MATRIX SERVICE CO

Previous wording

•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.

Current wording

•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 power delivery 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.

Previous wording

•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.

Current wording

•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 engineer and construct thermal vacuum test chambers for aerospace and defense industries and other infrastructure for industries including chemicals, petrochemical, sulfur, mining and minerals primarily in the extraction of non-ferrous metals, cement, agriculture, wastewater treatment facilities and other industrial customers.

Previous wording

In the Storage and Terminal Solutions segment, we booked $81.7 million of project awards during the first quarter of fiscal 2025. This segment includes significant opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, NGLs and other forms of renewable energy. We believe LNG and ammonia projects in particular will be key growth drivers for this segment. Bidding activity on LNG and ammonia projects has been strong and we expect that to continue.

Current wording

In the Storage and Terminal Solutions segment, we booked $32.8 million of project awards during the second quarter of fiscal 2025. During the six months ended December 31, 2024, we booked $114.5 million of project awards. This segment includes significant opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, NGLs and other forms of renewable energy. We believe LNG and ammonia projects in particular will be key growth drivers for this segment. Bidding activity on LNG and ammonia projects has been strong and we expect that to continue.

Previous wording

In the Utility and Power Infrastructure segment, we booked $34.4 million of project awards during the first quarter of fiscal 2025. Our opportunity pipeline for LNG peak shaving projects continues to be promising; however those awards, while significant, can be less frequent. Power delivery opportunities are expected to be driven over the long-term by increasing electrical demand and the related electrical grid requirements. Project opportunities and bidding activity are strong for both the power delivery portion of the business and LNG peak shaving.

Current wording

In the Utility and Power Infrastructure segment, we booked $21.4 million of project awards during the second quarter of fiscal 2025. During the six months ended December 31, 2024, we booked $55.8 million of project awards. Our opportunity pipeline for LNG peak shaving projects continues to be promising; however those awards, while significant, can be less frequent. Power delivery opportunities are expected to be driven over the long-term by increasing electrical demand and the related electrical grid requirements. Project opportunities and bidding activity are strong for both the power delivery portion of the business and LNG peak shaving.

Previous wording

In the Process and Industrial Facilities segment, we booked $32.0 million of project awards during the first quarter of fiscal 2025. During the quarter, we were notified of a five-year renewal of a refinery maintenance contract. We continue to see demand for thermal vacuum chambers in the coming quarters, as well as increasing opportunities in mining and minerals, chemicals, and renewables.

Current wording

In the Process and Industrial Facilities segment, we booked $36.3 million of project awards during the second quarter of fiscal 2025. During the six months ended December 31, 2024, we booked $68.2 million of project awards, and were notified of a five-year renewal of a refinery maintenance contract. We continue to see demand for thermal vacuum chambers in the coming quarters, as well as increasing opportunities in mining and minerals, chemicals, renewables and refinery turnarounds.

Previous wording

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. This lag normally extends up to six months or longer in unique circumstances, 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.

Current wording

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. This lag can vary and can extend up to six months or longer in unique circumstances, 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.

Previous wording

Interest income - The increase in interest income of $1.4 million is primarily due to an increase in our cash balance. In fiscal 2024 we invested excess cash balances in interest-bearing cash accounts.

Current wording

Interest income - The increase in interest income of $1.4 million is primarily due to an increase in our cash balance. In late fiscal 2024, as a result of increasing cash balances, we invested excess cash balances in interest-bearing cash accounts.

Previous wording

Provision for income taxes - Our effective tax rates for the three months ended September 30, 2024 and September 30, 2023 were zero. The effective tax rates during both periods were impacted by valuation allowances of $1.3 million and $0.2 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.

Current wording

Provision for income taxes - Our effective tax rates for the three months ended December 31, 2024 and December 31, 2023 were (0.3%) and zero, respectively. The effective tax rates during both periods were impacted by valuation allowances of $1.8 million and $1.2 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. Currently, we place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided as we generate taxable income.

Previous wording

Process and Industrial Facilities gross profit decreased by $3.1 million, or 61%, in the three months ended September 30, 2024 compared to the same period last year. The segment gross margin was 6.4% for the three months ended September 30, 2024 compared to 6.8% in the same period last year. Gross margins in both periods were negatively impacted by under-recovery of construction overhead costs.

Current wording

Utility and Power Infrastructure gross profit increased by $2.0 million, or 141%, in the three months ended December 31, 2024 compared to the same period last year. The segment gross margin was 5.6% for the three months ended December 31, 2024 compared to 3.5% in the same period last year, an increase of 2.1% due to an improved mix of work. Gross margins in both periods were negatively impacted by the under-recovery of construction overhead costs.

Previous wording

Revenue - The decrease in overall revenue of $32.1 million, or 16%, was primarily attributable to reduced revenue volumes in our Storage and Terminal Solutions and Process and Industrial Facilities segments, partially offset by an increase in Utility and Power Infrastructure.

Current wording

Revenue - The decrease in overall revenue of $20.0 million, or 5%, was primarily attributable to reduced revenue volumes in our Process and Industrial Facilities segment, partially offset by increases in Storage and Terminal Solutions and Utility and Power Infrastructure.

Previous wording

Gross profit - Gross profit in the first quarter of fiscal 2025 decreased $4.0 million, or 34%, compared to the first quarter of fiscal 2024. Gross margin decreased to 4.7% for the first quarter of fiscal 2025 compared to 6.0% for the first quarter of fiscal 2024. While project execution remained strong, gross margins were negatively impacted by the under-recovery of construction overhead costs on the lower revenues.

Current wording

Gross profit - Gross profit in the first half of fiscal 2025 decreased $3.7 million, or 17%, compared to the first half of fiscal 2024. Gross margin decreased to 5.3% for the first half of fiscal 2025 compared to 6.0% for the first half of fiscal 2024. While project execution remained strong, gross margins were negatively impacted by the under-recovery of construction overhead costs, which increased for the first half of fiscal 2025 due to lower revenues.

Previous wording

Selling, general and administrative expenses - The increase in SG&A expenses of $1.5 million, or 9%, is primarily due to an increase in operations headcount required to support the strong market demand and growth in our business.

Current wording

Selling, general and administrative expenses - The increase in SG&A expenses of $3.0 million, or 9%, is primarily due to several factors including an increase in salaries and wages of $1.6 million and an increase in pursuit costs of $0.6 million, all necessitated to support conversion of backlog to revenue and expected growth of the business.

Previous wording

Storage and Terminal Solutions revenues decreased by $11.9 million, or 13%, in the three months ended September 30, 2024 compared to the same period last year, driven by reduced volume of work for flat bottom tank new build, repair and maintenance work, partially offset by increases in LNG storage and specialty vessel projects.

Current wording

Storage and Terminal Solutions revenues increased by $21.2 million, or 14%, in the six months ended December 31, 2024 compared to the same period last year, driven by increased volume of work for specialty vessel and LNG storage, partially offset by decreases in tank repair and maintenance work.

Previous wording

Utility and Power Infrastructure revenues increased by $23.5 million, or 73%, in the three months ended September 30, 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 decreases in power delivery work.

Current wording

Utility and Power Infrastructure revenues increased by $44.4 million, or 61%, in the six months ended December 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 decreases in power delivery work.

Previous wording

Utility and Power Infrastructure gross profit decreased by $2.4 million, or 65%, in the three months ended September 30, 2024 compared to the same period last year. The segment gross margin was 2.3% for the three months ended September 30, 2024 compared to 11.4% in the same period last year. The segment gross margin in the current period was impacted by the under-recovery of construction overhead costs, primarily in our power delivery service line. Additionally, segment gross margin in the first quarter of fiscal 2024 benefited from favorable project closeouts.

Current wording

Utility and Power Infrastructure gross profit decreased by $0.4 million, or 8%, in the six months ended December 31, 2024 compared to the same period last year. The segment gross margin was 4.0% for the six months ended December 31, 2024 compared to 7.0% in the same period last year. The segment gross margin in the current period was impacted by higher levels of under-recovery of construction overhead costs.

Previous wording

Process and Industrial Facilities revenues decreased by $43.7 million, or 58%, in the three months ended September 30, 2024 compared to the same period last year. The decrease is primarily attributable to lower revenue volumes for a now completed large renewable diesel project. We believe this reduction in revenue is temporary given our strong backlog, including a significant gas processing construction project that is expected to commence in late fiscal 2025.

Current wording

Process and Industrial Facilities revenues decreased by $84.4 million, or 58%, in the six months ended December 31, 2024 compared to the same period last year. The decrease is primarily attributable to lower revenue volumes for a now completed large renewable diesel project, in addition to lower revenue volumes for thermal vacuum chambers. We believe this reduction in revenue is temporary given our strong backlog, including a significant gas processing construction project that is expected to commence in late fiscal 2025.

Previous wording

Unallocated corporate expenses net to $7.5 million during the three months ended September 30, 2024 compared to $9.7 million in the same period last year. The decrease of $2.3 million was primarily due to reduced legal expenses in the first quarter of fiscal 2025. Legal expenses incurred during the first quarter of fiscal 2024 included costs related to a jury trial that resulted in a verdict in our favor.

Current wording

Unallocated corporate revenue and expenses net to $14.1 million during the six months ended December 31, 2024 compared to $16.3 million in the same period last year. The decrease of $2.2 million was primarily due to reduced legal expenses year over year. Legal expenses incurred during the first half of fiscal 2024 included costs related to a jury trial that resulted in a verdict in our favor.

Previous wording

We define liquidity as the ongoing ability to pay our liabilities as they become due, fund business operations and meet all monetary contractual obligations. Our primary sources of liquidity at September 30, 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 September 30, 2024 totaled $124.6 million and availability under the ABL Facility totaled $56.6 million, resulting in total liquidity of $181.2 million. During the first quarter of fiscal 2025, liquidity increased $11.6 million primarily as a result of cash provided by operating activities.

Current wording

We assess liquidity based on the ongoing ability to pay our liabilities as they become due, fund business operations and meet all monetary contractual obligations. Our primary sources of liquidity at December 31, 2024 were unrestricted cash and cash equivalents on hand, capacity under our ABL Facility, and cash generated from operations. Our primary operational uses of capital are expenditures required to execute our projects, fund business operations and fulfill our contractual obligations. We believe that for at least the next 12 months, anticipated cash generated by operating activities, along with our availability under the ABL Facility and cash position, is sufficient to support our operating requirements.

Previous wording

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

Current wording

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

Previous wording

◦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;

Current wording

◦some cost-plus and fixed-price customer contracts are billed based on milestones which may increase or decrease liquidity in the near term depending on the timing of when we incur significant expenditures and when we collect from our customers;

Previous wording

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

Current wording

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

Previous wording

On September 9, 2021, the Company and our primary U.S. and Canada operating subsidiaries entered into an asset-based credit agreement, which was most recently amended on May 3, 2024 (as amended, the "ABL Facility"), with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer. The maximum amount of loans under the ABL Facility is limited to $90.0 million. The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes. Our obligations under the ABL Facility are guaranteed by substantially all of our U.S. and Canadian subsidiaries and are secured by a first lien on all our assets under the ABL Facility. The ABL Facility matures, and any outstanding amounts become due and payable, on September 9, 2026.

Current wording

We have an asset-based credit agreement, which was most recently amended on May 3, 2024 (as amended, the "ABL Facility"), with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer. The maximum amount of loans under the ABL Facility is limited to $90.0 million. The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes. Our obligations under the ABL Facility are guaranteed by substantially all of our U.S. and Canadian subsidiaries and are secured by a first lien on all our assets under the ABL Facility. The ABL Facility matures, and any outstanding amounts become due and payable, on September 9, 2026.

Previous wording

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 September 30, 2024, our borrowing base was $61.4 million. During fiscal 2024, the Company repaid all outstanding borrowings under the ABL Facility. The Company had $4.8 million in letters of credit outstanding as of September 30, 2024, which resulted in availability of $56.6 million under the ABL Facility.

Current wording

The borrowing base is recalculated on a monthly basis and at December 31, 2024, our borrowing base was $59.7 million. We had no borrowings outstanding and $4.8 million in letters of credit outstanding as of December 31, 2024, which resulted in availability of $54.9 million under the ABL Facility. For additional information regarding our ABL Facility, see Item I of Part I, "Financial Statements - Note 4 - Debt."

Previous wording

Cash provided by operating activities for the three months ended September 30, 2024 totaled $11.9 million. Major components of cash flows provided by operating activities for the three months ended September 30, 2024 are as follows:

Current wording

Cash provided by operating activities for the six months ended December 31, 2024 totaled $45.5 million. Major components of cash flows provided by operating activities for the six months ended December 31, 2024 are as follows:

Previous wording

•Accounts receivable, excluding credit losses recognized during the period and including retention amounts classified as non-current, increased by $5.1 million during the three months ended September 30, 2024, which decreased cash flows from operating activities. The variance is primarily attributable to the timing of billing and collections.

Current wording

•Accounts receivable, excluding credit losses recognized during the period and including retention amounts classified as non-current, increased by $18.9 million during the six months ended December 31, 2024, which decreased cash flows from operating activities. The variance is primarily attributable to the timing of billing and collections.

Previous wording

•Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") decreased $2.1 million, which increased cash flows from operating activities. Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $33.3 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.

Current wording

•Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") increased $0.8 million, which decreased cash flows from operating activities. Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $66.2 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.

Previous wording

•Accounts payable decreased by $3.9 million during the three months ended September 30, 2024, which decreased cash flows from operating activities. These operating liabilities can fluctuate based on business volumes; the timing of vendor payments; accruals; lease commencement, lease payments, expiration, or termination of operating leases; and other timing differences.

Current wording

•Accounts payable increased by $14.5 million during the six months ended December 31, 2024, which increased cash flows from operating activities. These operating liabilities can fluctuate based on business volumes; the timing of vendor payments; accruals; lease commencement, lease payments, expiration, or termination of operating leases; and other timing differences.

Previous wording

•Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, increased $7.3 million during the three months ended September 30, 2024, which decreased cash flows from operating activities. These operating assets can fluctuate based on business volumes; the amount of long-term retention receivables; 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; and other timing differences.

Current wording

•Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, increased $4.4 million during the six months ended December 31, 2024, which decreased cash flows from operating activities. These operating assets can fluctuate based on business volumes; 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; and other timing differences.

Previous wording

•Accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current decreased by $2.9 million during the three months ended September 30, 2024, which decreased cash flows from operating activities. These operating liabilities can fluctuate based on the timing of payroll, distributions, business volumes; vendor payments; accruals; lease commencement, lease payments, expiration, or termination of operating leases; and other timing differences.

Current wording

•Accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current decreased by $5.8 million during the six months ended December 31, 2024, which decreased cash flows from operating activities. These operating liabilities can fluctuate based on the timing of payroll, distributions, business volumes; vendor payments; accruals; lease commencement, lease payments, expiration, or termination of operating leases; and other timing differences.

Previous wording

Investing activities used $1.9 million of cash in the three months ended September 30, 2024 due to capital expenditures.

Current wording

Investing activities used $2.7 million of cash in the six months ended December 31, 2024 due to capital expenditures associated with improvements at a fabrication facility in Bakersfield, California that we purchased in fiscal 2024, as well as the purchase of construction equipment to support our projects.

Previous wording

Financing activities used $1.2 million of cash in the three months ended September 30, 2024 primarily due to the repurchase of common stock for payment of statutory taxes due on equity-based compensation.

Current wording

Financing activities used $1.1 million of cash in the six months ended December 31, 2024 primarily due to the repurchase of common stock for payment of statutory taxes due on equity-based compensation.

Previous wording

We had 338,015 treasury shares as of September 30, 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.

Current wording

We had 285,392 treasury shares as of December 31, 2024 and intend to utilize these treasury shares in connection with equity awards under our stock incentive plans and for sales to the Employee Stock Purchase Plan.