SEC Form 10-Q filed by Matrix Service Company

5/9/24 4:20:22 PM ET

$MTRX

Engineering & Construction

Consumer Discretionary

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mtrx-20240331

Table of Contents

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 March 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 May 8, 2024 there were 27,308,795 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 Nine Months Ended March 31, 2024 and 2023	1

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

	Condensed Consolidated Balance Sheets as of March 31, 2024 and June 30, 2023	3

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2024 and 2023	5

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended March 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	33

Item 4.	Controls and Procedures	33

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

Signature		36

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				Nine Months Ended
	March 31, 2024		March 31, 2023		March 31, 2024		March 31, 2023
Revenue	$	166,013	$	186,895	$	538,714	$	589,166
Cost of revenue	160,435		182,476		510,688		573,041
Gross profit	5,578		4,419		28,026		16,125
Selling, general and administrative expenses	19,948		16,862		52,792		51,218
Goodwill impairment	—		—		—		12,316
Restructuring costs	—		316		—		2,881
Operating loss	(14,370)		(12,759)		(24,766)		(50,290)
Other income (expense):
Interest expense	(143)		(268)		(787)		(1,556)
Interest income	165		94		477		164
Other (Note 3)	(235)		(116)		4,481		(706)
Loss before income tax expense	(14,583)		(13,049)		(20,595)		(52,388)
Provision for federal, state and foreign income taxes	(2)		(363)		4		(363)
Net loss	$	(14,581)	$	(12,686)	$	(20,599)	$	(52,025)

Basic loss per common share	$	(0.53)	$	(0.47)	$	(0.75)	$	(1.93)
Diluted loss per common share	$	(0.53)	$	(0.47)	$	(0.75)	$	(1.93)
Weighted average common shares outstanding:
Basic	27,443		27,038		27,357		26,969
Diluted	27,443		27,038		27,357		26,969

See accompanying notes.

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Matrix Service Company

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	March 31, 2024		March 31, 2023		March 31, 2024		March 31, 2023
Net loss	$	(14,581)	$	(12,686)	$	(20,599)	$	(52,025)
Other comprehensive income (loss), net of tax:
Foreign currency translation loss	(548)		(234)		(524)		(722)
Comprehensive loss	$	(15,129)	$	(12,920)	$	(21,123)	$	(52,747)

See accompanying notes.

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Matrix Service Company

Condensed Consolidated Balance Sheets

(In thousands)

(unaudited)


	March 31, 2024		June 30, 2023
Assets
Current assets:
Cash and cash equivalents	$	69,658	$	54,812
Accounts receivable, less allowances (March 31, 2024—$428 and June 30, 2023—$1,061)	172,924		145,764
Costs and estimated earnings in excess of billings on uncompleted contracts	34,600		44,888
Inventories	9,057		7,437
Income taxes receivable	325		496
Prepaid expenses	6,606		5,741
Other current assets	—		3,118
Total current assets	293,170		262,256
Restricted cash	25,000		25,000
Property, plant and equipment - net	44,711		47,545
Operating lease right-of-use assets	17,911		21,799
Goodwill	29,061		29,120
Other intangible assets, net of accumulated amortization	1,925		3,066

Other assets, non-current (Note 2)	28,227		11,718
Total assets	$	440,005	$	400,504

See accompanying notes.

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Matrix Service Company

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)


	March 31, 2024		June 30, 2023
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	55,192	$	76,365
Billings on uncompleted contracts in excess of costs and estimated earnings	167,657		85,436
Accrued wages and benefits	18,068		13,679

Accrued insurance	5,699		5,579
Operating lease liabilities	3,624		4,661

Other accrued expenses	2,009		1,815
Total current liabilities	252,249		187,535
Deferred income taxes	25		26
Operating lease liabilities	17,947		20,660
Borrowings under asset-backed credit facility	—		10,000
Other liabilities, non-current	3,982		799
Total liabilities	274,203		219,020
Commitments and contingencies
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 March 31, 2024 and June 30, 2023; 27,304,734 and 27,047,318 shares outstanding as of March 31, 2024 and June 30, 2023, respectively	279		279
Additional paid-in capital	142,634		140,810
Retained earnings	38,318		58,917
Accumulated other comprehensive loss	(9,293)		(8,769)
Treasury stock, at cost — 583,483 shares as of March 31, 2024, and 840,899 shares as of June 30, 2023	(6,136)		(9,753)
Total stockholders' equity	165,802		181,484
Total liabilities and stockholders’ equity	$	440,005	$	400,504

See accompanying notes.

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Matrix Service Company

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Nine Months Ended
	March 31, 2024		March 31, 2023
Operating activities:
Net loss	$	(20,599)	$	(52,025)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	8,337		10,499
Goodwill impairment	—		12,316
Stock-based compensation expense	5,765		5,154



Gain on sale of property, plant and equipment (Note 3)	(4,530)		(21)
Provision for uncollectible accounts	(33)		(63)

Other	202		189
Changes in operating assets and liabilities increasing (decreasing) cash:
Accounts receivable, net of allowance for credit losses	(43,080)		(9,484)
Costs and estimated earnings in excess of billings on uncompleted contracts	10,288		(8,646)
Inventories	(1,620)		1,947
Other assets and liabilities	1,653		10,401
Accounts payable	(20,923)		(9,344)
Billings on uncompleted contracts in excess of costs and estimated earnings	82,221		49,623
Accrued expenses	7,886		(8,143)
Net cash provided by operating activities	25,567		2,403
Investing activities:
Capital expenditures	(5,689)		(6,212)


Proceeds from asset sales (Note 3)	5,535		110
Net cash used by investing activities	(154)		(6,102)
Financing activities:
Advances under asset-backed credit facility	10,000		10,000
Repayments of advances under asset-backed credit facility	(20,000)		(10,000)




Proceeds from issuance of common stock under employee stock purchase plan	132		200
Repurchase of common stock for payment of statutory taxes due on equity-based compensation	(456)		(310)




Net cash used by financing activities	(10,324)		(110)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(243)		(358)
Net increase (decrease) in cash, cash equivalents and restricted cash	14,846		(4,167)
Cash, cash equivalents and restricted cash, beginning of period	79,812		77,371
Cash, cash equivalents and restricted cash, end of period	$	94,658	$	73,204
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes	$	(148)	$	(13,286)
Interest	$	776	$	1,675

Non-cash investing and financing activities:
Purchases of property, plant and equipment on account	$	39	$	30

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		Total
Balances, December 31, 2023	$	279	$	140,668	$	52,899	$	(8,745)	$	(6,191)	$	178,910
Net loss	—		—		(14,581)		—		—		(14,581)
Other comprehensive income	—		—		—		(548)		—		(548)



Treasury shares sold to Employee Stock Purchase Plan (4,249 shares)	—		(14)		—		—		55		41


Stock-based compensation expense	—		1,980		—		—		—		1,980
Balances, March 31, 2024	$	279	$	142,634	$	38,318	$	(9,293)	$	(6,136)	$	165,802

Balances, December 31, 2022	$	279	$	137,989	$	71,939	$	(8,663)	$	(10,092)	$	191,452
Net loss	—		—		(12,686)		—		—		(12,686)
Other comprehensive income	—		—		—		(234)		—		(234)



Treasury shares sold to Employee Stock Purchase Plan (10,233 shares)	—		(139)		—		—		203		64


Stock-based compensation expense	—		1,407		—		—		—		1,407
Balances, March 31, 2023	$	279	$	139,257	$	59,253	$	(8,897)	$	(9,889)	$	180,003


	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	—		—		(20,599)		—		—		(20,599)
Other comprehensive income	—		—		—		(524)		—		(524)


Issuance of restricted stock (297,026 shares)	—		(3,868)		—		—		3,868		—
Treasury shares sold to Employee Stock Purchase Plan (15,714 shares)	—		(73)		—		—		205		132

Treasury shares purchased to satisfy tax withholding obligations (55,324 shares)	—		—		—		—		(456)		(456)
Stock-based compensation expense	—		5,765		—		—		—		5,765
Balances, March 31, 2024	$	279	$	142,634	$	38,318	$	(9,293)	$	(6,136)	$	165,802

Balances, June 30, 2022	$	279	$	139,854	$	111,278	$	(8,175)	$	(15,530)	$	227,706
Net loss	—		—		(52,025)		—		—		(52,025)
Other comprehensive loss	—		—		—		(722)		—		(722)


Issuance of restricted stock (259,529 shares)	—		(5,149)		—		—		5,149		—
Treasury shares sold to Employee Stock Purchase Plan (40,377 shares)	—		(602)		—		—		802		200

Treasury shares purchased to satisfy tax withholding obligations (52,864 shares)	—		—		—		—		(310)		(310)
Stock-based compensation expense	—		5,154		—		—		—		5,154
Balances, March 31, 2023	$	279	$	139,257	$	59,253	$	(8,897)	$	(9,889)	$	180,003

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

Other accounting pronouncements issued but not effective until after March 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 $680.0 million of remaining performance obligations yet to be satisfied as of March 31, 2024. We expect to recognize $431.9 million of our remaining performance obligations as revenue within the next twelve months.

Contract Balances

Contract terms with customers include the timing of billing and 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:

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	March 31, 2024		June 30, 2023		Change
	(In thousands)
Costs and estimated earnings in excess of billings on uncompleted contracts	$	34,600	$	44,888	$	(10,288)
Billings on uncompleted contracts in excess of costs and estimated earnings	(167,657)		(85,436)		(82,221)
Net contract liabilities	$	(133,057)	$	(40,548)	$	(92,509)

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 contract. The amount of revenue recognized during the nine months ended March 31, 2024 that was included in the June 30, 2023 BIE balance was $84.7 million.

Progress billings in accounts receivable at March 31, 2024 and June 30, 2023 included retentions to be collected within one year of $12.7 million and $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 $25.9 million as of March 31, 2024 and $10.0 million as of June 30, 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 $12.0 million at March 31, 2024 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 9 - 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				Nine Months Ended
	March 31, 2024		March 31, 2023		March 31, 2024		March 31, 2023
	(In thousands)
United States	$	153,181	$	178,261	$	487,140	$	524,731
Canada	11,998		6,932		43,419		52,742
Other international	834		1,702		8,155		11,693
Total Revenue	$	166,013	$	186,895	$	538,714	$	589,166

Contract Type Disaggregation:


	Three Months Ended				Nine Months Ended
	March 31, 2024		March 31, 2023		March 31, 2024		March 31, 2023
	(In thousands)
Fixed-price contracts	$	90,878	$	96,755	$	305,346	$	311,511
Time and materials and other cost reimbursable contracts	75,135		90,140		233,368		277,655
Total Revenue	$	166,013	$	186,895	$	538,714	$	589,166

Revisions in Estimates

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 Process and Industrial Facilities segment resulted in a reduction of gross profit of $3.3 million and $12.7 million during the three and nine months ended March 31, 2023, respectively. This was primarily the result of the client not approving adequate compensation to us for the impact that excessive scope changes had on our ability to progress the work according to forecast and for the impacts of global supply chain issues and inflation.

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Note 3 – Property, Plant and Equipment

Building Purchase

During the third quarter of fiscal 2024, we purchased a fabrication facility in Bakersfield, California for $4.1 million to replace a facility currently being leased by the Company.

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 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 sale of the Catoosa, Oklahoma facility completed our divestiture and closure of a non-core service offering of the business as part of our strategy to focus the business on core markets.

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.

Note 4 – Goodwill

During the second quarter of fiscal 2023, we had indicators of a potential impairment and performed an interim impairment test within the Process and Industrial Facilities segment. We concluded that its $12.3 million of goodwill was fully impaired and recognized the impairment in operating income during the three and six months ended December 31, 2022. We did not record any impairments during the three and nine months ended March 31, 2024.

Note 5 – 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 May 3, 2024 (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'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 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 borrowing base is recalculated on a monthly basis and at March 31, 2024, our borrowing base was $72.3 million. The Company had $7.0 million in letters of credit outstanding as of March 31, 2024, which resulted in availability of $65.3 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.

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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 March 31, 2024.

Note 6 – Income Taxes

Effective Tax Rate

Our effective tax rates were zero for each of the three and nine months ended March 31, 2024. During the three and nine months ended March 31, 2023, our effective tax rates were 2.8% and 0.7%, respectively. The effective tax rates during fiscal 2024 were impacted by valuation allowances of $4.4 million and $5.8 million placed on deferred tax assets during the three and nine months ended March 31, 2024, respectively. The effective tax rates during fiscal 2023 were impacted by valuation allowances of $3.6 million and $13.3 million placed on deferred tax assets during the three and nine months ended March 31, 2023, respectively.

Valuation Allowance

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.

Note 7 – 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

During fiscal 2020, we commenced litigation in an effort to collect an account receivable from an iron and steel customer on a reimbursable contract following the deterioration of the 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 full contract balance. We received full payment of $16.8 million in the second quarter of fiscal 2024.

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.

During fiscal 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 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, which totaled $5.6 million as of March 31, 2024. Our trial for this matter is currently scheduled for January 2025.

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Litigation is unpredictable; however, we believe we have set appropriate reserves 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 8 – Earnings per Common Share

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

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


	Three Months Ended				Nine Months Ended
	March 31, 2024		March 31, 2023		March 31, 2024		March 31, 2023
	(In thousands, except per share data)
Basic EPS:
Net loss	$	(14,581)	$	(12,686)	$	(20,599)	$	(52,025)
Weighted average shares outstanding	27,443		27,038		27,357		26,969
Basic loss per share	$	(0.53)	$	(0.47)	$	(0.75)	$	(1.93)
Diluted EPS:
Net loss	$	(14,581)	$	(12,686)	$	(20,599)	$	(52,025)



Diluted weighted average shares outstanding	27,443		27,038		27,357		26,969
Diluted loss per share	$	(0.53)	$	(0.47)	$	(0.75)	$	(1.93)

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

Three Months Ended

Nine Months Ended

March 31,
2024

March 31,
2023

March 31,
2024

March 31,
2023

(In thousands)

Nonvested restricted stock shares

1,056

133

868

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Note 9 – 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.

•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. This segment also includes terminal balance of plant work, truck and rail loading/offloading facilities, and marine structures as well as storage tank and terminal maintenance and repair. Finally, we 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, including hydrogen processing, production, loading and distribution facilities. 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 align controllable costs with the responsibility of segment management, and to be consistent with how our chief operating decision-maker assesses segment performance and allocates resources. Segment assets consist primarily of accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, property, plant and equipment, right-of-use lease assets, goodwill and other intangible assets.

Operating Segment Information - The following tables set forth certain selected financial information for our operating segments for the periods indicated:

(In thousands)


	Storage and Terminal Solutions		Utility and Power Infrastructure		Process and Industrial Facilities		Corporate		Total
	Three Months Ended March 31, 2024
Total revenue (1)	$	54,304	$	46,120	$	65,589	$	—	$	166,013
Cost of revenue	(51,991)		(44,711)		(63,822)		89		(160,435)
Gross profit	2,313		1,409		1,767		89		5,578
Selling, general and administrative expenses	5,395		2,733		2,590		9,230		19,948
Operating loss	$	(3,082)	$	(1,324)	$	(823)	$	(9,141)	$	(14,370)
(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $1.3 million for the three months ended March 31, 2024.

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	Storage and Terminal Solutions		Utility and Power Infrastructure		Process and Industrial Facilities		Corporate		Total
	Three Months Ended March 31, 2023
Total revenue (1)	$	52,165	$	35,024	$	99,706	$	—	$	186,895
Cost of revenue	(52,975)		(32,234)		(96,546)		(721)		(182,476)
Gross profit (loss)	(810)		2,790		3,160		(721)		4,419
Selling, general and administrative expenses	5,735		1,869		3,556		5,702		16,862

Restructuring costs	79		—		106		131		316
Operating income (loss)	$	(6,624)	$	921	$	(502)	$	(6,554)	$	(12,759)
(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $1.7 million for the three months ended March 31, 2023.

	Storage and Terminal Solutions		Utility and Power Infrastructure		Process and Industrial Facilities		Corporate		Total
	Nine Months Ended March 31, 2024
Total revenue (1)	$	206,808	$	118,659	$	212,014	$	1,233	$	538,714
Cost of revenue	(197,704)		(112,139)		(198,498)		(2,347)		(510,688)
Gross profit (loss)	9,104		6,520		13,516		(1,114)		28,026
Selling, general and administrative expenses	14,362		6,259		7,884		24,287		52,792


Operating income (loss)	$	(5,258)	$	261	$	5,632	$	(25,401)	$	(24,766)
(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $3.1 million for the nine months ended March 31, 2024.

	Storage and Terminal Solutions		Utility and Power Infrastructure		Process and Industrial Facilities		Corporate		Total
	Nine Months Ended March 31, 2023
Total revenue (1)	$	191,614	$	130,429	$	267,123	$	—	$	589,166
Cost of revenue	(183,211)		(123,500)		(264,764)		(1,566)		(573,041)
Gross profit (loss)	8,403		6,929		2,359		(1,566)		16,125
Selling, general and administrative expenses	15,342		5,394		11,308		19,174		51,218
Goodwill impairment	—		—		12,316		—		12,316
Restructuring costs	984		37		803		1,057		2,881
Operating income (loss)	$	(7,923)	$	1,498	$	(22,068)	$	(21,797)	$	(50,290)
(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $2.8 million for the nine months ended March 31, 2023.


Total assets by segment

	March 31, 2024		June 30, 2023
Storage and Terminal Solutions	$	142,168	$	139,333
Utility and Power Infrastructure	77,054		67,630
Process and Industrial Facilities	118,412		90,514
Corporate	102,371		103,027
Total Segment Assets	$	440,005	$	400,504

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Note 10 – 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 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 three and nine months ended March 31, 2023, we incurred restructuring costs of $0.3 million and $2.9 million, respectively. The restructuring costs were primarily related to severance and other 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. No restructuring costs were incurred during the three and nine months ended March 31, 2024.

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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 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, 2023, and in our other filings with the Securities and Exchange Commission;

•economic, market or business conditions in general and in the 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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RESULTS OF OPERATIONS

Overview

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

Operational Update

During the third quarter of fiscal 2024, our markets and project opportunities remained strong, and during the quarter we added $186.8 million of awards to backlog, producing a book-to-bill ratio of 1.1. On a trailing twelve month basis, we generated a book-to-bill ratio of 1.9, an increase from a ratio of 1.3 in the prior twelve month period, and produced the highest backlog in company history of $1.45 billion. Many of these project awards are large construction projects that will generate revenues over a multi-year period with expected gross margins at our pre-pandemic historical gross margin range. The time to convert these awards to revenue is dependent on a variety of factors, many outside of our control. Several of those factors resulted in operating results that were below our expectations for the current quarter, and will result in a slower than expected recovery during our fourth fiscal quarter. Despite these challenges, the company generated positive cash flows from operations during the quarter, which improved our overall cash balance by $22.5 million, reflecting our ability to efficiently manage capital and maintain financial stability. Combining expected forthcoming revenues from effective project execution and conversion of our historic backlog, the company is on a trajectory of upward growth and profitability.

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Backlog

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

•fixed-price awards;

•minimum customer commitments on cost plus arrangements; and

•certain time and material arrangements in which the estimated value is firm or can be estimated with a reasonable amount of certainty in both timing and amounts.

For long-term maintenance contracts with no minimum commitments and other established customer agreements, we include only the amounts that we expect to recognize as revenue over the next 12 months. For arrangements in which we have received a LNTP, we include the entire scope of work in our backlog if we conclude that the likelihood of the full project proceeding 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 March 31, 2024:


	Storage and Terminal Solutions		Utility and Power Infrastructure		Process and Industrial Facilities		Total
	(In thousands)
Backlog as of December 31, 2023	$	658,049	$	451,442	$	337,332	$	1,446,823
Project awards	134,592		27,093		25,113		186,798

Other adjustment(2)	—		—		(17,370)		(17,370)
Revenue recognized	(54,304)		(46,120)		(65,589)		(166,013)
Backlog as of March 31, 2024	$	738,337	$	432,415	$	279,486	$	1,450,238
Book-to-bill ratio(1)	2.5		0.6		0.4		1.1

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

(2)Backlog was reduced by $17.4 million to account for a reduction of work available to us under an existing refinery maintenance program.

The following table provides a summary of changes in our backlog for the nine months ended March 31, 2024:


	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	674,486		91,556		148,949		914,991

Other adjustment(2)	—		—		(17,370)		(17,370)
Revenue recognized	(206,808)		(118,659)		(212,014)		(537,481)
Backlog as of March 31, 2024	$	738,337	$	432,415	$	279,486	$	1,450,238
Book-to-bill ratio(1)	3.3		0.8		0.7		1.7

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

(2)Backlog was reduced by $17.4 million to account for a reduction of work available to us under an existing refinery maintenance program.

In the Storage and Terminal Solutions segment, we booked $134.6 million of project awards during the third quarter of fiscal 2024. Included in project awards was the award of an ethane storage tank project. During the nine months ended March 31, 2024, we booked $674.5 million of project awards, which included a significant ethane storage project. This segment includes significant opportunities for storage infrastructure projects related to LNG, NGLs, natural gas, ammonia, hydrogen, and other forms of renewable energy. We believe LNG and hydrogen projects will be key growth drivers for this segment.

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In the Utility and Power Infrastructure segment, we booked $27.1 million of project awards during the third quarter of fiscal 2024. During the nine months ended March 31, 2024, we booked $91.6 million of project awards. 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, we booked $25.1 million of project awards during the third quarter of fiscal 2024. During the nine months ended March 31, 2024, we booked $148.9 million of project awards. Project awards during the quarter were driven by contract growth on a refinery retrofit project at a biodiesel facility. Additionally, during the quarter, backlog in this segment was reduced by $17.4 million to account for a reduction of work available under an existing refinery maintenance program. We continue to see increasing opportunities in mining and minerals, chemicals, hydrogen and renewables. In addition, we are pursuing further opportunities for hydrogen and carbon capture projects across a number of different markets.

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.

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Results of Operations

Three months ended March 31, 2024 Compared to the Three months ended March 31, 2023

The information below is an analysis of our consolidated results for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments.

Consolidated Results


	Three Months Ended
	March 31,				2024 v 2023
	2024		2023		$		%
Revenue	$	166,013	$	186,895	$	(20,882)	(11)	%
Cost of revenue	160,435		182,476		(22,041)		(12)	%
Gross profit	5,578		4,419		1,159		26	%
Selling, general and administrative expenses	19,948		16,862		3,086		18	%

Restructuring costs	—		316		(316)		(100)	%
Operating loss	(14,370)		(12,759)		(1,611)		13	%
Other income (expense):
Interest expense	(143)		(268)		125		(47)	%
Interest income	165		94		71		76	%
Other	(235)		(116)		(119)		103	%
Loss before income tax expense	(14,583)		(13,049)		(1,534)		12	%
Provision for federal, state and foreign income taxes	(2)		(363)		361		(99)	%
Net loss	$	(14,581)	$	(12,686)	$	(1,895)	15	%

Revenue - The decrease in overall revenue of $20.9 million, or 11%, was primarily attributable to reduced revenue volumes in our Process and Industrial Facilities segment driven by lower volumes of midstream gas processing work, combined with the delay in the ramp of previously awarded construction projects. Revenue is expected to increase on a consolidated basis in the near term as work on projects currently in backlog begins to increase.

Gross profit - Gross profit in the third quarter of fiscal 2024 increased $1.2 million, or 26%, compared to the third quarter of fiscal 2023. Gross margin increased to 3.4% for the third quarter of fiscal 2024 compared to 2.4% for the third quarter of fiscal 2023. While project execution remained strong, gross margins were negatively impacted by the under-recovery of construction overhead costs due to low revenue. Additionally, gross margin was impacted by reduced labor demand for turnaround and maintenance services in the final year of a three-year refinery maintenance contract which is currently up for renewal. The accounting for this change resulted in a cumulative catch-up adjustment over the life of the contract, which impacted gross margins during the period. The gross margins in the third quarter 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, increased forecasted costs to complete certain midstream gas processing projects, and continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Selling, general and administrative expenses - The increase in SG&A expenses of $3.1 million, or 18%, is primarily due to an increase in our cash-settled stock-based compensation of $1.9 million, which increased due to a substantially higher stock price year over year, and increased project pursuit costs as we continue to actively pursue additional project opportunities.

Provision for income taxes - Our effective tax rates for the three months ended March 31, 2024 and March 31, 2023 were zero and 2.8%, respectively. The effective tax rates during both periods were impacted by valuation allowances of $4.4 million million and $3.6 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.

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Results of Operations by Business Segment


	Three Months Ended
	March 31,				2024 v 2023
Dollars in thousands	2024		2023		$		%
Revenue:
Storage and Terminal Solutions	$	54,304	$	52,165	$	2,139	4	%
Utility and Power Infrastructure	46,120		35,024		11,096		32	%
Process and Industrial Facilities	65,589		99,706		(34,117)		(34)	%
Total revenue (1)	$	166,013	$	186,895	$	(20,882)	(11)	%
(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $1.3 million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively.

Gross profit (loss)
Storage and Terminal Solutions	$	2,313	$	(810)	$	3,123	(386)	%
Utility and Power Infrastructure	1,409		2,790		(1,381)		(49)	%
Process and Industrial Facilities	1,767		3,160		(1,393)		(44)	%
Corporate	89		(721)		810		(112)	%
Total gross profit	$	5,578	$	4,419	$	1,159	26	%

Operating Income (loss)
Storage and Terminal Solutions	$	(3,082)	$	(6,624)	$	3,542	(53)	%
Utility and Power Infrastructure	(1,324)		921		(2,245)		(244)	%
Process and Industrial Facilities	(823)		(502)		(321)		64	%
Corporate	(9,141)		(6,554)		(2,587)		39	%
Total Operating Loss	$	(14,370)	$	(12,759)	$	(1,611)	13	%

Storage and Terminal Solutions

Storage and Terminal Solutions revenues increased by $2.1 million, or 4%, in the three months ended March 31, 2024 compared to the same period last year. The Company expects higher revenue volume in the near term as it transitions recent large specialty storage project awards through contracting, project planning and mobilization.

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Storage and Terminal Solutions gross profit increased by $3.1 million in the three months ended March 31, 2024 compared to the same period last year. The segment gross margin was 4.3% for the three months ended March 31, 2024 compared to segment gross loss of 1.6% in the same period last year. Project execution was strong for the segment in the current quarter; however, both periods were impacted by the under-recovery of construction overhead costs.

Utility and Power Infrastructure

Utility and Power Infrastructure revenues increased by $11.1 million, or 32%, in the three months ended March 31, 2024 compared to the same period last year. The increase is primarily attributable to higher volumes of work for LNG peak shaving projects, partially offset by lower volumes of work for power delivery and power generation.

Utility and Power Infrastructure gross profit decreased by $1.4 million, or 49%, in the three months ended March 31, 2024 compared to the same period last year. The segment gross margin was 3.1% for the three months ended March 31, 2024 compared to 8.0% in the same period last year. The segment gross margin in the current period was impacted by the under-recovery of construction overhead costs as we have shifted resources to this segment to support large construction projects which are in their early stages.

Process and Industrial Facilities

Process and Industrial Facilities revenues decreased by $34.1 million, or 34%, in the three months ended March 31, 2024 compared to the same period last year. The decrease is primarily attributable to lower volumes of work for a mining and minerals facility, midstream gas processing projects, and refinery maintenance. These decreases were partially offset by higher volumes for a renewable energy facility.

Process and Industrial Facilities gross profit decreased by $1.4 million, or 44%, in the three months ended March 31, 2024 compared to the same period last year. The segment gross margin was 2.7% for the three months ended March 31, 2024 compared to 3.2% in the same period last year. The segment gross margin in the third quarter of fiscal 2024 was impacted by reduced labor demand for turnaround and maintenance services in the final year of a three-year refinery maintenance contract which is currently up for renewal. The accounting for this change resulted in a cumulative catch-up adjustment over the life of the contract, which impacted gross margins during the period.

The segment gross margin in the third 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 capital projects, which resulted in the projects reducing gross profit by $3.3 million for the quarter. The segment gross margin was also impacted by under-recovery of construction overhead costs.

Corporate

Unallocated corporate expenses were $9.1 million during the three months ended March 31, 2024 compared to $6.6 million in the same period last year. The increase of $2.5 million was primarily due to higher cash-settled stock-based compensation due to an increase in the price of our stock

Nine Months Ended March 31, 2024 Compared to the Nine Months Ended March 31, 2023

The information below is an analysis of our consolidated results for the nine months ended March 31, 2024, compared to the nine months ended March 31, 2023. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments.

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Consolidated Results


	Nine Months Ended
	March 31,				2024 v 2023
Dollars in thousands	2024		2023		$		%
Revenue	$	538,714	$	589,166	$	(50,452)	(9)	%
Cost of revenue	510,688		573,041		(62,353)		(11)	%
Gross profit	28,026		16,125		11,901		74	%
Selling, general and administrative expenses	52,792		51,218		1,574		3	%
Goodwill impairment	—		12,316		(12,316)		(100)	%
Restructuring costs	—		2,881		(2,881)		(100)	%
Operating loss	(24,766)		(50,290)		25,524		(51)	%
Other income (expense):
Interest expense	(787)		(1,556)		769		(49)	%
Interest income	477		164		313		191	%
Other (Note 3)	4,481		(706)		5,187		(735)	%
Loss before income tax expense	(20,595)		(52,388)		31,793		(61)	%
Provision for federal, state and foreign income taxes	4		(363)		367		(101)	%
Net loss	$	(20,599)	$	(52,025)	$	31,426	(60)	%

Consolidated

Revenue - The decrease in overall revenue of $50.5 million, or 9%, was primarily attributable to revenue decreases across our Process and Industrial Facilities and Utility Power and Infrastructure segments of $55.1 million and $11.8 million, respectively. These decreases were partially offset by an increase in revenue in our Storage and Terminal Solutions segment of $15.2 million.

Gross profit - Gross profit increased $11.9 million, or 74%. Gross margin increased to 5.2% in the nine months ended March 31, 2024 compared to a gross margin of 2.7% in the same period last year. Gross margins in the first nine months of fiscal 2024 were impacted by under-recovery of overhead costs due to low revenue volumes. Gross margins in the first nine 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, and continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Selling, general and administrative expenses - The increase in SG&A expenses of $1.6 million, or 3%, is primarily due to an increase in cash-settled stock-based compensation of $4.4 million, which increased due to a higher stock price year over year, partially offset by lower pursuit costs and lower depreciation and amortization expenses.

Goodwill Impairment - The Company did not record any goodwill impairment during the nine months ended March 31, 2024. During the nine months ended March 31, 2023 we recorded a goodwill impairment of $12.3 million. See Item 1. Financial Statements, Note 4 - Goodwill, for more information about the impairment.

Restructuring costs - The Company did not incur any restructuring costs during the nine months ended March 31, 2024. During the nine months ended March 31, 2023, we incurred $2.9 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 - The decrease in interest expense of $0.8 million, or 49%, is primarily due to lower average outstanding borrowings.

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Provision for income taxes - Our effective tax rates for the nine months ended March 31, 2024 and March 31, 2023 were zero and 0.7%, respectively The effective tax rates during both periods were impacted by valuation allowances of $5.8 million and $13.3 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.

Other income - The increase in other income of $5.2 million, is primarily due to gains on sales of assets recorded during the period. During the second quarter of fiscal 2024, we recognized a gain of $2.0 million from the sale of a facility in Catoosa, Oklahoma for $2.7 million in net proceeds. 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.

Results of Operations by Business Segment


	Nine Months Ended
	March 31,				2024 v 2023
	2024		2023		$		%
Revenue
Storage and Terminal Solutions	$	206,808	$	191,614	$	15,194	8	%
Utility and Power Infrastructure	118,659		130,429		(11,770)		(9)	%
Process and Industrial Facilities	212,014		267,123		(55,109)		(21)	%
Corporate	1,233		—		1,233		—	%
Total revenue (1)	$	538,714	$	589,166	$	(50,452)	(9)	%
(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $3.1 million and $2.8 million for the nine months ended March 31, 2024 and 2023, respectively.

Gross profit (loss)
Storage and Terminal Solutions	$	9,104	$	8,403	$	701	8	%
Utility and Power Infrastructure	6,520		6,929		(409)		(6)	%
Process and Industrial Facilities	13,516		2,359		11,157		473	%
Corporate	(1,114)		(1,566)		452		(29)	%
Total gross profit	$	28,026	$	16,125	$	11,901	74	%

Operating Income (loss)
Storage and Terminal Solutions	$	(5,258)	$	(7,923)	$	2,665	(34)	%
Utility and Power Infrastructure	261		1,498		(1,237)		(83)	%
Process and Industrial Facilities	5,632		(22,068)		27,700		(126)	%
Corporate	(25,401)		(21,797)		(3,604)		17	%
Total Operating Loss	$	(24,766)	$	(50,290)	$	25,524	(51)	%

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Storage and Terminal Solutions

Storage and Terminal Solutions revenues increased by $15.2 million, or 8%, in the nine months ended March 31, 2024 compared to the same period last year. The increase is primarily attributable to increases in work performed for specialty vessel projects awarded in previous fiscal years.

Storage and Terminal Solutions gross profit increased slightly by $0.7 million, or 8%, in the nine months ended March 31, 2024 compared to the same period last year. The segment gross margin was 4.4% for the nine months ended March 31, 2024 compared to 4.4% in the same period last year. Project execution was strong for the segment; however, both periods were impacted by the under-recovery of construction overhead costs.

Utility and Power Infrastructure

Utility and Power Infrastructure revenues decreased by $11.8 million, or 9%, in the nine months ended March 31, 2024 compared to the same period last year. The decrease is primarily attributable to lower volumes of power delivery and power generation work, partially offset by revenue increases from peak shaving projects.

Utility and Power Infrastructure gross profit decreased by $0.4 million, or 6%, in the nine months ended March 31, 2024 compared to the same period last year. The segment gross margin was 5.5% for the nine months ended March 31, 2024 compared to 5.3% in the same period last year. During the nine months ended March 31, 2024, project execution was strong for the segment; however, margin was impacted by the under-recovery of construction overhead costs as we have shifted resources to this segment to support large construction projects which are in their early stages. The segment gross margin for the first nine months of fiscal 2023 was negatively impacted by continued work on projects with previously reduced gross margins, projects that were bid competitively, and the under recovery of construction overhead costs due to lower revenue volumes. These negative impacts were partially offset by strong execution of cost reimbursable power delivery work.

Process and Industrial Facilities

Process and Industrial Facilities revenues decreased by $55.1 million, or 21%, in the nine months ended March 31, 2024 compared to the same period last year. The decrease is primarily attributable to lower revenue volumes for midstream gas processing projects, mining and minerals, industrial facilities and refinery turnarounds. These decreases were offset by revenue increases for a renewable energy facility in addition to increases in revenue associated with thermal vacuum chambers.

Process and Industrial Facilities gross profit increased by $11.2 million in the nine months ended March 31, 2024 compared to the same period last year. The segment gross margin was 6.4% for the nine months ended March 31, 2024 compared to 0.9% for the same period last year. The segment gross margin for the first nine months of fiscal 2024 was positively impacted by strong project execution on thermal vacuum chamber projects, partially offset by unfavorable changes in margin opportunity for an existing refinery maintenance program due to lower volumes of work, as well as under-recovery of construction overhead costs. The segment gross margin in the first nine months 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 capital projects, which resulted in the projects reducing gross profit by $12.7 million for the period.

Corporate

Unallocated corporate revenue and expenses net to $25.4 million during the nine months ended March 31, 2024 compared to $21.8 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.

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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.

•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 Adjusted net loss follows:

Reconciliation of Net Loss to Adjusted Net Loss(1)

(In thousands, except per share data)


	Three Months Ended				Nine Months Ended
	March 31, 2024		March 31, 2023		March 31, 2024		March 31, 2023
Net loss, as reported	$	(14,581)	$	(12,686)	$	(20,599)	$	(52,025)
Goodwill impairment	—		—		—		12,316
Restructuring costs	—		316		—		2,881
Gain on sale of assets(2)	—		—		(4,542)		—

Tax impact of adjustments(3)	—		—		—		—

Adjusted net loss	$	(14,581)	$	(12,370)	$	(25,141)	$	(36,828)

Loss per share, as reported	$	(0.53)	$	(0.47)	$	(0.75)	$	(1.93)
Adjusted loss per share	$	(0.53)	$	(0.46)	$	(0.92)	$	(1.37)

(1)Beginning with the first quarter of fiscal 2024, the definition of Adjusted net loss and Adjusted loss per share was updated to no longer include changes in the 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.

(2)Represents gain on the sale of our Burlington, ON office in the first quarter of FY24 and the gain on the sale of 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)Represents the tax impact of the adjustments to Net loss, calculated using the applicable effective tax rate of the adjustment.

(4)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 assets.

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Adjusted EBITDA

We have presented Adjusted EBITDA, which we define as Net loss before restructuring costs, gain on sale of assets, stock-based compensation, interest expense, 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 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 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 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 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 been replenished by using cash to periodically repurchase our stock. Therefore, any measure that excludes stock-based compensation has material limitations.

•It does not include interest expense. Because we have borrowed money to finance our operations and acquisitions, pay commitment fees to maintain our credit facility, and incur fees to issue letters of credit under the credit facility, interest expense is a necessary and ongoing part of our costs and has assisted us in generating revenue. Therefore, any measure that excludes interest expense has material limitations.

•It does not include 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.

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A reconciliation of Net loss to Adjusted EBITDA follows:


	Three Months Ended				Nine Months Ended
	March 31, 2024		March 31, 2023		March 31, 2024		March 31, 2023
	(In thousands)
Net loss	$	(14,581)	$	(12,686)	$	(20,599)	$	(52,025)
Goodwill impairment	—		—		—		12,316
Restructuring costs	—		316		—		2,881
Gain on sale of assets(1)	—		—		(4,542)		—
Stock-based compensation(2)	1,980		1,407		5,765		5,154
Interest expense	143		268		787		1,556
Provision (benefit) for federal, state and foreign income taxes	(2)		(363)		4		(363)
Depreciation and amortization	2,645		3,322		8,337		10,499
Adjusted EBITDA	$	(9,815)	$	(7,736)	$	(10,248)	$	(19,982)

(1)Represents gain on the sale of our Burlington, ON office in the first quarter of FY24 and the gain on the sale of our Catoosa, OK facility in the second quarter of FY24. See Item 1, Note 3 - Property, Plant and Equipment, Building Disposals, for more information.

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

Seasonality and Other Factors

Our operating results can exhibit seasonal fluctuations, especially in our Process and Industrial Facilities and Utility and Power Infrastructure segments, for a variety of reasons. Turnarounds and planned outages at customer facilities are typically scheduled in the spring 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.

Other factors impacting operating results in all segments come from decreased work volume during holidays, work site permitting delays or customers accelerating or postponing work. The differing types, sizes, and durations of our contracts, combined with their geographic diversity and stages of completion, often results in fluctuations in our operating results.

Our overhead cost structure is generally fixed. Significant fluctuations in revenue usually leads to over or under-recovery of fixed overhead costs, which can have a material impact on our gross margin and profitability.

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 March 31, 2024 were unrestricted cash and cash equivalents on hand, capacity under our ABL Facility, and cash generated from operations. Unrestricted cash and cash equivalents at March 31, 2024 totaled $69.7 million and availability under the ABL Facility totaled $65.3 million, resulting in total liquidity of $135.0 million. During the third quarter of fiscal 2024, cash and cash equivalents increased $22.5 million and total liquidity increased $28.7 million primarily as a result of cash provided by operating activities.

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The following table provides cash and cash equivalents, restricted cash and total cash in the Condensed Consolidated Balance Sheets, as well as trends in liquidity (in thousands):


	March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023
Cash and cash equivalents	$	69,658	$	47,160	$	27,359	$	54,812

Restricted cash	25,000		25,000		25,000		25,000
Total cash, cash equivalents and restricted cash	$	94,658	$	72,160	$	52,359	$	79,812
Total Liquidity	$	135,013	$	106,270	$	80,252	$	92,554

The following table provides a summary of changes in our liquidity for the three months ended March 31, 2024 (in thousands):


Liquidity at December 31, 2023	$	106,270
Cash provided by operating activities	24,838
Proceeds from asset sales	2,729
Capital expenditures	(4,830)
Increase in availability under ABL Facility	6,245
Cash used by financing activities	41
Effect of exchange rate changes on cash	(280)
Liquidity at March 31, 2024	$	135,013

The following table provides a summary of changes in our liquidity for the nine months ended March 31, 2024 (in thousands):


Liquidity at June 30, 2023	$	92,554
Cash provided by operating activities	25,567
Proceeds from asset sales	5,535
Capital expenditures	(5,689)
Increase in availability under ABL Facility	27,613
Cash used by financing activities	(10,324)
Effect of exchange rate changes on cash	(243)
Liquidity at March 31, 2024	$	135,013

Factors that routinely impact our short-term liquidity and may impact our long-term liquidity include, but are not limited to:

•changes in costs and estimated earnings in excess of billings on uncompleted contracts and billings on uncompleted contracts in excess of costs due to contract terms that determine the timing of billings to customers and the collection of those billings:

◦some cost-plus and fixed-price customer contracts are billed based on milestones which may require us to incur significant expenditures prior to collections from our customers;

◦some fixed-price customer contracts allow for significant upfront billings at the beginning of a project, which temporarily increases liquidity near term;

◦time and material contracts are normally billed in arrears. Therefore, we are routinely required to carry these costs until they can be billed and collected; and

◦some of our large construction projects may require security in the form of letters of credit or significant retentions. Retentions are normally held until certain contractual milestones are achieved;

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

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•capital expenditures.

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

•contract disputes;

•collection issues, including those caused by weak commodity prices, economic slowdowns or other factors which can lead to credit deterioration of our customers;

•strategic investments in new operations or divestitures of existing operations;

•borrowing constraints under our ABL Facility and maintaining compliance with all covenants contained in the ABL Facility;

•acquisitions and disposals of businesses or assets; and

•purchases of shares under our stock buyback program.

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 borrowing base is recalculated on a monthly basis and at March 31, 2024, our borrowing base was $72.3 million, we had $7.0 million in letters of credit outstanding, which resulted in availability of $65.3 million under the ABL Facility. During the second quarter ended December 31, 2023, the Company repaid all outstanding borrowings under the ABL Facility.

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Cash Flow for the Nine Months Ended March 31, 2024

Cash Flows provided by Operating Activities

Cash provided by operating activities for the nine months ended March 31, 2024 totaled $25.6 million. The various components are as follows:

Net Cash Provided by Operating Activities

(In thousands)


Net loss	$	(20,599)
Depreciation and amortization	8,337

Stock-based compensation	5,765
Other non-cash expenses	169
Gain on sale of property, plant and equipment	(4,530)

Cash effect of changes in operating assets and liabilities	36,425

Net cash provided by operating activities	$	25,567

Cash effect of changes in operating assets and liabilities at March 31, 2024 in comparison to June 30, 2023 include the following:

•Accounts receivable, excluding credit losses recognized during the period, increased by $43.1 million during the nine months ended March 31, 2024, 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") decreased $10.3 million, which increased cash flows from operating activities. Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $82.2 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.

•Accounts payable decreased by $20.9 million during the nine months ended March 31, 2024, 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.

•Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, increased $11.8 million during the nine months ended March 31, 2024, 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. Accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current increased by $4.1 million during the nine months ended March 31, 2024, which increased 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 by Investing Activities

Investing activities used $0.2 million of cash in the nine months ended March 31, 2024 primarily due to capital expenditures, offset by proceeds from asset sales. 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. We closed these previously utilized facilities as they was no longer strategic to the future of the business. In the third quarter of fiscal 2024 we purchased a fabrication facility in Bakersfield, California for $4.1 million to replace a facility currently being leased by the Company.

Cash Flows Used by Financing Activities

Financing activities used $10.3 million of cash in the nine months ended March 31, 2024 primarily due to $10.0 million in advances and $20.0 million in repayments under our ABL facility. As of March 31, 2024 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 nine months ended March 31, 2024 and have no current plans to repurchase stock. As of March 31, 2024, 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 583,483 treasury shares as of March 31, 2024 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 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 2023 Annual Report on Form 10-K.

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, 2023, filed with the Securities and Exchange Commission. For more information on market risk, see Part II, Item 7A in our fiscal 2023 Annual Report on Form 10-K.

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 March 31, 2024. 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 March 31, 2024.

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 March 31, 2024.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

We are a party to a number of legal proceedings. See Part I., Item 1. Financial Statements, Note 7 - Commitments and Contingencies, Litigation, for a description of our material 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, 2023.

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

Issuer Purchases of Equity Securities

We may repurchase common stock pursuant to the Stock Buyback Program, which was approved by the board of directors in November 2018. Under the program, the aggregate number of shares repurchased may not exceed 2,707,175 shares. As of March 31, 2024, 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 third quarter of fiscal 2024 and have no current plans to repurchase stock.

Dividend Policy

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") requires domestic mine operators to disclose violations and orders issued under the Federal Mine Safety and Health Act of 1977 (the "Mine Act") by the Federal Mine Safety and Health Administration. We do not act as the owner of any mines, but as a result of our performing services or construction at mine sites as an independent contractor, we are considered an "operator" within the meaning of the Mine Act.

Information concerning mine safety violations or other regulatory matters required to be disclosed in this quarterly report under Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95.

Item 5. Other Information

On February 13, 2024, Mrs. Nancy E. Austin, our Vice President and Chief Administrative Officer, entered into a trading plan with her broker intended to satisfy the affirmative defense conditions of Rule 10b5-1 under the Securities and Exchange Act of 1934 ("Rule 10b5-1 Trading Plan"). The Rule 10b5-1 Trading Plan allows Mrs. Austin to sell up to 50,222 shares of Matrix Service Company common stock. Mrs. Austin's Rule 10b5-1 Trading Plan expires upon the earlier of February 13, 2025 or the date all trades pursuant to such trading plan are executed.

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.

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Exhibit No.						Description
Exhibit 10.2						Third Amendment to Credit Agreement dated May 3, 2024 by and among, Matrix Service Company and certain subsidiaries thereof, certain financial institutions as lenders, and Bank of Montreal, as 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).

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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:	May 9, 2024	By: /s/ Kevin S. Cavanah
		Kevin S. Cavanah Vice President and Chief Financial Officer

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