		—			—		(14,756)
Other comprehensive income	—	—		—		—		(927)			—		(927)
Issuance of restricted stock	—	—		(4,537)		—		—		(408,406)	4,537		—
Treasury shares sold to Employee Stock Purchase Plan		—		(3)		—		—		(9,474)	105		102
Treasury shares purchased to satisfy tax withholding obligations	—	—		—		—		—		123,850	(1,235)		(1,235)
Stock-based compensation expense	—	—		4,568		—		—			—		4,568
December 31, 2024	27,888,217	$	279	$	145,608	$	19,185	$	(10,462)	285,392	$	(2,676)	$	151,934

June 30, 2023	27,888,217	$	279	$	140,810	$	58,917	$	(8,769)	840,899	$	(9,753)	$	181,484
Net loss	—	—		—		(6,018)		—		—	—		(6,018)
Other comprehensive loss	—	—		—		—		24		—	—		24
Issuance of restricted stock	—	—		(3,868)		—		—		(297,026)	3,868		—
Treasury shares sold to Employee Stock Purchase Plan	—	—		(59)		—		—		(11,465)	150		91
Treasury shares purchased to satisfy tax withholding obligations	—	—		—		—		—		55,324	(456)		(456)
Stock-based compensation expense	—	—		3,785		—		—		—	—		3,785
December 31, 2023	27,888,217	$	279	$	140,668	$	52,899	$	(8,745)	587,732	$	(6,191)	$	178,910

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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, 2024, included in our Annual Report on Form 10-K. The results of operations for the three and six month periods ended December 31, 2024 may not necessarily be indicative of the results of operations for the full year ending June 30, 2025.

Significant Accounting Policies

Our significant accounting policies are detailed in “Note 1 - Basis of Presentation and Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended June 30, 2024.

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). Adoption of this ASU will result in additional disclosure, but will not impact the Company's consolidated financial position, results of operations or cash flows.

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). Adoption of this ASU will result in additional disclosure, but will not impact the Company's consolidated financial position, results of operations or cash flows.

In November 2024, the FASB issued ASU 2024-03, Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring companies to provide more detailed and organized disclosures of their expenses. Disclosures will include disaggregation of expense captions presented on the face of the income statement into specific categories, such as purchases of inventory, employee compensation, and costs related to depreciation and amortization. The new requirements will take effect for annual reporting periods beginning after December 15, 2026 (fiscal 2028) and for interim periods within fiscal years beginning after December 15, 2027 (fiscal 2029), with early adoption permitted. Adoption of this ASU will result in additional disclosure, but will not impact the Company's consolidated financial position, results of operations or cash flows.

Other accounting pronouncements issued but not effective until after December 31, 2024 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 $1.0 billion of remaining performance obligations yet to be satisfied as of December 31, 2024. We expect to recognize $558.9 million of our remaining performance obligations as revenue within the next twelve months.

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Contract Balances

Contract terms with customers include the timing of billing and payments, which usually differs from the timing of revenue recognition. As a result, we carry contract assets and liabilities in our balance sheet. These contract assets and liabilities are calculated on a contract-by-contract basis and are classified as current. We present our contract assets in the balance sheet as Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts ("CIE"). CIE consists of revenue recognized in excess of billings. We present our contract liabilities in the balance sheet as Billings on Uncompleted Contracts in Excess of Costs and Estimated Earnings ("BIE"). BIE consists of billings in excess of revenue recognized. The following table provides information about CIE and BIE:


	December 31, 2024		June 30, 2024		Change
	(In thousands)
Costs and estimated earnings in excess of billings on uncompleted contracts	$	34,711	$	33,893	$	818
Billings on uncompleted contracts in excess of costs and estimated earnings	(237,537)		(171,308)		(66,229)
Net contract liabilities	$	(202,826)	$	(137,415)	$	(65,411)

The difference between the beginning and ending balances of our CIE and BIE primarily results from the timing of revenue recognized relative to the billings on the associated contracts. The amount of revenue recognized during the six months ended December 31, 2024 that was included in the June 30, 2024 BIE balance was $149.9 million.

Progress billings in accounts receivable at December 31, 2024 and June 30, 2024 included retentions to be collected within one year of $12.9 million and $11.6 million, respectively. Contract retentions collectible beyond one year are included in Other assets, non-current in the Condensed Consolidated Balance Sheets and totaled $51.9 million as of December 31, 2024 and $28.6 million as of June 30, 2024, respectively.

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 $8.4 million at December 31, 2024 and $9.9 million at June 30, 2024. The amounts ultimately realized may be different than the recorded amounts resulting in adjustments to future earnings. Generally, we expect collection of amounts related to unpriced change orders and claims within twelve months. However, customers may not pay these amounts until final resolution of related claims, and therefore collection of these amounts may extend beyond one year.

Disaggregated Revenue

Revenue disaggregated by reportable segment is presented in Note 8 - Segment Information. The following series of tables presents revenue disaggregated by geographic area where the work was performed and by contract type:

Geographic Disaggregation:


	Three Months Ended				Six Months Ended
	December 31, 2024		December 31, 2023		December 31, 2024		December 31, 2023
	(In thousands)
United States	$	175,489	$	156,409	$	328,711	$	333,959
Canada	10,048		14,548		20,816		31,421
Other international	1,632		4,085		3,221		7,321
Total Revenue	$	187,169	$	175,042	$	352,748	$	372,701

Contract Type Disaggregation:


	Three Months Ended				Six Months Ended
	December 31, 2024		December 31, 2023		December 31, 2024		December 31, 2023
	(In thousands)
Fixed-price contracts	$	137,950	$	97,711	$	261,719	$	214,468
Time and materials and other cost reimbursable contracts	49,219		77,331		91,029		158,233
Total Revenue	$	187,169	$	175,042	$	352,748	$	372,701

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Note 3 – Property, Plant and Equipment

During the first quarter of fiscal 2024, we sold a previously utilized facility in Burlington, Ontario for $2.7 million in net proceeds, which resulted in a gain of $2.5 million. The gain was included in Other income in the Condensed Consolidated Statements of Income. 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.

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 gain was included in Other income in the Condensed Consolidated Statements of 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 it was no longer strategic to the future of the business.

There were no significant sales of property, plant and equipment in the first half of fiscal 2025.

Note 4 – 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 most recently amended on May 3, 2024 (as amended, the "ABL Facility"), with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer. The maximum amount of loans under the ABL Facility is limited to $90.0 million. The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes. Our obligations under the ABL Facility are guaranteed by substantially all of our U.S. and Canadian subsidiaries and are secured by a first lien on all our assets 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 borrowing base is recalculated on a monthly basis and at December 31, 2024, our borrowing base was $59.7 million. The Company had $4.8 million in letters of credit outstanding as of December 31, 2024, which resulted in availability of $54.9 million under the ABL Facility.

Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate of either a base rate (“Base Rate”), an Adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR"), or at the Canadian Prime Rate, plus an applicable margin. The Adjusted Term SOFR is defined as (i) the SOFR plus (ii) 11.448 basis points for a one-month tenor and 26.161 basis points for a three-month tenor; provided that the Adjusted Term SOFR cannot be below zero. The Base Rate is defined as a fluctuating interest rate equal to the greater of: (i) rate of interest announced by Bank of Montreal from time to time as its prime rate; (ii) the U.S. federal funds rate plus 0.50%; (iii) Adjusted Term SOFR for one month period plus 1.00%; or (iv) 1.00%. Depending on the amount of average availability, the applicable margin is between 1.00% to 1.50% for Base Rate and Canadian Prime Rate borrowings, which includes either U.S. or Canadian prime rate, and between 2.00% and 2.50% for Adjusted Term SOFR borrowings. Interest is payable either (i) monthly for Base Rate or Canadian Prime Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility. The fee for undrawn amounts is 0.25% per annum and is due quarterly.

The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that limit our ability to sell assets; engage in mergers and acquisitions; make investments, including investments in certain international subsidiaries; incur, assume or permit to exist additional indebtedness and guarantees; create or permit to exist liens; pay cash dividends or make distributions; issue equity instruments; 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, 2024.

Note 5 – Income Taxes

Effective Tax Rate

During the three and six months ended December 31, 2024, our effective tax rates were (0.3%) and (0.1)%, respectively. During the three and six months ended December 31, 2023 our effective tax rates were zero. The effective tax rates during fiscal 2025 were impacted by valuation allowances of $1.8 million and $3.1 million, respectively, placed on deferred tax assets

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generated during the three and six months ended December 31, 2024. The effective tax rates during fiscal 2024 were impacted by valuation allowances of $1.2 million and $1.4 million, respectively, placed on deferred tax assets during the three and six months ended December 31, 2023.

Valuation Allowance

We placed a valuation allowance on our deferred tax assets in fiscal 2022 due to the existence of a cumulative loss over a three-year period. Currently, we 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 as we generate taxable income.

Note 6 – 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.

Litigation

In January 2021, we achieved mechanical completion on a crude oil storage project. On April 1, 2022, we filed an arbitration demand against Keyera Energy, Inc. in an effort to collect outstanding balances of $32.7 million related to the project. In response, on June 2, 2022, the customer filed counterclaims seeking $20.0 million, which included liquidated damages and damages with respect to miscellaneous warranty items. On October 31, 2022, the customer amended its counterclaim claiming damages in a range of $18.8 million to $36.0 million, which included estimated amounts for “potential future costs.” In July 2024, the customer filed a second amended counterclaim which significantly increased the amount of alleged damages to a range of $69.6 million to $97.9 million, including a new claim for unspecified “other damages” of $46.9 million. A portion of the total alleged damages, if we are held liable, may be subject to certain insurance coverages. We are actively pursuing our claims and believe we have substantial legal and contractual defenses to the customer's counterclaims.

During fiscal 2023, we completed construction services on a time and materials basis 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 customer, 5E Boron Americas, LLC, responded by commencing litigation against us on July 17, 2023 in the United States District Court for the Central District of California, Eastern Division (5E Boron Americas, LLC v. Matrix Service Inc., Case No. 5:23-cv-01396-AB(DTBx)), alleging breach of contract and breach of express warranty. We denied all claims and filed a countersuit against the customer for failure to pay amounts due of $5.6 million.

We believe we have set appropriate reserves based on our evaluation of the possible outcomes for the matters described above. 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. We and our subsidiaries are participants in various other legal actions; however, assessing the eventual outcome of litigation involves forward-looking speculation as to judgement being made by arbitrators, judges, juries and appellate courts in the future. Based upon information presently available, and in light of legal and other factual defenses available to the Company, management does not believe that such other known legal actions will have a material adverse effect on our financial position, results of operations or liquidity.

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Table of Contents

Note 7 – Earnings per Common Share

Basic earnings per share (“EPS”) is calculated based on the weighted average shares outstanding during the period. Diluted earnings per share includes the dilutive effect of employee and director nonvested restricted stock units. Nonvested restricted stock units are considered dilutive (antidilutive) to our EPS whenever the average market value of the shares during the period exceeds (is less than) the sum of the related average unamortized compensation expense during the period plus the related hypothetical estimated excess tax benefit that will be realized when the shares vest. Nonvested restricted stock units are considered antidilutive to our EPS in the event we report a net loss.

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


	Three Months Ended				Six Months Ended
	December 31, 2024		December 31, 2023		December 31, 2024		December 31, 2023
	(In thousands, except per share data)
Basic EPS:
Net loss	$	(5,533)	$	(2,851)	$	(14,756)	$	(6,018)

SEC Form 10-Q filed by Matrix Service Company