Matrix Service Company
09/10/2025 | Press release | Distributed by Public on 09/10/2025 14:45
Annual Report for Fiscal Year Ending 6/30, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). GAAP represents a comprehensive set of accounting and disclosure rules and requirements, the application of which requires management judgments and estimates including, in certain circumstances, choices between acceptable GAAP alternatives. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II, Item 8 - Financial Statements and Supplementary Data in this Annual Report on Form 10-K, contains a comprehensive summary of our significant accounting policies. The following is a discussion of our most critical accounting policies, estimates, judgments and uncertainties that are inherent in our application of GAAP.
RESULTS OF OPERATIONS
Reportable Segments
We operate our business through three reportable segments:
•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 power delivery work for public and private utilities, including construction of new substations, upgrades of existing substations, and maintenance. 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 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.
Overview
Significant period to period changes in revenue, gross profits and operating results between fiscal 2025 and fiscal 2024 are discussed below on a consolidated basis for each segment. A discussion of results of operations changes between fiscal 2024 and fiscal 2023 is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended June 30, 2024, which was filed with the SEC on September 10, 2024.
Matrix Service Company
Results of Operations
(In thousands)
Operational Update
Operating activity increased each quarter during fiscal 2025 as quarterly revenues grew from $165.6 million in the first quarter of fiscal 2025 to $216.4 million in the fourth quarter of fiscal 2025, an increase of 31% and the highest levels since the third quarter of fiscal 2020, which marked the beginning of the COVID-19 pandemic. The increase was the result of advancing work on several multiyear projects currently in backlog.
Project awards during fiscal 2025 were $726.0 million, resulting in a current year book-to-bill ratio of 0.9x, and maintaining our backlog at near-record levels of $1.4 billion. Award activity was driven by our Storage and Terminal solutions segment, and included the award of a large specialty storage project. The market drivers for each of our segments are strong and include increased oil and gas demand, the clean energy transition, low-cost feed stock, increased power demands associated with data centers, industrial reshoring/onshoring, grid reliability and electrical supply assurance. As a result, we believe we will have strong award activity in the coming year. While our award activity during the year was strong, heightened macroeconomic uncertainty and the evolving impact of U.S. trade policy on infrastructure economics has impacted the timing of customer decisions in the near term. We believe customer delays in project starts and final investment decisions to be a short-term disruption, while an overall favorable regulatory environment for our customers underpins long-term momentum for our business.
We continue to sharpen and better align our business for the current and coming marketplace. Accordingly, we have consolidated certain aspects of the business to further improve our performance and create a flatter, leaner management structure. In addition, we continue to evaluate our business lines and, where appropriate, reallocate resources to those businesses that present the best opportunities. We remain focused on delivering sustainable, long-term shareholder value by building a resilient, growth-oriented platform aligned with the evolving needs of our customers. We believe actions taken in the fourth quarter of fiscal 2025 and the first quarter of fiscal 2026 will reduce our overall cost structure, improving our overhead recovery and operating leverage.
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 high. For all other arrangements, we calculate backlog as the estimated contract amount less revenue recognized as of the reporting date. Backlog differs from the amount of our remaining performance obligations, which are described in Note 2 - Revenue in the notes to the audited consolidated financial statements. Differences are due primarily to the inclusion within our backlog of estimates of future revenue under long-term maintenance contracts; future revenue for the full scope of work for certain arrangements where we have received an LNTP; and future revenue for arrangements where we have received assurance that we consider firm, but the associated contract has not been fully executed.
The following table provides a summary of changes in our backlog for fiscal 2025:
|
Storage and Terminal Solutions |
Utility and Power Infrastructure | Process and Industrial Facilities | Total | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Backlog as of June 30, 2024 | $ | 798,255 | $ | 379,697 | $ | 251,521 | $ | 1,429,473 | ||||||||||||||||||
| Project awards | 337,731 | 215,378 | 172,918 | 726,027 | ||||||||||||||||||||||
|
Other adjustment(2)
|
- | - | (4,106) | (4,106) | ||||||||||||||||||||||
| Revenue recognized | (365,891) | (248,691) | (154,704) | (769,286) | ||||||||||||||||||||||
| Backlog as of June 30, 2025 | $ | 770,095 | $ | 346,384 | $ | 265,629 | $ | 1,382,108 | ||||||||||||||||||
|
Book-to-bill ratio(1)
|
0.9x | 0.9x | 1.1x | 0.9x | ||||||||||||||||||||||
(1)Calculated by dividing project awards by revenue recognized.
(2)Backlog was reduced as a result of the closure of a customer's facility. This customer has historically represented less than 1% of our consolidated revenues.
In the Storage and Terminal Solutions segment, we booked $337.7 million of project awards during fiscal 2025. Project awards included a project for the engineering and construction of large refrigerated propane and butane tanks as well as spheres for related NGL products. This segment includes significant opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, NGLs and other forms of low carbon 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.
In the Utility and Power Infrastructure segment, we booked $215.4 million of project awards in 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.
In the Process and Industrial Facilities segment, we booked $172.9 million of project awards in fiscal 2025, 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, low carbon projects and refinery turnarounds.
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. We expect to recognize approximately 55% of our total backlog reported as of June 30, 2025 as revenue within fiscal 2026.
Fiscal 2025 Versus Fiscal 2024
Consolidated Results of Operations
| Fiscal Years Ended June 30, | 2025 v 2024 | ||||||||||||||||||||||
| 2025 | 2024 | Change | % | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Revenue | $ | 769,286 | $ | 728,213 | $ | 41,073 | 6 | % | |||||||||||||||
| Cost of revenue | 729,609 | 687,740 | 41,869 | 6 | % | ||||||||||||||||||
| Gross profit | 39,677 | 40,473 | (796) | (2) | % | ||||||||||||||||||
| Selling, general and administrative expenses | 71,173 | 70,085 | 1,088 | 2 | % | ||||||||||||||||||
| Restructuring costs | 3,572 | 501 | 3,071 | 613 | % | ||||||||||||||||||
| Operating loss | (35,068) | (30,113) | (4,955) | (16) | % | ||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense | (518) | (1,130) | 612 | 54 | % | ||||||||||||||||||
| Interest income | 6,652 | 1,339 | 5,313 | 397 | % | ||||||||||||||||||
| Other | (64) | 4,892 | (4,956) | (101) | % | ||||||||||||||||||
| Loss before income tax expense | (28,998) | (25,012) | (3,986) | (16) | % | ||||||||||||||||||
| Provision (benefit) for federal, state and foreign income taxes | 464 | (36) | 500 | 1389 | % | ||||||||||||||||||
| Net loss | $ | (29,462) | $ | (24,976) | $ | (4,486) | (18) | % | |||||||||||||||
Revenue- The increase in overall revenue of $41.1 million, or 6%, was primarily attributable to higher revenue volumes in our Storage and Terminal Solutions and Utility and Power Infrastructure segments, partially offset by reduced revenue volumes in Process and Industrial Facilities.
Gross profit- Gross profit during fiscal 2025 decreased by $(0.8) million, or (2)%, compared to fiscal 2024. Gross margin of 5.2% for fiscal 2025 decreased compared with gross margin of 5.6% for fiscal 2024. The decrease in gross margin for the year is attributable to lower gross margins in our Process and Industrial segment, partially offset by higher gross margins in our Utility and Power Infrastructure segment.
Selling, general and administrative expenses- SG&A expenses were consistent with prior year.
Restructuring costs - The Company incurred $3.6 million of restructuring costs during fiscal 2025 related to organizational restructuring. See Part II, Item 8. Financial Statement and Supplementary Data, Note 14 - Restructuring Costs, for more information about our organizational restructuring plan.
Interest expense- The decreasein interest expense of $0.6 million, or 54%, is primarily due to lower average outstanding borrowings as the Company repaid all outstanding borrowings under its revolving credit facility during fiscal 2024.
Interest income- The increase in interest income of $5.3 million is primarily due to an increase in our cash balance.
Provision for income taxes- Our effective tax rates for the fiscal years 2025 and 2024 were (1.6)% and 0.1%, respectively. The effective tax rates during both periods were impacted by valuation allowances of $6.5 million and $8.5 million, respectively, placed on deferred tax assets generated during the fiscal year. 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. We will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided as we generate taxable income.
Other income - The decreasein other income of $5.0 million, is primarily due to gains on sales of assets recorded during fiscal 2024. 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 $2.5 million in net proceeds from the sale. 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.
Results of Operations by Business Segment
| Fiscal Years Ended June 30, | 2025 v 2024 | ||||||||||||||||||||||
| 2025 | 2024 | Change | % | ||||||||||||||||||||
| Revenue | (In thousands) | ||||||||||||||||||||||
| Storage and Terminal Solutions | $ | 365,891 | $ | 276,800 | $ | 89,091 | 32 | % | |||||||||||||||
| Utility and Power Infrastructure | 248,691 | 183,920 | 64,771 | 35 | % | ||||||||||||||||||
| Process and Industrial Facilities | 154,704 | 266,260 | (111,556) | (42) | % | ||||||||||||||||||
| Corporate | - | 1,233 | (1,233) | - | % | ||||||||||||||||||
|
Total Revenue (1)
|
$ | 769,286 | $ | 728,213 | $ | 41,073 | 6 | % | |||||||||||||||
|
(1) Total revenues are net of inter-segment revenues which are primarily Process and Industrial Facilities and were $2.1 million for the year ended June 30, 2025.
|
|||||||||||||||||||||||
| Gross profit (loss) | |||||||||||||||||||||||
| Storage and Terminal Solutions | $ | 14,655 | $ | 11,297 | $ | 3,358 | 30 | % | |||||||||||||||
| Utility and Power Infrastructure | 16,915 | 9,232 | 7,683 | 83 | % | ||||||||||||||||||
| Process and Industrial Facilities | 8,910 | 21,852 | (12,942) | (59) | % | ||||||||||||||||||
| Corporate | (803) | (1,908) | 1,105 | (58) | % | ||||||||||||||||||
| Total Gross Profit | $ | 39,677 | $ | 40,473 | $ | (796) | (2) | % | |||||||||||||||
| Gross margin % | |||||||||||||||||||||||
| Storage and Terminal Solutions | 4.0 | % | 4.1 | % | (0.1) | % | (2.4) | % | |||||||||||||||
| Utility and Power Infrastructure | 6.8 | % | 5.0 | % | 1.8 | % | 36.0 | % | |||||||||||||||
| Process and Industrial Facilities | 5.8 | % | 8.2 | % | (2.4) | % | (29) | % | |||||||||||||||
| Total gross margin % | 5.2 | % | 5.6 | % | (0.4) | % | (7.1) | % | |||||||||||||||
| Operating income (loss) | |||||||||||||||||||||||
| Storage and Terminal Solutions | $ | (9,206) | $ | (8,526) | $ | (680) | (8) | % | |||||||||||||||
| Utility and Power Infrastructure | 3,834 | 336 | 3,498 | 1041 | % | ||||||||||||||||||
| Process and Industrial Facilities | 479 | 11,283 | (10,804) | (96) | % | ||||||||||||||||||
| Corporate | (30,175) | (33,206) | 3,031 | 9 | % | ||||||||||||||||||
| Total Operating Loss | $ | (35,068) | $ | (30,113) | $ | (4,955) | (16) | % | |||||||||||||||
Storage and Terminal Solutions
Storage and Terminal Solutions revenues increased by $89.1 million, or 32%, in fiscal 2025 compared to fiscal 2024, driven by an increased volume of work for specialty vessel and LNG storage projects, partially offset by decreases in tank repair and maintenance work. In addition, we lowered our recovery expectations on a legacy project completed in fiscal 2021 that is currently in arbitration which resulted in a $6.4 million decrease to revenue during fiscal 2025.
Storage and Terminal Solutions gross profit increased by $3.4 million, or 30%, in fiscal 2025 compared to fiscal 2024. The segment gross margin was 4.0% for fiscal 2025 compared to 4.1% for fiscal 2024. Gross margin in fiscal 2025 compared to fiscal 2025 reflects improved operating leverage resulting from higher revenues. This improved leverage was offset in fiscal 2025 by lower than anticipated labor productivity on a crude terminal project, which resulted in a reduction in gross profit during the year of $5.1 million. This project was completed in early fiscal 2026. Additionally, gross profit was negatively impacted by a $6.4 million reduction in revenue related to a legacy project completed in fiscal 2021 discussed above.
Utility and Power Infrastructure
Utility and Power Infrastructure revenues increased by $64.8 million, or 35%, in fiscal 2025 compared to fiscal 2024. The increase is primarily attributable to higher volumes of work for LNG peak shaving projects, partially offset by decreases in power delivery work.
Utility and Power Infrastructure gross profit increased by $7.7 million, or 83%, in fiscal 2025 compared to fiscal 2024. The segment gross margin was 6.8% for fiscal 2025 compared to 5.0% in fiscal 2024, an increase of 1.8% due to mix of work.
Process and Industrial Facilities
Process and Industrial Facilities revenues decreased by $111.6 million, or 42%, in fiscal 2025 compared to fiscal 2024. The decrease is primarily attributable to lower revenue volumes for a now completed large renewable diesel project and 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 fiscal 2026.
Process and Industrial Facilities gross profit decreased by $12.9 million, or 59% in fiscal 2025 compared to fiscal 2024. The segment gross margin was 5.8% for fiscal 2025 compared to 8.2% for fiscal 2024. The segment gross margin in fiscal 2025 was impacted by increased under-recovery of construction overhead costs due to lower revenue volumes.
Corporate
Unallocated corporate gross profit (loss) was $0.8 million during fiscal 2025 compared to a loss of $1.9 million in fiscal 2024, an increase of $1.1 million primarily due to lower legal costs associated with a jury trial in fiscal 2024 that resulted in a verdict in our favor. See Note 7 - Commitments and Contingencies, Litigation, for more information.
LIQUIDITY AND CAPITAL RESOURCES
Overview
We assess 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 June 30, 2025 were unrestricted cash and cash equivalents on hand, capacity under our ABL Facility (see "ABL Credit Facility" in this Liquidity and Capital Resources section and See Part II, Item 8. Financial Statement and Supplementary Data, Note 5 - Debt, for more information), and cash generated from operations. Our primary operational uses of capital are expenditures to execute our projects, fund business operations and fulfill our contractual obligations. We believe that for at least the next 12 months, our cash position, anticipated cash generated by operating activities, along with our availability under the ABL Facility, is sufficient to support our operating requirements.
Unrestricted cash and cash equivalents at June 30, 2025 totaled $224.6 million and availability under the ABL Facility totaled $59.8 million, resulting in total liquidity of $284.5 million. During fiscal 2025, liquidity increased $114.9 million, primarily as a result of cash provided by operations.
The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Consolidated Balance Sheets to the total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows, as well as availability and total liquidity (in thousands):
| June 30, 2025 | June 30, 2024 | |||||||||||||
| Total cash, cash equivalents and restricted cash | $ | 249,641 | $ | 140,615 | ||||||||||
| Less: Restricted cash | 25,000 | 25,000 | ||||||||||||
| Unrestricted Cash | 224,641 | 115,615 | ||||||||||||
| Availability under ABL Facility | 59,815 | 53,988 | ||||||||||||
| Total Liquidity | $ | 284,456 | $ | 169,603 | ||||||||||
The following table provides a summary of changes in our liquidity for the fiscal year ended June 30, 2025 (in thousands):
| Liquidity at June 30, 2024 | $ | 169,603 | |||
| Cash provided by operating activities | 117,471 | ||||
| Capital expenditures | (7,685) | ||||
| Proceeds from asset sales | 240 | ||||
| Increase in availability under ABL Facility | 5,827 | ||||
| Cash used by financing activities | (1,040) | ||||
| Effect of exchange rate changes on cash | 40 | ||||
| Liquidity at June 30, 2025 | $ | 284,456 | |||
The following table provides a summary of changes in our liquidity for the fiscal year ended June 30, 2024 (in thousands):
| Liquidity at June 30, 2023 | $ | 92,554 | |||
| Cash provided by operating activities | 72,571 | ||||
| Capital expenditures | (6,994) | ||||
|
Proceeds from asset sales(1)
|
6,049 | ||||
| Increase in availability under ABL Facility | 16,246 | ||||
| Cash used by financing activities | (10,372) | ||||
| Effect of exchange rate changes on cash | (451) | ||||
| Liquidity at June 30, 2024 | $ | 169,603 | |||
(1)Includes $5.4 million of net proceeds in total from the sale of our Burlington, Ontario facility and Catoosa, Oklahoma facility that were disposed of in the first and second quarter of fiscal 2024, respectively. See Part II. Item 8, Financial Statements, Note 3 - Property, Plant and Equipment, for more information. The remaining asset sales comprised of equipment sold in the normal course of business.
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 fixed-price customer contracts allow for significant upfront billings at the beginning of a project, which increases liquidity near term;
•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;
•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 significant retentions. Retentions are normally held until certain contractual milestones are achieved; therefore, collection may extend beyond one year;
•the mix of work can impact liquidity. In periods where fixed-price contracts comprise a larger portion of revenue, liquidity may increase depending on the timing of the billing schedule in relation to project cash outflows. In periods where time and material contracts comprise a larger portion of revenue, liquidity may decrease;
•other changes in working capital, including the timing of tax payments and refunds;
•release of contract retentions; and
•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;
•borrowing constraints under our ABL Facility and maintaining compliance with all covenants contained in the ABL Facility;
•letters of credit. We have certain contracts with customers, and may have future contracts, that permit the customer to obtain, at the customer's expense, letters of credit as a form of security under the contract. Letters of credit reduce our borrowing availability under the Company's ABL Facility;
•acquisitions and disposals of businesses or assets; and
•purchases of shares under our stock buyback program.
ABL Credit Facility
We have an asset-based credit agreement, which was most recently amended on August 22, 2025 (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'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 under the ABL Facility. The ABL Facility matures, and any outstanding amounts become due and payable, on September 9, 2029.
The borrowing base is recalculated on a monthly basis and at June 30, 2025, our borrowing base was $64.6 million. We had no borrowings outstanding and $4.8 million in letters of credit outstanding, which resulted in availability of $59.8 million under the ABL Facility. Our borrowing base has ranged from $57.8 million to $73.8 million during fiscal 2025. For additional information regarding our ABL Facility, see Item I of Part I, "Financial Statements - Note 5 - Debt."
CASH FLOW ANALYSIS
The following table summarizes our changes in cash flow activities for the periods indicated (in thousands):
| Fiscal Years Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Cash flows provided by operating activities | $ | 117,471 | $ | 72,571 | |||||||
| Cash flows used by investing activities | (7,445) | (945) | |||||||||
| Cash flows used by financing activities | (1,040) | (10,372) | |||||||||
| Effect of exchange rate changes on cash | 40 | (451) | |||||||||
| Change in cash and cash equivalents | 109,026 | 60,803 | |||||||||
| Cash and cash equivalents at beginning of period | 140,615 | 79,812 | |||||||||
| Cash and cash equivalents at end of period | $ | 249,641 | $ | 140,615 | |||||||
Cash Flows Provided by Operating Activities
The following table summarizes the components of cash flows provided by operating activities for the periods indicated (in thousands):
| Fiscal Years Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net loss | $ | (29,462) | $ | (24,976) | |||||||
|
Gain on sale of property, plant and equipment (1)
|
8 | (4,923) | |||||||||
| Depreciation and amortization | 10,012 | 11,023 | |||||||||
| Stock-based compensation expense | 8,904 | 7,745 | |||||||||
| Other non-cash expenses | 234 | 1,362 | |||||||||
| Cash effect of changes in operating assets and liabilities | 127,775 | 82,340 | |||||||||
| Net cash provided by operating activities | $ | 117,471 | $ | 72,571 | |||||||
(1)Gain on sale of property, plant and equipment includes a $4.5 million total gain on the sale of our Burlington, Ontario facility and Catoosa, Oklahoma facility that were disposed of in the first quarter of fiscal 2024 and the second quarter of fiscal 2024, respectively. (see Part II. Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment, for more information.) The remaining gain on the sale of property, plant and equipment comprised of equipment sold in the normal course of business.
The significant components of the $127.8 million cash effect of changes in operating assets and liabilities for the fiscal year ended June 30, 2025 include the following:
•Accounts receivable, excluding credit losses recognized during the period and including retention amounts classified as non-current, increased $48.8 million from fiscal 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 $4.1 million from fiscal 2024, which increased cash flows from operating activities. Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $152.3 million from fiscal 2024, which increased cash flows from operating activities. CIE and BIE balances can experience significant fluctuations based on business volume and the timing of when job costs are incurred and the timing of customer billings and payments. Some fixed-price customer contracts allow for significant upfront billings at the beginning of a project.
•Accounts payable increased by $14.8 million from fiscal 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.
•Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, decreased $2.1 million from fiscal 2024, which increased cash flows from operating activities. These operating assets can fluctuate based on the timing of inventory builds and draw-downs, accrual and receipt of income taxes receivable; prepayments of certain expenses; lease commencement, passage of time, expiration, or termination of operating leases; business volumes; and other timing differences.
•Accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current increased $3.3 million from fiscal 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.
The significant components of the $82.3 million change in operating assets and liabilities for the fiscal year ended June 30, 2024 include the following:
•Accounts receivable, excluding credit losses recognized during the period and including retention amounts classified as non-current, increased $12.1 million from fiscal 2023, which decreased cash flows from operating activities. The increase is primarily attributable to the timing of billing and collections, partially offset by $16.8 million we received as full payment for the favorable resolution of a legal matter.
•Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") decreased $11.0 million from fiscal 2023, which increased cash flows from operating activities. Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $85.9 million from fiscal 2023, which increased cash flows from operating activities. CIE and BIE balances can experience significant fluctuations based on business volume and the timing of when job costs are incurred and the timing of customer billings and payments. Some fixed-price customer contracts allow for significant upfront billings at the beginning of a project, which increases liquidity near term.
•Accounts payable decreased $10.4 million from fiscal 2023, which decreased cash flows from operating activities. These operating liabilities can fluctuate based on the timing of vendor payments; accruals; lease commencement, lease payments, expiration, or termination of operating leases; business volumes; and other timing differences.
•Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, decreased $4.9 million from fiscal 2023, which increased cash flows from operating activities. These operating assets can fluctuate based on the timing of inventory builds and draw-downs, accrual and receipt of income taxes receivable; prepayments of certain expenses; lease commencement, passage of time, expiration, or termination of operating leases; business volumes; and other timing differences.
•Accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current increased $3.0 million from fiscal 2023, 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.
Cash Flows Used by Investing Activities
Investing activities used $7.4 million of cash in fiscal 2025 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.
Investing activities used $0.9 million of cash in fiscal 2024 due to capital expenditures partially 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 were 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 $1.0 million of cash in fiscal 2025 primarily due to the repurchase of common stock for payment of statutory taxes due on equity-based compensation.
Financing activities used $10.4 million of cash in fiscal 2024 primarily due to $10.0 million in advances and $20.0 million in net repayments under our ABL facility. As of June 30, 2024 and June 30, 2025, we had no outstanding borrowings under our ABL facility.
Dividend Policy
We have never paid cash dividends on our common stock and the terms of our Credit Agreement prohibit us from paying cash dividends. 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 during fiscal 2025 and have no current plans to repurchase stock. As of June 30, 2025, 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 277,731 treasury shares as of June 30, 2025 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.
Material Cash Requirements from Contractual and Other Obligations
As of June 30, 2025, our short-term and long-term material cash requirements for known contractual and other obligations were as follows:
•Operating Leases: In the normal course of business, we lease real estate and equipment under various arrangements which are classified as operating leases. Future payments for such leases, excluding leases with initial terms of one year or less, were $25.9 million at June 30, 2025, with $5.8 million payable within the next 12 months. Refer to Part II. Item 8, Financial Statements, Note 8 - Leases, for more information about our lease obligations and the timing of expected future payments.
Off-Balance Sheet Arrangements and Other Commitments
We enter into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected on our balance sheet. The following represents transactions, obligations or relationships that could be considered material off-balance sheet arrangements.
•Surety bonds: The terms of our construction contracts frequently require that we obtain from surety companies, and provide to our customers, surety bonds as a condition to the award of such contracts. These surety bonds are issued in return for premiums, which vary depending on the size and type of the bond, and secure our payment and performance
obligations under such contracts. We have agreed to indemnify the surety companies for amounts, if any, paid by them in respect of surety bonds issued on our behalf. Surety bonds expire at various times ranging from final completion of a project to a period extending beyond contract completion in certain circumstances. Such amounts can also fluctuate from period to period based upon the mix and level of our bonded operating activity. As of June 30, 2025, there were $154.6 million of surety bonds in force, of which we expect $93.7 million to expire within the next 12 months. Of the bonds in force, $68.4 million related to performance bonds for ongoing projects and the remainder related to contractor licensing, liens, and other bonds. We are not aware of any losses in connection with surety bonds that have been posted on our behalf, and we do not expect to incur significant losses in the foreseeable future.
•Multiemployer pension plans: We contribute to a number of multiemployer defined benefit pension plans in the U.S. and Canada under the terms of collective-bargaining agreements that cover our union-represented employees, who are represented by more than 100 local unions. The related collective-bargaining agreements between those organizations and us, which specify the rate at which we must contribute to the multi-employer defined pension plan, expire at different times between 2025 and 2028. Benefits under these plans are generally based on compensation levels and years of service. Under federal legislation regarding multiemployer pension plans, in the event of a withdrawal from a plan or plan termination, companies are required to continue funding their proportionate share of such plan's unfunded vested benefits. Withdrawal liabilities or requirements for increased future contributions could negatively impact our results of operations and liquidity. See Note 12 - Employee Benefit Plans for further discussion.
•Letters of credit:We issue letters of credit under our ABL Facility in the normal course of business to support workers' compensation insurance programs or certain construction contracts. As of June 30, 2025, we had $4.8 million of letters of credit outstanding.The letters of credit that support our workers' compensation programs are expected to renew annually through the term of our credit facility.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's accounting policies are more fully described in Note 1 of the Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results of operations and require management's most difficult, subjective and complex judgments.
Revenue Recognition
Revenue for contracts that satisfy the criteria for over time recognition is recognized as the work progresses. The Company measures transfer of control of the performance obligation utilizing the percentage-of-completion method, which is based on costs incurred to date compared to the total estimated costs at completion, since it best depicts the transfer of control of assets being created or enhanced to the customer. Costs incurred may include direct labor, direct materials, subcontractor costs and indirect costs, such as salaries and benefits, supplies and tools, equipment costs and insurance costs. Indirect costs are charged to projects based upon direct costs and overhead allocation rates per dollar of direct costs incurred or direct labor hours worked.
Under the percentage-of-completion method, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and is a significant factor in the accounting for such performance obligations. Significant estimates that impact the cost to complete each performance obligation are materials, components, equipment, labor and subcontracts; labor productivity; schedule durations, including subcontractor or supplier progress; unpriced change orders; contract disputes including claims; achievement of contractual performance requirements; and contingencies, among others.
The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on performance obligations in progress. Due to the various estimates inherent in contract accounting, actual results could differ from those estimates, which could result in material changes to the Company's Consolidated Financial Statements and related disclosures. See Part II, Item 8. Financial Statement and Supplementary Data, Note 2 - Revenue for further discussion.
Goodwill
Goodwill represents the excess of the purchase price of acquisitions over the acquisition date fair value of the net identifiable tangible and intangible assets acquired. In accordance with current accounting guidance, goodwill is not amortized and is tested at least annually for impairment at the reporting unit level, which is a level below our reportable segments.
We perform our annual impairment test in the fourth quarter of each fiscal year, or in between annual tests whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable, to determine whether an impairment exists and to determine the amount of headroom. We define "headroom" as the percentage difference between the fair value of a reporting unit and its carrying value excluding working capital. The goodwill impairment test involves comparing management's estimate of the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, then goodwill is not impaired. If the fair value of a reporting unit is less than its carrying value, then goodwill is impaired to the extent of the difference, but the impairment may not exceed the balance of goodwill assigned to that reporting unit.
We utilize a discounted cash flow analysis, referred to as an income approach, and market multiples, referred to as a market approach, to determine the estimated fair value of our reporting units. For the income approach, significant judgments and assumptions including forecasted project awards, discount rate, anticipated revenue growth rate, gross margins, operating expenses, working capital needs and capital expenditures are inherent in the fair value estimates, which are based on our operating and capital budgets and on our strategic plan. As a result, actual results may differ from the estimates utilized in our income approach. For the market approach, significant judgments and assumptions include the selection of guideline companies, forecasted guideline company EBITDA (as defined in Note 4 - Goodwill) and our forecasted EBITDA (as defined in Note 4 - Goodwill). The use of alternate judgments and/or assumptions could result in a fair value that differs from our estimate and could result in the recognition of additional impairment charges in the financial statements. As a test for reasonableness, we also consider the combined fair values of our reporting units to our market capitalization.
We performed our annual goodwill impairment test as of May 31, 2025, which resulted in no impairment.
We considered the amount of headroom for each reporting unit when determining whether an impairment existed. The amount of headroom varies by reporting unit. Our significant assumptions, including revenue growth rates, gross margins, discount rate and other factors may change in the future based on the changing economic and competitive environment in which we operate. Assuming that all other components of our fair value estimate remain unchanged, a change in the following assumptions would have the following effect on headroom:
| Headroom Sensitivity Analysis | ||||||||||||||||||||||||||||||||
|
Goodwill as of June 30, 2025 (in thousands) |
Baseline Headroom |
Headroom if Revenue Growth Rate Declines by 100 Basis Points |
Headroom if Gross Margin Declines by 100 Basis Points |
Headroom if Discount Rate Increases by 100 Basis Points | ||||||||||||||||||||||||||||
| Reporting Unit 1 | $ | 11,158 | 8% | -% | (7)% | (1)% | ||||||||||||||||||||||||||
| Reporting Unit 2 | $ | 8,192 | 580% | 546% | 471% | 520% | ||||||||||||||||||||||||||
| Reporting Unit 3 | $ | 5,484 | 37% | 34% | 20% | 30% | ||||||||||||||||||||||||||
| Reporting Unit 4 | $ | 4,213 | 297% | 278% | 241% | 278% | ||||||||||||||||||||||||||
Income Taxes
We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances based on our judgments and estimates are established when necessary to reduce deferred tax assets to the amount expected to be realized in future operating results. Our estimates are based on facts and circumstances in existence as well as interpretations of existing tax regulations and laws applied to the facts and circumstances, with the help of professional tax advisors. Therefore, we estimate and provide for amounts of additional income taxes that may be assessed by the various taxing authorities.
Loss Contingencies
Various legal actions, claims and other contingencies arise in the normal course of our business. Contingencies are recorded in the consolidated financial statements, or are otherwise disclosed, in accordance with ASC 450-20, "Loss Contingencies". We use a case-by-case evaluation of the underlying data and update our evaluation as further information becomes known. Specific reserves are provided for loss contingencies to the extent we conclude that a loss is both probable and estimable. However, the results of litigation are inherently unpredictable and the possibility exists that the ultimate resolution of one or more of these matters could result in a material effect on our financial position, results of operations or liquidity.
Matrix Service Company published this content on September 10, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on September 10, 2025 at 20:45 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]