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Item 1A. Risk Factors, Risks Related to our Business and Operations, for more information.
We have incorporated cybersecurity risk into our extensive risk management framework by aligning it with our overall risk strategy. This involves identifying potential cybersecurity threats, assessing their impact and developing mitigation strategies. These governance processes apply across the enterprise risk management program to other legal, compliance, strategic, operational and financial risk areas, ensuring that cybersecurity risks are managed effectively and are in line with the organization's risk tolerance and business objectives.Our cybersecurity program incorporates the principles of the National Institute of Standards and Technology (NIST) Cybersecurity Framework and is supported by an Information Security Management System (ISMS) certified to ISO/IEC 27001:2022. The certification scope includes Matrix's engineering, fabrication, construction, and maintenance services, together with the employees, administrative personnel, IT systems, policies, procedures, standards, tools, utilities, client deliverables, and data used in providing those services. We also engage external experts to evaluate our cybersecurity programs. These evaluations include audits, threat assessments, simulated attacks, vulnerability scans and advice on information security practices. These evaluations include regular audits, threat assessments, simulated attacks, vulnerability scans and advice on information security practices. We conduct incident response exercises with key stakeholders. We routinely conduct incident response exercises with key stakeholders. Additionally, we hold cybersecurity risk insurance. To manage risks associated with third-party service providers, the information security team categorizes suppliers based on factors such as volume and criticality of data handled, potential impact on business operations and level of access to our information systems. We conduct risk assessments to identify potential threats and vulnerabilities associated with suppliers. We screen suppliers to ensure they meet proper security standards and compliance requirements. We monitor supplier activities to ensure compliance with information security policies and conduct regular reviews and audits of supplier relationships to ensure ongoing compliance. We monitor all supplier activities to ensure compliance with information security policies and conduct regular reviews and audits of supplier relationships to ensure ongoing compliance. We strive to ensure that our contracts with such vendors require them to maintain security controls in line with industry best practices, applicable laws and our policies. We rely on vendors to alert us promptly of material cybersecurity incidents by virtue of the documents governing their relationship with us or applicable law.
Our IT Security team is responsible for leading enterprise-wide cybersecurity strategy, policy, standards and processes. Team members are afforded opportunities to attend external training, conferences and other events to remain on top of most recent cybersecurity trends. Our team is led by our Director of IT Infrastructure and Security, who brings over 30 years of experience, which includes implementing and verifying the effectiveness of cybersecurity controls in a Defense Industrial Base environment and defining and executing cybersecurity strategy to enable business delivery while simultaneously protecting intellectual property and privacy. Our Director of IT Infrastructure and Security maintains the following internationally recognized certifications: Global Information Assurance Certification ("GIAC"), GIAC Certified Enterprise Defender, GIAC Certified Incident Handler Certification, GIAC Certified Windows Security Administrator, and GIAC Critical Controls Certification. Our Director maintains the following internationally recognized certifications: Global Information Assurance Certification ("GIAC") Security Essentials, GIAC Certified Enterprise Defender, GIAC Certified Incident Handler Certification, GIAC Certified Windows Security Administrator, and GIAC Critical Controls Certification. Our Director of IT Infrastructure and Security previously reported to the Vice President of Information Technology until that individual's departure during the second half of fiscal 2026. In connection with organizational changes, the vacant position was subsequently filled with a Senior Director of Information Technology in the first quarter of fiscal 2027. During the interim period, the Director of IT Infrastructure and Security reported on a temporary basis to the Senior Vice President of Enterprise Services, who receives continuous updates regarding the prevention, detection, mitigation and remediation of cybersecurity incidents. The Senior Vice President of Enterprise Services formerly served as chair of, and currently serves as a member of, our Risk Management Committee and IT Steering Committee, and has experience in cybersecurity incident response, cyber claims, and business continuity matters.Our Director of IT Infrastructure and Security meets with our IT Steering Committee on a routine basis. Regular topics for discussion with the IT Steering Committee include cybersecurity initiatives and strategies, cybersecurity events, emerging threats, regulatory requirements and industry standards. We use a combination of technology controls and human oversight to actively monitor and protect our network and systems. In the event of a cybersecurity incident, we have an incident response plan which sets forth a framework for reporting and documenting such incidents by our cybersecurity incident response team. This same framework is designed with the goal of enabling the response team to take actions to monitor, mitigate and remediate such incidents promptly. Cybersecurity incidents are reported to our Senior Vice President of Enterprise Services, and critical events are reported to our CEO and our General Counsel . In the event a cybersecurity incident is determined to be potentially material, the incident is reported in a timely manner to our Board of Directors as part of their cybersecurity oversight.
Human Capital Management
Employees
Successful execution of our business strategy is dependent on attracting, developing, and retaining key employees who represent our core values and the communities we serve. Our people are our greatest resource. Since 2016, we have been certified as a Great Place To Work®, both a point of pride and an invaluable tool for continuous improvement supporting our objective of remaining an employer of choice.
Given the nature of our work, the size of our employee population can vary significantly throughout the year because of the number, type, and size of projects we have in progress at any particular time. As of June 30, 2026, we had 2,370 employees worldwide. Of those employees, 552 were employed in office-based positions and 1,818 were employed in field or craft positions. The location of our employees was as follows:
The percentage of our employees represented by trade unions as of June 30, 2026, was approximately 26%. Operating under collective bargaining agreements with various unions, our union employees are provided with benefits including health and welfare, pension, training programs and competitive compensation plans. We have not experienced any strikes or work stoppages in recent years and are proud that our relationships with our employees and labor unions are strong.
Business Ethics and Core Values
Our success relies on the skills, experience and dedication of our employees. We are committed to cultivating an engaging and dynamic work environment where people can find opportunities to succeed, grow and contribute to the success of the company. Our employees work each day to provide safe and reliable services to a wide range of customers in the states where we operate. Our core values, listed below, guide our employee behaviors and the ways in which we conduct our business and operations.
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•Commitment to Safety
•Integrity
•Positive Relationships
•Stewardship
•Community Involvement
•Deliver the Best
Our employees are entrusted with engineering, constructing, and maintaining the complex, critical infrastructure that supports modern daily living and quality of life. Ethics and integrity are foundational in our ability to be successful and are engrained in our culture and core values. Across all areas of our business, we maintain focus on compliance and doing the right thing, and integrity is essential to every aspect of our business, in both policy and practice. Accordingly, we are committed to fostering compliance with all applicable laws and regulations, and to upholding the highest standards of ethical conduct in accordance with our code of conduct.
Health and Safety
We maintain a comprehensive safety and risk management program. Our senior leadership, risk management department, and large network of safety directors and health, safety, and environmental professionals, effectively assess and manage potential risks and liabilities throughout the pre-construction and performance phases of our projects. Ensuring the safety of our employees and those around us is integral to who we are, and paramount to our success and sustainability. The journey to achieving and maintaining a zero-incident safety performance requires a strong culture of safety and hands-on leadership, combined with robust training along with comprehensive policies, processes, and systems to plan, perform, report, measure, and review, and to continuously improve our performance. We have incorporated safety as a key performance metric in our incentive compensation plan. We track and maintain several key safety metrics, which management reviews monthly. One such metric is our Total Recordable Incident Rate (‘‘TRIR’’), which is calculated by multiplying the number of recordable incidents by 200,000 and dividing that number by the total hours worked each year. Our TRIR was 0.92, 0.51, and 0.91 during fiscal years 2026, 2025, and 2024, respectively. Another metric is our Days Away, Restricted, or Transferred Rate ("DART"), which is calculated by multiplying the number of incidents requiring days away, restricted, or transferred by 200,000 and dividing that number by the total hours worked each year. Our DART was 0.33, 0.21, and 0.28 during fiscal years 2026, 2025, and 2024, respectively. These metrics are also used by others in our industry, which allows for a more objective comparison of our performance.
Culture and Engagement
Foundational to attracting, developing, and retaining an engaged workforce is our commitment to making sure our employees feel safe, know they are valued, know that their work matters, and are provided opportunities to achieve their maximum potential. We believe when we foster a respectful and collaborative workplace culture, we create an environment where employees are empowered to do their best work and feel connected to our shared success.
We continued to advance and strengthen our culture by proactively addressing mental health issues through our enterprise-wide Mental Health Task Force, Matrix C.A.R.E.S. In an industry where the suicide rate is four times the national average, we are committed to raising awareness and eliminating stigma around mental health and making resources available to all employees to address mental health issues or crises. Through targeted job site and virtual sessions, Matrix C.A.R.E.S. reached field and craft employees across the company, as well as our office-based employees across North America. We also embedded the importance of mental health into daily operations as a key part of our safety orientations and onboarding for craft and field employees. This consistent communication demonstrates our commitment to making mental health support accessible to all employees, everywhere.
Total Rewards Package
As part of our compensation philosophy and to attract and retain superior talent, we seek to offer and maintain market-competitive total rewards programs for our employees. In addition to base salaries, additional programs include incentive and project bonus opportunities, comprehensive healthcare coverage and insurance benefits, Company matched retirement plans, health savings and flexible spending accounts, an Employee Stock Purchase Plan, paid holidays and other paid time off, family leave, and flexible work schedules where possible. Other offerings include employee assistance programs with 365/24/7 access to resources and support, and Matrix HealthMatters, our robust wellness program that provides resources and education to help employees and their families get and stay healthy, focusing holistically on physical, mental and financial health.
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Training and Employee Development Programs
Investment in continuous learning is essential to providing industry-leading expertise and service to our clients, continuous improvement across our organization, and meaningful career development opportunities for our people. From in-person to online courses, formalized and other specialized training, our employees benefit from opportunities to strengthen their leadership and management competencies, improve communication and interpersonal skills, and advance their technical proficiency. Through Matrix University, our people have access to resources that include a robust Learning Management System (LMS) that provides enterprise-wide access for employees to a number of online learning modules and support tools.
Our employees also benefit from the Matrix Performance Development Program, designed for collaborative development of annual performance goals and to promote continuous, transparent feedback between employees and their supervisors.
Giving Back
We also empower our employees to donate time, talent, and resources through Company-led initiatives, matching of employee charitable contributions, and paid volunteer time off. Each year, our employees collectively log thousands of hours participating in individual community service projects in addition to hours they invest serving on non-profit boards and participating in Company-sponsored charitable events. We also provide direct corporate financial support to non-profit organizations in the communities where we live and work.
Patents and Proprietary Technology
Our subsidiaries have several patents and continue to pursue new ideas and innovations to better serve our customers in several areas of our business. The Flex-A-Span® and Flex-A-Seal® trademarks are utilized to market our unique seals for floating roof tanks. The Flowdome® trademark is used to market our geodesic dome tank roofs. Our SwingMaster® trademark is used to market our central type swing joints. The patent for the Training Tank for Personnel Entry, Exit and Rescue relates to a training device that can be used to train personnel on equipment that is made to simulate confined space scenarios. We hold two separate patents for Pipe Lifting and Orienting Apparatus and Method that is used to raise and lower pipes and to move them around the upper surface of floating roof of tanks. The Batten Joint for an Internal Floating Roof of a Fluid Tank allows us to overcome many of the disadvantages associated with other types of joints used for internal floating roofs for floating tanks.
We also hold a perpetual license to use various patents and technologies related to LNG storage tanks, liquid nitrogen/liquid oxygen storage tanks, liquid petroleum gas storage tanks and thermal vacuum chambers.
While our intellectual property is not our main business, we believe that the ability to use these patents, trademarks, and technology enables us to expand our presence in the markets we serve and minimizes the development costs typically associated with organic growth.
Regulation
Our operations are subject to compliance with federal, state, local, and international laws and regulations that affect various aspects of our business including with respect to:
•Licensing, permitting, specifications and inspecting requirements applicable to construction projects;
•Worker safety regulations;
•Wage and hour regulations and regulations associated with our collective bargaining agreements and unionized workforce;
•Protection of the environment, including regulations established by the Environmental Protection Agency (EPA), state agencies and other foreign environmental regulators;
We believe that we are in compliance with all material legal, licensing and regulatory requirements that are necessary to conduct our operations. Our failure to comply with applicable regulations could result in substantial fines or revocation of certain operating licenses, as well as give rise to termination or cancellation rights under our contracts or disqualify us from future bidding opportunities.
Our operations are subject to regulation by the U.S. Department of Labor Occupational Safety and Health Administration (“OSHA”) and Mine Safety and Health Administration (“MSHA”), the U.S. Department of Transportation, and to regulation under state laws and by the Canadian Workers’ Compensation Board and its Workplace Health, Safety and Compensation
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Commission. Regulations promulgated by these agencies require employers and independent contractors to implement work practices, medical surveillance systems and personnel protection programs to protect employees from workplace hazards and exposure to hazardous chemicals and materials. In recognition of the potential for accidents within various scopes of work, these agencies have enacted strict and comprehensive safety regulations. We have established and consistently reinforce and monitor compliance with comprehensive programs intended to ensure that we comply with all applicable health and safety regulations to protect the safety of our workers, subcontractors and customers. While we believe that we operate safely and prudently, there can be no assurance that accidents will not occur or that we will not incur substantial liability in connection with the operation of our businesses. In order to minimize the financial exposure resulting from potential accidents associated with our work, we maintain liability insurance to limit losses that could result from our work.
We are subject to labor laws and, where applicable, regulations associated with collective bargaining agreements and prevailing wage requirements. While we work to adhere to the Fair Labor Standards Act (FLSA) and state level laws and regulations that establish minimum wage, overtime pay, and other employment standards, the inherent nature of work in the construction industry carries risk of claims for noncompliance.
Across our organization, from our project sites to our offices, we are committed to environmental stewardship and to continuously striving to perform our work in a sustainable and environmentally responsible manner.
Our operations and the operations of our customers are subject to extensive and changing environmental laws and regulations. These laws and regulations relate primarily to air and water pollutants and the management and disposal of hazardous materials. We are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or hazardous materials.
We are subject to numerous environmental laws, regulations and programs with respect to our work, including but not limited to the handling, transportation and disposal of non-hazardous and hazardous substances and wastes, laws governing emissions and discharges into the environment, including discharges into air, surface water, groundwater and soil, and programs related to the protection of endangered species and critical habitats. In order to limit the risks associated with environmental exposure, we maintain certain environmental insurance policies that cover liability that may be incurred as a result of accidental releases of hazardous materials. We do not currently foresee any significant future capital spending relating to environmental matters.
In order to limit costs incurred as a result of environmental exposure, we maintain contractor’s pollution liability insurance that covers liability that may be incurred as a result of accidental releases of hazardous materials.
We do not currently foresee any significant future capital spending relating to environmental matters.
WEBSITE ACCESS TO REPORTS
Our public website is matrixservicecompany.com. We make available free of charge through the "Investor Relations" section of our website our annual reports to stockholders, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including exhibits, and amendments to those reports, as soon as reasonably practicable after we file or furnish to the SEC. Any materials we file with or furnish to the SEC are also maintained on the SEC website (sec.gov).
The information contained on our website, or available by hyperlink from our website, is not incorporated into this Annual Report or other documents we file with, or furnish to, the SEC. We intend to use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included in the "Investor Relations" section of our website. Investors should monitor that section of our website for press releases, investor presentations, SEC filings and public conference calls and webcasts.
Item 1A. Risk Factors
The following risk factors should be considered with the other information included in this Annual Report on Form 10-K. As we operate in a continuously changing environment, other risk factors may emerge which could have a material adverse effect on our results of operations, financial condition and cash flow. As we operate in a continuously changing environment, other risk factors may emerge which could have a material adverse effect on our results of operations, financial condition and cash flow.
Risk Factors Related to Our Business and Operations
Our results of operations depend upon the award of new contracts, the timing of those awards, and the progress of work for those contracts.
Our revenue is derived primarily from contracts awarded on a project-by-project basis. Generally, it is difficult to predict whether and when we will be awarded a new contract due to lengthy and complex bidding and selection processes, changes in existing or forecasted market conditions, customers' access to financing, governmental regulations, permitting and
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environmental matters. Many of these same factors can affect the commencement and progress of work under large contracts already awarded. Because our revenue is derived from contract awards, our results of operations and cash flows can fluctuate materially from period to period.
The uncertainty associated with the timing of contract awards, and the commencement and progress of work for those awards, may reduce our short-term profitability as we balance our current capacity with expectations of future contract awards. If an expected contract award is delayed or not received, we could incur costs to maintain an idle workforce that may have a material adverse effect on our results of operations. If an expected contract award is delayed or not received, we could incur costs to maintain an idle workforce that may have a material adverse effect on our results of operations. Alternatively, we may decide that our long-term interests are best served by reducing our workforce and incurring increased costs associated with those separations, which also could have a material adverse effect on our results of operations in the period incurred. Alternatively, we may decide that our long-term interests are best served by reducing our workforce and incurring increased costs associated with severance and termination benefits, which also could have a material adverse effect on our results of operations in the period incurred. Reducing our workforce could also impact our results of operations if we are unable to adequately staff projects that are awarded subsequent to a workforce reduction.
We operate in highly competitive markets, and our failure to compete successfully for new awards on acceptable terms could adversely affect our results.
The markets for engineering, procurement, construction and maintenance services are highly competitive. We do not always win contracts that we have bid on for a variety of reasons. We compete with regional, national and international contractors and service providers on factors that include price, safety record, technical expertise, access to skilled personnel and equipment, reputation, financial strength and willingness to accept contractual risk. Some of our competitors may have greater financial, technical, personnel or equipment resources, lower cost structures or greater ability to accept contractual risk than we do. Competitive pressures may require us to accept lower margins, assume greater contractual risk, or offer more favorable terms to customers, and our inability to win new awards on acceptable terms could adversely affect our backlog, results of operations and cash flows.
Delays or failures in obtaining required regulatory approvals, permits, interconnection agreements or right-of-way access could delay or prevent projects and adversely affect our results.
The commencement, timing and performance of certain projects we perform, particularly for energy, utility and infrastructure customers, may depend on customers or other parties obtaining environmental, construction or operating permits, regulatory approvals, interconnection agreements, rights-of-way, pipeline approvals or other project prerequisites. These approvals may be delayed, challenged, denied or made more costly due to regulatory review, public opposition, private legal challenges, litigation, activism, changes in law or other factors outside our control. Delays or failures in obtaining required approvals could postpone, reduce, cancel or change the scope of projects, cause inefficient utilization of our workforce or equipment, increase costs and reduce our revenues, profitability and cash flows.
Demand for our products and services is cyclical and is vulnerable to the level of capital and maintenance spending of our customers and to downturns in the industries and markets we serve, as well as conditions in the general economy.
The demand for our products and services depends upon the existence of construction and maintenance projects primarily in the energy markets, including LNG, hydrogen, renewable energy, midstream and downstream petroleum, and other heavy industries in the United States and Canada. Therefore, it is likely that our business will continue to be cyclical in nature and vulnerable to general downturns in the United States, Canadian and world economies and negative changes in commodity and energy prices, which could adversely affect the demand for our products and services.
The availability of engineering and construction projects is dependent upon economic conditions and the outlook for natural gas, electrical infrastructure and power, mining and minerals, oil, petrochemical, industrial, renewable energy, and hydrogen industries, and specifically, the level of capital expenditures on energy infrastructure.The availability of engineering and construction projects is dependent upon economic conditions and the outlook for renewable energy, hydrogen, natural gas, oil, petrochemical, industrial, and power industries, and specifically, the level of capital expenditures on energy infrastructure. Our failure to obtain projects, the delay of project awards, the cancellation of projects or delays in the execution of contracts has resulted and may continue to result in under-utilization of our resources, which could adversely impact our revenue, margins, operating results and cash flow. Our failure to obtain projects, the delay of project awards, the cancellation of projects or delays in the execution of contracts has resulted and may continue to result in under-utilization of our resources, which could adversely impact our revenue, margins, operating results and cash flow. There are numerous factors beyond our control that influence the level of maintenance and capital expenditures of our customers, including:
•ability and demand to export LNG and other hydrocarbon products;
•the demand for natural gas, oil and electricity;
•current or projected commodity prices, including natural gas, oil, power and mineral prices;
•refining margins;
•the demand for alternative and renewable energy products, including hydrogen, and the impact of renewable portfolio standards, tax credits and other energy policies;
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•the ability of energy and industrial companies to generate, access and deploy capital;
•interest rates, inflation, and tariffs;
•technological challenges and advances, including AI-related or other developments that may affect customer capital spending, project economics, operating models or demand for our services;
•energy storage economics and changes in generation resource mix;
•regulatory restraints on the rates that power companies may charge their customers; and
•local, national and international political and economic conditions.
Our profitability could be negatively impacted if we are not able to maintain appropriate utilization of our workforce.
We hire or lay off craft workers periodically based on the expected level of work on our projects; however, there can be no assurances that the timing of these employment decisions will correspond directly with actual work on our projects, potentially causing under or over-utilization.
The extent to which we utilize our workforce affects our profitability. If we under-utilize our workforce, our gross margins and overall profitability suffer in the short-term. If we under utilize our workforce, our gross margins and overall profitability suffer in the short-term. If we over-utilize our workforce, we may negatively impact safety, employee satisfaction and project execution. If we over utilize our workforce, we may negatively impact safety, employee satisfaction and project execution. The utilization of our workforce is impacted by numerous factors including:
•our estimate of the headcount requirements for various operating units based upon our forecast of the demand for our products and services;
•our ability to maintain our talent base and manage attrition;
•productivity;
•our ability to schedule our portfolio of projects to efficiently utilize our employees and minimize downtime between project assignments; and
•our need to invest time and resources into functions such as training, business development, employee recruiting, and sales that are not chargeable to customer projects.
An inability to attract and retain qualified personnel, and in particular, engineers, project estimators, project managers, and skilled craft workers, could impact our ability to perform on our contracts, which could harm our business and impair our future revenue and profitability.An inability to attract and retain qualified personnel, and in particular, engineers, project managers, and skilled craft workers, could impact our ability to perform on our contracts, which could harm our business and impair our future revenue and profitability.
Our ability to attract and retain qualified engineers, project estimators, project managers, skilled craft workers and other experienced professionals in accordance with our need is an important factor in our ability to maintain profitability and grow our business.Our ability to attract and retain qualified engineers, project managers, skilled craftsmen and other experienced professionals in accordance with our need is an important factor in our ability to maintain profitability and grow our business. Competent and experienced engineers, project estimators, project managers, and craft workers are especially critical to the profitable performance of our contracts, particularly on our fixed-price contracts where superior design and execution of the project can result in profits greater than originally estimated or where inferior design and project execution can reduce or eliminate estimated profits or even result in a loss.Competent and experienced engineers, project estimators, project managers, and craft workers are especially critical to the profitable performance of our contracts, particularly on our fixed-price contracts where superior design and execution of the project can result in profits greater than originally estimated or where inferior design and project execution can reduce or eliminate estimated profits or even result in a loss. The market for these professionals is competitive, particularly during periods of economic growth when the supply is limited. The market for these professionals is competitive, particularly during periods of economic growth when the supply is limited. While we continue to invest in attracting and retaining qualified personnel, we cannot guarantee that these efforts will be sufficient to meet our evolving workforce needs. Therefore, when we anticipate or experience growing demand for our services, we may incur additional cost to maintain a professional staff in excess of our current contract needs in an effort to have sufficient qualified personnel available to address this anticipated demand. Therefore, when we anticipate or experience growing demand for our services, we may incur additional cost to maintain a professional staff in excess of our current contract needs in an effort to have sufficient qualified personnel available to address this anticipated demand. If we do incur additional compensation and benefit costs, our customer contracts may not allow us to pass through these costs. If we do incur additional compensation and benefit costs, our customer contracts may not allow us to pass through these costs.
Our future success also depends to a significant degree on the skills, experience, and efforts of key personnel in our senior management team. During the past eighteen months, we executed an organizational restructuring plan which led to the departures of several members of our executive team, including our former Chief Executive Officer, as well as the planned departure of our current Chief Financial Officer in the first quarter of fiscal 2027.
An inability to retain key personnel, successfully manage leadership transitions, or recruit qualified replacements could negatively impact our ability to execute our business strategy and our business, financial condition, results of operations, and stock price could be adversely affected.
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The loss of one or more of our significant customers could adversely affect us.
One or more customers have in the past and may in the future contribute a material portion of our revenue in any one year. One customer accounted for $176.4 million or 20.1% of our consolidated revenue in fiscal 2026, which was primarily included in the Storage and Terminal Solutions segment. Another customer accounted for $153.1 million or 17.5% of our consolidated revenue in fiscal 2026, which was primarily included in the Utility and Power Infrastructure segment. Another customer accounted for $88.1 million or 10.0% of our consolidated revenue in fiscal 2026, which was primarily included in the Storage and Terminal Solutions segment. Because these significant customers generally contract with us for specific projects or for specific periods of time, we may lose these customers from year to year as the projects or maintenance contracts are completed. Because these significant customers generally contract with us for specific projects or for specific periods of time, we may lose 9Table of Contentsthese customers from year to year as the projects or maintenance contracts are completed. The loss of business from any one of these customers could have a material adverse effect on our business or results of operations. The loss of business from any one of these customers could have a material adverse effect on our business or results of operations.
Our backlog is subject to unexpected fluctuations, adjustments and cancellations and does not include the full value of our long-term maintenance contracts, and therefore, may not be a reliable indicator of our future earnings.
Backlog may not be a reliable indicator of our future performance. We cannot guarantee that the revenue projected in our backlog will be realized or profitable, and, to the extent backlog includes estimates for long-term maintenance, master service or similar arrangements, customers may have no obligation to purchase or release a particular volume of work. Projects may remain in our backlog for an extended period of time. Projects may remain in our backlog for an extended period of time. In addition, many of our contracts have termination rights. Project cancellations or scope adjustments may occur from time to time with respect to contracts included in our backlog that could reduce the dollar amount of our backlog and the revenue and profits that we actually earn. In addition, project cancellations or scope adjustments may occur from time to time with respect to contracts included in our backlog that could reduce the dollar amount of our backlog and the revenue and profits that we actually earn.
The terms of our contracts could expose us to unforeseen costs and costs not within our control, which may not be recoverable and could adversely affect our results of operations and financial condition.
A significant amount of our work is performed under fixed-price contracts. Under fixed-price contracts, we agree to perform the contract for a fixed price and, as a result, could incur cost overruns above the approved contract price, which may not be recoverable. Under certain incentive fixed-price contracts, we may agree to share with a customer a portion of any savings we generate while the customer agrees to bear a portion of any increased costs we may incur up to a negotiated ceiling. Under certain incentive fixed-price contracts, we may agree to share with a customer a portion of any savings we generate while the customer agrees to bear a portion of any increased costs we may incur up to a negotiated ceiling. To the extent costs exceed the negotiated ceiling price, we may be required to absorb some or all of the cost overruns. To the extent costs exceed the negotiated ceiling price, we may be required to absorb some or all of the cost overruns.
Fixed-price contract prices are established based largely upon estimates and assumptions relating to project scope and specifications, personnel and productivity, material needs, and site conditions. These estimates and assumptions may prove inaccurate, or conditions may change due to factors out of our control, resulting in cost overruns, which we may be required to absorb and which could have a material adverse effect on our business, financial condition and results of operations. These estimates and assumptions may prove inaccurate, or conditions may change due to factors out of our control, resulting in cost overruns, which we may be required to absorb and which could have a material adverse effect on our business, financial condition and results of operations. In addition, our profits from these contracts could decrease or we could experience losses if we incur difficulties in performing the contracts or are unable to secure fixed-pricing commitments from our manufacturers, suppliers and subcontractors at the time we enter into fixed-price contracts with our customers. In addition, our profits from these contracts could decrease or we could experience losses if we incur difficulties in performing the contracts or are unable to secure fixed-pricing commitments from our manufacturers, suppliers and subcontractors at the time we enter into fixed-price contracts with our customers.
Under cost-plus and time-and-material contracts, we perform our services in return for payment of our agreed upon reimbursable costs plus a profit. The profit component is typically expressed in the contract either as a percentage of the reimbursable costs we actually incur or is factored into the rates we charge for labor or for the cost of equipment and materials, if any, we are required to provide. Our profit could be negatively impacted if our actual costs exceed the estimated costs utilized to establish the billing rates included in the contracts.
We may incur significant costs in providing services in excess of original project scope without having an approved change order.
After commencement of a contract, we may perform, without the benefit of an approved change order from the customer, additional services requested by the customer that were not contemplated in our contract price for various reasons, including customer changes or incomplete or inaccurate engineering, changes in project specifications and other similar information provided to us by the customer. Our construction contracts generally require the customer to compensate us for additional work or expenses incurred under these circumstances. Our construction contracts generally require the customer to compensate us for additional work or expenses incurred under these circumstances.
A failure to obtain adequate and prompt compensation for these matters could require us to record in the current period an adjustment to revenue and profit recognized in prior periods under the percentage-of-completion accounting method.A failure to obtain adequate compensation for these matters could require us to record in the current period an adjustment to revenue and profit recognized in prior periods under the percentage-of-completion accounting method. Any such adjustments, if substantial, could have a material adverse effect on our results of operations and financial condition, particularly for the period in which such adjustments are made. Any such adjustments, if substantial, could have a material adverse effect on our results of operations and financial condition, particularly for the period in which such adjustments are made. We can provide no assurance that we will be successful in obtaining, through negotiation, arbitration, litigation or otherwise, approved change orders in an amount adequate to compensate us for our additional work or expenses. While change orders or claims are unresolved, we may be required to use significant working
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capital to fund cost overruns, which could adversely affect our liquidity and cash flows.
Our business may be affected by difficult work sites and environments, which may adversely affect our overall business.
We perform our work under a variety of conditions, including difficult terrain, difficult site conditions, remote locations and busy urban centers where delivery of materials and availability of labor may be impacted.We perform our work under a variety of conditions, including, but not limited to, difficult terrain, difficult site conditions and busy urban centers where delivery of materials and availability of labor may be impacted. Performing work under these conditions can slow our progress, potentially causing us to incur contractual liability to our customers. Performing work under these conditions can slow our progress, potentially causing us to incur contractual liability to our customers. These difficult conditions may also cause us to incur additional, unanticipated costs that we might not be able to pass on to our customers.
We are susceptible to severe weather conditions, including those caused by climate change or otherwise, which may harm our business and financial results.
Our business may be adversely affected by severe weather in areas where we or our customers have significant operations. Repercussions of severe weather conditions may include:
•curtailment of services;
•suspension of operations;
•inability to meet performance schedules in accordance with contracts and potential liability for liquidated damages;
•injuries or fatalities;
•weather related damage to our facilities or work-in-progress on project sites;
•disruption of information systems;
•inability to receive machinery, equipment and materials at job sites; and
•loss of productivity.
The frequency and severity of severe weather conditions may be enhanced by present and future changes to our climate.
Our business has been affected by inflation, supply chain disruptions, shortages of materials, labor or equipment, and performance issues involving suppliers and subcontractors.Our business has been affected by inflation, supply chain disruptions and shortages of materials and labor.
We may experience increases in construction costs, including increases in the costs of materials, components, equipment, subcontractor services and labor due to inflation, supply chain challenges, geopolitical conflicts, disruptions in global energy markets and related trade restrictions. Recent geopolitical developments and disruptions to shipping have caused increases in oil prices and disruptions to shipping routes, which could adversely affect global energy markets and the availability, cost and timing of the equipment, materials and services required for our projects. To the extent we can, we mitigate these risks primarily by procuring materials upon contract execution to ensure that our purchase price approximates the costs included in the project estimate, and also by contract provisions that mitigate our exposure to fluctuations in material costs. To the extent we can, we mitigate these risks primarily by procuring materials upon contract execution to ensure that our purchase price approximates the costs included in the project estimate, and also by contract provisions that mitigate our exposure to fluctuations in material costs. However, suppliers, subcontractors or equipment providers may fail to perform, fail to meet quality, safety, legal or schedule requirements, experience financial difficulties, or be unable to provide materials, components, equipment or services in the quantities, at the prices or within the lead times that we require. Shortages or extended lead times for key materials or components, or the unavailability or increased cost of equipment, could delay projects, require us to source replacements at higher prices, reduce productivity, damage customer relationships or reduce project profitability. We may be unable to pass through some or all of these increases in costs to our customers which may materially affect our results of operations. However, we may be unable to pass through some or all of these increases in costs to our customers which may materially affect our results of operations. Additionally, our clients' interest in approving new projects, budgets for capital expenditures and need for our services have in the past been, and may in the future be, adversely affected by, among other things, poor economic conditions, including inflation, slow growth or recession, changes to governments' fiscal or monetary policy and higher interest rates. These factors could materially and adversely affect the demand for our services.
Changes in global trade policy and the impact on tariffs may have a material adverse effect on business operations and financial performance.
The U.S. presidential administration has announced tariffs on U.S. imports generally, with higher rates for select U.S. trade partners. Certain foreign governments have also announced retaliatory tariffs. The tariff policy environment has been and is expected to continue to be dynamic, and we cannot predict what additional actions may ultimately be taken by the United States or other governments with respect to tariffs or trade relations.
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Domestic and foreign trade tariffs could raise the price and reduce the availability of raw materials such as steel plate and steel pipe, which are key materials used by us. Increased costs of raw materials could cause us to experience lower gross margins, operational inefficiencies and project delays. We include contract provisions that mitigate our exposure to fluctuations in material costs and to the impact of changes in laws and regulations. We also utilize contracting strategies that allow us to spread the risk of cost increases to other involved parties. However, we may be unable to pass through some or all of these increases in costs to other parties which may materially affect our results of operations. However, we may be unable to pass through some or all of these increases in costs to our customers which may materially affect our results of operations. To the extent we can, we also mitigate these risks primarily by procuring materials upon contract execution to ensure that our purchase price approximates the costs included in the project estimate.
Additionally, tariffs or other trade restrictions may lead to continuing uncertainty and volatility in U.S. economic conditions and commodity markets, declining consumer confidence, significant inflation, and diminished expectations for the economy. These factors could increase our costs and reduce our customers’ demand for our services, including decisions by our clients on project viability or timing, which could negatively impact our operating results and financial condition.
Unsatisfactory safety performance may subject us to fines, impact our ability to win work, affect customer relationships, result in higher operating costs, negatively impact employee morale and result in higher employee turnover.Unsatisfactory safety performance may subject us to penalties, affect customer relationships, result in higher operating costs, negatively impact employee morale and result in higher employee turnover.
Our projects are conducted at a variety of sites including construction sites and industrial facilities that can place our employees and others near large equipment, dangerous processes or substances or highly regulated materials.
Although we have taken what we believe are appropriate precautions to adequately train and equip our employees, we have experienced serious accidents, including fatalities, in the past and may experience additional accidents in the future. Serious accidents may subject us to fines, civil litigation or criminal prosecution. Serious accidents may subject us to penalties, civil litigation or criminal prosecution. Claims for damages to persons, including claims for bodily injury or loss of life, could result in costs and liabilities, which could materially and adversely affect our financial condition, results of operations or cash flows. Claims for damages to persons, including claims for bodily injury or loss of life, could result in costs and liabilities, which could materially and adversely affect our financial condition, results of operations or cash flows. Poor safety performance could also jeopardize our relationships with our customers, impact our ability to win future awards, and increase our insurance premiums. Poor safety performance could also jeopardize our relationships with our customers and increase our insurance premiums.
We are exposed to credit risk from customers. If we experience delays and/or defaults in customer payments, we could suffer liquidity problems or we could be unable to recover amounts owed to us.
Under the terms of our contracts, at times we commit resources to customer projects prior to receiving payments from customers in amounts sufficient to cover expenditures on these projects as they are incurred.11Table of ContentsUnder the terms of our contracts, at times we commit resources to customer projects prior to receiving payments from customers in amounts sufficient to cover expenditures on these projects as they are incurred. Many of our fixed-price or cost-plus contracts require us to satisfy specified progress milestones or performance standards in order to receive a payment. Many of our fixed-price or cost-plus contracts require us to satisfy specified progress milestones or performance standards in order to receive a payment. Under these types of arrangements, we may incur significant costs for labor, equipment and supplies prior to receipt of payment. Under these types of arrangements, we may incur significant costs for labor, equipment and supplies prior to receipt of payment. If the customer fails or refuses to pay us for any reason, there is no assurance we will be able to collect amounts due to us for costs previously incurred. If the customer fails or refuses to pay us for any reason, there is no assurance we will be able to collect amounts due to us for costs previously incurred. In some cases, we may find it necessary to terminate subcontracts with suppliers engaged by us to assist in performing a contract, and we may incur costs or penalties for canceling our commitments to them. In some cases, we may find it necessary to terminate subcontracts with suppliers engaged by us to assist in performing a contract, and we may incur costs or penalties for canceling our commitments to them. Delays in customer payments require an investment in working capital. Delays in customer payments require an investment in working capital. If we are unable to collect amounts owed to us under our contracts, we may be required to record a charge against previously recognized earnings related to the project, and our liquidity, financial condition and results of operations could be adversely affected. If we are unable to collect amounts owed to us under our contracts, we may be required to record a charge against previously recognized earnings related to the project, and our liquidity, financial condition and results of operations could be adversely affected.
Our collective bargaining agreements and multiemployer plan obligations could result in higher costs, work stoppages, or liabilities.
We contribute to several multiemployer pension plans for employees covered by collective bargaining agreements. These plans are not administered by us and contributions are determined in accordance with provisions of negotiated labor contracts. These plans are not administered by us and contributions are determined in accordance with provisions of negotiated labor contracts. Our collective bargaining agreements may require specified wages and benefits. Renegotiation of these agreements, changes in union work rules, labor disputes, wage or benefit increases, unionization of additional workforces or work stoppages could increase our costs, impair customer relationships, delay projects or adversely affect our ability to perform work. The Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980, imposes certain liabilities upon employers who are contributors to a multiemployer plan in the event of the employer’s withdrawal from, or upon termination of, such plan. The Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980, imposes certain liabilities upon employers who are contributors to a multiemployer plan in the event of the employer’s withdrawal from, or upon termination of, such plan. If we terminate, withdraw, or partially withdraw from other multiemployer pension plans, we could be required to make significant cash contributions to fund that plan's unfunded vested benefit, which could materially and adversely affect our financial condition and results of operations; however, we are not currently able to determine the net assets and actuarial present value of the multiemployer pension plans’ unfunded vested benefits allocable to us, if any, and we are not presently aware of the amounts, if any, for which we may be contingently liable if we were to withdraw from any of these plans. If we terminate, withdraw, or partially withdraw from other multiemployer pension plans, we could be required to make significant cash contributions to fund that plan's unfunded vested benefit, which could materially and adversely affect our financial condition and results of operations; however, we are not currently able to determine the net assets and actuarial present value of the multiemployer pension plans’ unfunded vested benefits allocable to us, if any, and we are not presently aware of the amounts, if any, for which we may be contingently liable if we were to withdraw from any of these plans. In addition, if the funding level of any of these multiemployer plans becomes classified as “critical status” under the Pension Protection Act of 2006, we could be required to make significant additional contributions to those plans. In addition, if the funding level of any of these multiemployer plans becomes classified as “critical status” under the Pension Protection Act of 2006, we could be required to make significant additional contributions to those plans.
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A failure or outage in our operational systems, including cybersecurity incidents and disruptions involving third-party software or AI tools , may adversely affect our business and financial results.
We use numerous software applications and systems including third-party systems, to support critical operating and administrative functions such as project management, estimating, scheduling, human resources, accounting and financial reporting. Any sudden loss, disruption, cyber-attack, discontinuation of vendor support or unexpected cost to maintain, integrate or replace these systems could significantly increase our operating expenses, delay or prevent critical business operations, disrupt the management of our business, and adversely affect our financial results.
Any security breach resulting in the unauthorized use or disclosure of certain personal, proprietary, customer or employee information could put individuals at risk of identity theft and financial or other harm and result in costs to us in investigation, remediation, legal defense regulatory compliance and liability to parties who are financially harmed.Any security breach resulting in the unauthorized use or disclosure of certain personal information could put individuals at risk of identity theft and financial or other harm and result in costs to us in investigation, remediation, legal defense and in liability to parties who are financially harmed. We may incur significant costs to protect against the threat of information security breaches or to respond to or alleviate problems caused by such breaches. For example, laws may require notification to regulators, clients or employees and enlisting credit monitoring or identity theft protection in the event of a privacy breach. A cybersecurity attack could also be directed at our systems and result in interruptions in our operations or delivery of services to our clients and their customers. Furthermore, a material security breach could cause us to lose revenue, lose clients or cause damage to our reputation.
Additionally, as artificial intelligence (“AI”) technologies become increasingly sophisticated, the security risks associated with their use and the potential for misuse also increase. Additionally, as artificial intelligence ("AI") technologies become increasingly sophisticated, the security risks associated with their use and the potential for misuse also increase. Hackers and malicious actors can harness the power of AI to develop more advanced cyberattacks, bypass security measures and exploit vulnerabilities in systems. Deepfake technology can be used to undermine organizations, spread false claims, misinform investors and impact financial markets. We may also use AI tools in our business, and challenges with effectively managing associated processes, data and models could result in reputational harm, competitive harm or legal liability. If the content, analyses or recommendations that AI applications assist in producing are, or are alleged to be, unstable, deficient, inaccurate, biased or yield conclusions for which there is no actionable recourse for those affected by its decisions, our business, financial condition and results of operations may be adversely affected. If the content, analyses, or recommendations that artificial intelligence applications assist in producing are, or are alleged to be, unstable, deficient, inaccurate, biased, or yield conclusions for which there is no actionable recourse for those affected by its decisions, our business, financial condition, and results of operations may be adversely affected. We have experienced cybersecurity threats to our information technology infrastructure and have experienced cyber-attacks, attempts to breach our systems and other similar incidents.We have experienced cybersecurity threats to our information technology infrastructure and have experienced cyber-attacks, attempts to breach our systems and other similar incidents. Such prior events have not had a material impact on our financial condition, results of operations or liquidity. However, future threats could cause harm to our business and our reputation, as well as negatively impact our results of operations materially. Our insurance coverage may not be adequate to cover all the costs related to cyber-attacks or disruptions resulting from such events.
Our business may be negatively impacted if we are unable to adequately protect our intellectual property rights.
Our success is impacted by our ability to differentiate our services through our technologies and know-how. This includes the ability to protect intellectual property (“IP”) rights. We utilize a combination of patents, copyrights, trade secrets, confidentiality agreements and other contractual arrangements to protect our interests. However, these methods only provide limited protection and may not adequately protect our interests. Our employees and contractors are subject to confidentiality obligations, but this protection may be inadequate to deter or prevent misappropriation of our confidential information and/or infringement of our IP rights. This can be especially true in certain foreign countries where IP does not have equivalent protections as in the U.S. We also hold licenses from third parties utilized in our business operations. If we are no longer able to license such technology on commercially reasonable terms or otherwise, we could be adversely affected.
Financial Risks
Our borrowing capacity under our ABL Facility is determined by the size of our borrowing base and if the size of our borrowing base combined with our unrestricted cash does not provide adequate liquidity, then we may need to raise additional capital in the future for working capital, letters of credit, capital expenditures and/or acquisitions, and we may not be able to do so on favorable terms or at all, which would impair our ability to operate our business or achieve our strategic plan.
Management believes it has sufficient cash on hand and will generate sufficient cash from operations to fund the business. However, should we require additional liquidity, there is risk that we will be unable to access the amount of additional liquidity needed from our ABL Facility if the level of assets included in the borrowing base is insufficient. However, should we require additional liquidity, there is risk that we will be unable to access the amount of additional liquidity needed from our Credit Agreement if the level of assets included in the borrowing base is insufficient. The borrowing base includes restricted cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced for certain reserves. The borrowing base includes restricted cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced for certain reserves. Accounts receivable eligible to be included in the borrowing base are generally limited to receivables associated with time and materials and other cost reimbursable contracts. While receivables associated with fixed price work generally do not increase the borrowing base, such work often has upfront billings, which help support the liquidity needs of the business. While receivables associated with fixed price work do not increase the borrowing base, such work often has upfront billings, which help support the liquidity needs of the business.
To the extent that cash on hand, cash flow from operations, and borrowing availability under the ABL Facility are insufficient to make future investments, or provide needed working capital or letters of credit, we may require additional financing from
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other sources. Our ability to obtain such additional financing in the future will depend in part upon prevailing capital market conditions, as well as conditions in our business and our operating results; and those factors may affect our efforts to arrange additional financing on terms that are satisfactory to us. If adequate funds are not available, or are not available on acceptable terms, we may not be able to make future investments or respond to competitive challenges.
Our ABL Facility imposes restrictions that may limit business alternatives.
Our ABL Facility prohibits or limits us from making acquisitions, repurchasing equity, incurring additional debt, acquiring or disposing of assets, or making other distributions, including cash dividends.Our Credit Agreement prohibits or limits us from making acquisitions, repurchasing equity, incurring additional debt, acquiring or disposing of assets, or making other distributions, including cash dividends. In addition, our ABL Facility requires that we comply with a Fixed Charge Coverage Ratio financial covenant under certain conditions. In addition, our Credit Agreement requires that we comply with a Fixed Charge Coverage Ratio financial covenant under certain conditions. These covenants and restrictions may impact our ability to effectively execute operating and strategic plans and our operating performance may not be sufficient to comply with the required covenants.
Our failure to comply with one or more of the covenants in our ABL Facility could result in an event of default.Our failure to comply with one or more of the covenants in our Credit Agreement could result in an event of default. We can provide no assurance that a default could be remedied, or that our creditors would grant a waiver or further amend the terms of the ABL Facility.
We may be unable to compete for projects if we are not able to obtain surety bonds or letters of credit.
Customers may require us to provide forms of performance security, including letters of credit, or surety bonds. We are often required to provide performance security to customers to indemnify the customer should we fail to perform our obligations under the contract. Failure to provide the required performance security on terms required by a customer may result in an inability to bid, win or comply with the contract. Historically, we have had adequate letters of credit capacity but such capacity beyond our ABL Facility is generally at the provider’s sole discretion. Due to events that affect the banking and insurance markets, letters of credit or surety bonds may be difficult to obtain or may only be available at significant cost. In addition, future projects may require us to obtain letters of credit that extend beyond the term of our ABL Facility. Any inability to bid for or win new contracts due to the failure of obtaining adequate letters of credit, surety bonds or other customary forms of performance security could have a material adverse effect on our business prospects and future revenues.
Accounting Risks
Our use of percentage-of-completion accounting for fixed-price contracts could result in a reduction or elimination of previously reported profits.
Revenue for fixed-price contracts is recognized using the percentage-of-completion method of accounting. Under percentage-of-completion accounting, contract revenue and earnings are recognized ratably over the contract term based on the proportion of actual costs incurred to total estimated costs. We review our estimates of contract revenue, costs and profitability on a monthly basis. As a result, we may adjust our estimates on one or more occasions as a result of changes in cost estimates, change orders to the original contract, or claims against the customer for increased costs incurred by us due to customer-induced delays and other factors. See "Revenue Recognition" within Note 1 - Business, Basis of Presentation and Significant Accounting Policies, for more discussion of our percentage-of-completion revenue recognition. See "Revenue Recognition" within Note 1 - Basis of Presentation and Significant Accounting Policies, for more discussion on our percentage-of-completion revenue recognition.
As a result of the requirements of the percentage-of-completion method of accounting, the possibility exists that we could have estimated and reported a profit on a contract over several prior periods and later determine, as a result of additional information, that all or a portion of such previously estimated and reported profits were overstated. Further, many of our contracts contain various cost and performance incentives and penalties that impact the earnings we realize from our contracts, and adjustments related to these incentives and penalties are recorded on a percentage of completion basis in the period when estimable and probable. Further, many of our contracts contain various cost and performance incentives and penalties that impact the earnings we realize from our contracts, and adjustments related to these incentives and penalties are recorded on a percentage of completion basis in the period when estimable and probable. If this occurs, the full aggregate amount of the overstatement will be recognized in the period in which such change in estimate occurs. If this occurs, the full aggregate amount of the overstatement will be recognized in the period in which such change in estimate occurs. No restatements are made to prior periods. Additionally, if estimates of costs to complete fixed-price contracts indicate a loss, a provision is made to accrue the total loss anticipated in the period the loss is determined.If estimates of costs to complete fixed-price contracts indicate a loss, a provision is made to accrue the total loss anticipated in the period the loss is determined.
Actual results could differ from the estimates and assumptions that we use to prepare our financial statements.
To prepare financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions, as of the date of the financial statements, which affect the reported values of assets, liabilities, revenue and expenses and disclosures of contingent assets and liabilities. Areas requiring significant estimation by our management include:
•contract costs and application of percentage-of-completion accounting;
•the amount and collectability of unpriced change orders and claims against customers;
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•provisions for income taxes and related valuation allowances;
•recoverability of goodwill and intangible assets;
•provisions for uncollectable receivables from customers for invoiced amounts;
•valuation of assets acquired and liabilities assumed in connection with business combinations; and
•accruals for estimated liabilities, including litigation reserves.
Our actual results could materially differ from these estimates.
Earnings for future periods may be affected by impairment charges.
Because we have grown in part through acquisitions, goodwill represents a substantial portion of our assets.Because we have grown in part through acquisitions, goodwill and other acquired intangible assets represent a substantial portion of our assets. We perform annual goodwill impairment reviews in the fourth quarter of every fiscal year. In addition, we perform an impairment review whenever events or changes in circumstances indicate the fair value of a goodwill reporting unit may be less than its carrying value or the carrying value of a long-lived asset grouping may not be recoverable. As of June 30, 2026, we had $28.9 million of non-amortizing goodwill representing 4.8% of our total assets.
Legal, Insurance, Regulatory and Compliance Risks
We are involved, and are likely to continue to be involved in legal proceedings, which will increase our costs and, if adversely determined, could have a material effect on our financial condition, results of operations, cash flows and liquidity.
We are currently a defendant in legal proceedings arising from the operation of our business, and it is reasonable to expect that we would be named in future actions. Many of the actions against us arise out of the normal course of performing services on project sites, and include workers’ compensation claims, personal injury claims and contract disputes with our customers. Many of the actions against us arise out of the normal course of performing services on project sites, and include workers’ compensation claims, personal injury claims and contract disputes with our customers. From time to time, we are also named as a defendant for actions involving the violation of federal and state labor laws related to employment practices, wages and benefits. From time to time, we are also named as a defendant for actions involving the violation of federal and state labor laws related to employment practices, wages and benefits. We may also be a plaintiff in legal proceedings against customers seeking to recover payment of contractual amounts due to us as well as claims for increased costs incurred by us resulting from, among other things, services performed by us at the request of a customer that are in excess of original project scope that are later disputed by the customer and customer-caused delays in our contract performance.
We maintain insurance against operating hazards in amounts that we believe are customary in our industry. However, our insurance policies include deductibles and certain coverage exclusions, so we cannot provide assurance that we are adequately insured against all of the risks associated with the conduct of our business. However, our insurance policies include deductibles and certain coverage exclusions, so we cannot provide assurance that we are adequately insured against all of the risks associated with the conduct of our business. A successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our financial condition, results of operations, cash flows and liquidity. A successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our financial condition, results of operations, cash flows and liquidity.
Litigation, regardless of its outcome, is expensive, typically diverts the efforts of our management away from operations for varying periods of time, and can disrupt or otherwise adversely impact our relationships with current or potential customers, subcontractors and suppliers. Payment and claim disputes with customers may also cause us to incur increased interest costs resulting from incurring indebtedness under our revolving line of credit or receiving less interest income resulting from fewer funds invested due to the failure to receive payment for disputed claims and accounts. Payment and claim disputes with customers may also cause us to incur increased interest costs resulting from incurring indebtedness under our revolving line of credit or receiving less interest income resulting from fewer funds invested due to the failure to receive payment for disputed claims and accounts.
Our projects expose us to potential professional liability, product liability, pollution liability, warranty and other claims, which could be expensive, damage our reputation and harm our business. We may not be able to obtain or maintain adequate insurance to cover these claims. We may not be able to obtain or maintain adequate insurance to cover these claims.
We perform engineering, construction and maintenance services at large industrial facilities where accidents or system failures can be disastrous and costly.We perform construction and maintenance services at large industrial facilities where accidents or system failures can be disastrous and costly. Any catastrophic occurrence in excess of our insurance limits at locations engineered or constructed by us or where our products are installed or services performed could result in significant professional liability, product liability, warranty and other claims against us by our customers, including claims for cost overruns and the failure of the project to meet contractually specified milestones or performance standards. Any catastrophic occurrence in excess of our insurance limits at locations engineered or constructed by us or where our products are installed or services performed could result in significant professional liability, product liability, warranty and other claims against us by our customers, including claims for cost overruns and the failure of the project to meet contractually specified milestones or performance standards. Further, the rendering of our services on these projects could expose us to risks and claims by third parties and governmental agencies for personal injuries, property damage and environmental matters, among others. Any claim, regardless of its merit or eventual outcome, could result in substantial costs, divert management’s attention and create negative publicity, particularly for claims relating to environmental matters where the amount of the claim could be extremely large. Any claim, regardless of its merit or eventual outcome, could result in substantial costs, divert management’s attention and create negative publicity, particularly for claims relating to environmental matters where the amount of the claim could be extremely large. We may not be able to or may choose not to obtain or maintain insurance coverage for the types of claims described above. If we are unable to obtain insurance at an acceptable cost or otherwise protect against the claims described above, we will be exposed to significant liabilities, which may materially and
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adversely affect our financial condition and results of operations. 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.
Employee, subcontractor or partner misconduct or our overall failure to comply with laws or regulations could harm our reputation, damage our relationships with customers, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.
Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of our employees, subcontractors or partners could have a significant negative impact on our business and reputation. Such misconduct could include the failure to comply with safety standards, laws and regulations, customer requirements, regulations pertaining to the internal controls over financial reporting, environmental laws and any other applicable laws or regulations. Such misconduct could include the failure to comply with safety standards, laws and regulations, customer requirements, regulations pertaining to the internal controls over financial reporting, environmental laws and any other applicable laws or regulations. The precautions we take to prevent and detect these activities may not be effective, since our internal controls are subject to inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud. The precautions we take to prevent and detect these activities may not be effective, since our internal controls are subject to inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud.
Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, harm our reputation, damage our relationships with customers, reduce our revenue and profits and subject us to criminal and civil enforcement actions.
Regulatory uncertainty regarding climate-related matters and evolving sustainability expectations could affect our business.
The regulatory environment for climate-related matters in the United States is subject to significant uncertainty, including potential differences among federal, state, and local requirements and presidential administrations. A fragmented and changing regulatory landscape may increase compliance costs, complicate operations, and impact customer decision-making, including the timing, scope, or demand for certain projects or services. We believe this risk is partly mitigated by new project opportunities resulting from our customers' investment in cleaner energy sources. We believe this risk is partly mitigated by new project opportunities resulting from our customers' investment in cleaner energy sources.
Stakeholder expectations and standards regarding sustainability practices and reporting are evolving, lack uniformity, subject to political influences, and are becoming increasingly difficult to assess. To the extent stakeholders view our practices or reporting as not meeting their expectations, investor interest or access to capital could be adversely affected.
Environmental factors and changes in laws and regulations could increase our costs and liabilities.
Our operations are subject to environmental laws and regulations, including those concerning emissions into the air; discharges into waterways; generation, storage, handling, treatment and disposal of hazardous material and wastes; and health and safety.15Table of ContentsOur operations are subject to environmental laws and regulations, including those concerning emissions into the air; discharges into waterways; generation, storage, handling, treatment and disposal of hazardous material and wastes; and health and safety.
Our projects often involve highly regulated materials, including hazardous wastes. Environmental laws and regulations generally impose limitations and standards for regulated materials and require us to obtain permits and comply with various other requirements. The improper characterization, handling, or disposal of regulated materials or any other failure by us to comply with federal, state and local environmental laws and regulations or associated environmental permits could subject us to the assessment of administrative, civil and criminal penalties, the imposition of investigatory or remedial obligations, or the issuance of injunctions that could restrict or prevent our ability to operate our business and complete contracted projects.
In addition, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), and comparable state and foreign laws, we may be required to investigate and remediate the release or threatened release of hazardous substances. CERCLA and the comparable state laws typically impose liability without regard to whether a company knew of or caused the release, and liability for the entire cost of clean-up can be imposed upon any responsible party. CERCLA and the comparable state laws typically impose liability without regard to whether a company knew of or caused the release, and liability for the entire cost of clean-up can be imposed upon any responsible party.
We are subject to numerous other laws and regulations including those related to business registrations and licenses, environment, workplace, employment, health and safety. These laws and regulations are complex, change frequently and could become more stringent in the future. These laws and regulations are complex, change frequently and could become more stringent in the future. It is impossible to predict the effect on us of any future changes to these laws and regulations. We can provide no absolute assurance that our operations will continue to comply with future laws and regulations or that the costs to comply with these laws and regulations and/or a failure to comply with these laws will not significantly adversely affect our business, financial condition and results of operations. We can provide no absolute assurance that our operations will continue to comply with future laws and regulations or that the costs to comply with these laws and regulations and/or a failure to comply with these laws will not significantly adversely affect our business, financial condition and results of operations.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.
The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to officials or others for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. Our policies mandate compliance with these anti-bribery laws. We operate in parts of the world that have experienced corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local
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customs and practices. We train our personnel concerning anti-bribery laws and issues, and we also inform our customers, vendors, representatives and others who work for us or on our behalf that they must comply with anti-bribery law requirements. We train our personnel concerning anti-bribery laws and issues, and we also inform our customers, vendors, and others who work for us or on our behalf that they must comply with anti-bribery law requirements. We also have procedures and controls in place to monitor compliance. We also have procedures and controls in place to monitor compliance. We cannot assure that our internal controls and procedures always will protect us from the possible reckless or criminal acts committed by our employees or agents. We cannot assure that our internal controls and procedures always will protect us from the possible reckless or criminal acts committed by our employees or agents. If we are found to be liable for anti-bribery law violations (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others including our partners, agents, subcontractors or suppliers), we could suffer from criminal or civil penalties or other sanctions, including contract cancellations or debarment, and loss of reputation, any of which could have a material adverse effect on our business. If we are found to be liable for anti-bribery law violations (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others including our partners, agents, subcontractors or suppliers), we could suffer from criminal or civil penalties or other sanctions, including contract cancellations or debarment, and loss of reputation, any of which could have a material adverse effect on our business. Litigation or investigations relating to alleged or suspected violations of anti-bribery laws, even if ultimately such litigation or investigations demonstrate that we did not violate anti-bribery laws, could be costly and could divert management's attention away from other aspects of our business. Litigation or investigations relating to alleged or suspected violations of anti-bribery laws, even if ultimately such litigation or investigations demonstrate that we did not violate anti-bribery laws, could be costly and could divert management's attention away from other aspects of our business.
Economic, political and other risks associated with international operations could adversely affect our business.
A small portion of our operations are conducted outside the United States, and accordingly, our business is subject to risks associated with doing business internationally, including changes in foreign currency exchange rates, instability in political or economic conditions, difficulty in repatriating cash proceeds, differing employee relations, differing regulatory environments, trade protection measures, and difficulty in administering and enforcing corporate policies which may be different than the normal business practices of local cultures.
Item 1B.Item 1A. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
We have implemented a cybersecurity program to assess, identify and manage risk from cybersecurity threats. This program aims to protect the confidentiality, availability and integrity of our information systems from potential threats. Our cybersecurity risk management program includes, among other things, risk assessments designed to identify threats to our critical systems and information services, and a team comprising IT Security, IT Infrastructure and IT Compliance personnel that administers the program with oversight by senior management.
All administrative employees participate in cybersecurity training programs. Employees receive training on how to identify and report cyber risks and events through our cybersecurity awareness program.
Governance
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Our Board of Directors , with assistance from the IT Steering Committee, oversees cybersecurity. Our Board of Directors receives reports as needed, but no less than biannually, from management on various cybersecurity and IT topics, including trends, data security policies and practices, cybersecurity incidents, current and projected threat assessments, regulatory developments and ongoing efforts to protect, detect and respond to critical threats. Our IT Steering Committee, which is part of our Risk Management Committee and is responsible for cybersecurity management oversight, includes members of management such as our Chief Executive Officer, our Chief Financial Officer, our General Counsel, and our Senior Vice President of Enterprise Services. The IT Steering Committee periodically reviews and confers with management regarding risk issues associated with cybersecurity and policies and controls intended to alleviate those risks. The IT Steering Committee periodically reviews and confers with management risk issues associated with cybersecurity and policies and controls intended to alleviate those risks.
Cybersecurity Risks, Threats and Material Incidents
We describe whether and how risks from identified cybersecurity threats, including as a result of any prior cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial conditions under Item 1A. Risk Factors, Risk Factors Related to Our Business and Operations, "A failure or outage in our operational systems, including cybersecurity incidents and disruptions involving third-party software or AI tools, may adversely affect our business and financial results."
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Recently Filed
Click on a ticker to see risk factors
| Ticker * | File Date |
|---|---|
| PKTX | an hour ago |
| MTRX | an hour ago |
| LYTS | an hour ago |
| ZS | 2 hours ago |
| GROW | 2 hours ago |
| PDEX | 2 hours ago |
| LTCN | 2 hours ago |
| GDLC | 2 hours ago |
| BCHG | 2 hours ago |
| ETD | 4 hours ago |
| BRC | 11 hours ago |
| CSCO | 1 day, 2 hours ago |
| PROV | 1 day, 3 hours ago |
| RGS | 2 days, 12 hours ago |
| BMRA | 3 days, 1 hour ago |
| GLGI | 3 days, 2 hours ago |
| STME | 3 days, 2 hours ago |
| SMCI | 3 days, 4 hours ago |
| CYDY | 3 days, 10 hours ago |
| JKHY | 6 days, 1 hour ago |
| STRT | 6 days, 2 hours ago |
| IBIO | 6 days, 10 hours ago |
| KOSS | 1 week ago |
| LTRX | 1 week ago |
| AFRM | 1 week ago |
| AOSL | 1 week ago |
| IREN | 1 week ago |
| LFVN | 1 week ago |
| ARAY | 1 week ago |
| PURR | 1 week ago |
| THTG | 1 week ago |
| MBUU | 1 week ago |
| AVNW | 1 week ago |
| LUCK | 1 week ago |
| PAHC | 1 week, 1 day ago |
| UFI | 1 week, 1 day ago |
| GEG | 1 week, 1 day ago |
| QNST | 1 week, 1 day ago |
| ELMD | 1 week, 2 days ago |
| SLQT | 1 week, 2 days ago |
| MZTI | 1 week, 2 days ago |
| TECH | 1 week, 3 days ago |
| NSSC | 1 week, 3 days ago |
| OSIS | 1 week, 6 days ago |
| KRNY | 1 week, 6 days ago |
| PH | 1 week, 6 days ago |
| UI | 1 week, 6 days ago |
| SYY | 2 weeks ago |
| PSEC | 2 weeks ago |
| COTY | 2 weeks ago |
