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Item 1A. Risk Factors

2021-03-16 compared with 2020-03-27 · 153 added, 123 removed, 177 unchanged (61% of the section changed)

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Risks Related to Our Business

Due to our dependency on customers in the oil and gas industry, we are susceptible to prolonged negative trends relating to this industry that could adversely affect our operating results.

Our customers in the oil and gas industry (including the petrochemical market) have accounted for a substantial portion of our historical revenues.

Specifically, they accounted for approximately 57%, 58%, and 56% of our revenues for the years ended December 31, 2020, 2019 and 2018, respectively.

Although we have expanded our customer base into industries other than the oil and gas industry, we still receive a majority of our revenues from this industry.

Our services are vital to the operators of plants and refineries and we have expanded our services offerings, such as expanding our mechanical services capabilities.

However, economic slowdowns or low oil prices have, and could continue to, result in cutbacks in contracts for our services.

In addition, low oil prices could depress the level of new exploration and construction, which would adversely affect our market opportunities.

If the oil and gas industry were to continue to operate in a market with low oil prices, our revenues, profits and cash flows may be reduced.

While we continue to expand our market presence in the aerospace, power generation and

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transmission, and the chemical processing industries, among others, these markets are also cyclical in nature and as such, are subject to economic downturns.

We may be affected by climate change and market or regulatory responses to climate change

Climate change, including the impact of global warming, could have a material adverse effect on our results of operations, financial condition, and liquidity.

Restrictions on emissions could affect our customers that (a) use commodities to produce energy, (b) use significant amounts of energy in producing or delivering commodities, or (c) manufacture or produce goods that consume significant amounts of energy or burn fossil fuels.

Significant cost increases, government regulation, or changes of consumer preferences for goods or services relating to alternative sources of energy or emissions reductions could materially affect the markets we serve (including the oil and gas industry), which in turn could have a material adverse effect on our results of operations, financial condition, and liquidity.

Government incentives encouraging the use of alternative sources of energy also could affect certain of our customers and the markets we serve in an unpredictable manner.

Any of these factors, individually or in operation with one or more of the other factors, or other unforeseen impacts of climate change could have a material adverse effect on our results of operations, financial condition, and liquidity.

Our long-term growth strategy includes acquisitions.

We may not be able to identify suitable acquisition candidates or integrate acquired businesses successfully, which may adversely impact our results.

In addition, due to our current debt levels and the restrictions related to the debt covenants in our credit facility, we do not expect to complete any acquisitions in 2020.

In addition, due to our current debt levels and the restrictions related to the covenants in our credit facility, we do not expect to complete any acquisitions in 2021 other than small acquisitions with the banks’ approval.

Furthermore, acquisitions that we have completed or may complete in the future could expose us to a number of unanticipated operational and financial risks.

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Our ability to undertake acquisitions is limited by our financial resources, including available cash and borrowing capacity.

Due to our current debt levels and restrictions related to the debt covenant in our credit facility, we do not expect to make any acquisitions in 2020.

Due to our current debt levels and restrictions related to the covenants in our credit facility, we do not expect to make any acquisitions in 2021 other than small acquisitions with the banks’ approval.

Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of substantial additional indebtedness and other expenses, any of which could adversely impact our financial condition and results of operations.

Although management intends to:

(i) evaluate the risks inherent in any particular transaction, (ii) assume only

risks management believes to be acceptable, and (iii) develop plans to mitigate such risks, there are no assurances that we will properly ascertain or accurately assess the extent of all such risks.

(i) evaluate the risks

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inherent in any particular transaction, (ii) assume only risks management believes to be acceptable, and (iii) develop plans to mitigate such risks, there are no assurances that we will properly ascertain or accurately assess the extent of all such risks.

Difficulties encountered with acquisitions may adversely impact our business, financial condition and results of operations.

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If our acquisitions do not perform as planned and we do not realize the benefits and profitability we expect, we could incur significant write-downs and impairment charges to our earnings due to the impairment of the goodwill and other intangible assets we have acquired or acquire in the future.

We experienced such write-downs and impairment changes in the quarter ended March 31, 2020 (see notes 8 and 9 to the financial statements included in Item 8 of this report).

Our international operations are subject to risks relating to non-U.S.

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• restrictions or limitations on outsourcing contracts or services abroad;

• the impact of the United Kingdom exiting the European Union;

• the long-term impact of the United Kingdom exiting the European Union;

the ultimate effects of Brexit on the Company are difficult to predict.

On January 31, 2020, the U.K.

exited from the EU (BREXIT).

On December 24, 2020, the United Kingdom and European Union agreed on a new Trade and Cooperation Agreement and on December 31, 2020, the United Kingdom formally left the transition period.

Although it is unknown what the terms of the U.K.’s future relationship with the EU will be, it is possible that there will be higher tariffs or greater restrictions on imports and exports between the U.K.

and the EU and increased regulatory complexities.

The Company currently has subsidiaries that operate in the United Kingdom and Europe and our UK subsidiary and other European subsidiaries from time to time share employees and equipment.

Brexit will make this sharing of employees and equipment more time consuming and expensive, which could cause disruptions and adversely affect the Company’s financial condition, operating results and cash flows.

Brexit may make this sharing of employees and equipment more time consuming and expensive, which could cause disruptions and adversely affect the Company’s financial condition, operating results and cash flows.

Our UK subsidiary represents 1.6% of our consolidated revenue for the year ended December 31, 2020.

• restrictions or limitations on the repatriation of funds, or tax consequences on the non-repatriation of overseas operationally generated funds;

• other potentially adverse tax consequences.

Due to our dependency on customers in the oil and gas industry, we are susceptible to prolonged negative trends relating to this industry that could adversely affect our operating results.

Our customers in the oil and gas industry (including the petrochemical market) have accounted for a substantial portion of our historical revenues.

Specifically, they accounted for approximately 58%, 56%, and 58% of our revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

Although we have expanded our customer base into industries other than the oil and gas industry, we still receive a majority of our revenues from this industry.

Our services are vital to the operators of plants and refineries and we have expanded our services offerings, such as expanding our mechanical services capabilities.

However, economic slowdowns or low oil prices have, and could continue to, result in cutbacks in contracts for our services.

In addition, low oil prices could depress the level of new exploration and construction, which would adversely affect our market opportunities.

If the oil and gas industry were to continue to operate in a market with low oil prices, our revenues, profits and cash flows may be reduced.

While we continue to expand our market presence in the aerospace, power generation and transmission, and the chemical processing industries, among others, these markets are also cyclical in nature and as such, are subject to economic downturns.

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We expect to continue expanding and our success depends on how effectively we manage our growth.

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If our safety record is not within the levels required by our customers, or compares unfavorably to our competitors, we could lose business, be prevented from working at certain facilities or suffer other adverse consequences, all of which could negatively impact our business, revenues, reputation and profitability.

We may face risks regarding our information technology and security.

Significant disruptions of our information technology systems or breaches of information security could adversely affect our business.

We rely upon information technology systems to operate many parts of our business.

We routinely collect, store and transmit large amounts of sensitive or confidential information, including data from the results of our testing and inspections.

We deploy and operate various technical and procedural controls to maintain the confidentiality and integrity of such sensitive or confidential information.

Furthermore, as we automate more of our inspection process and procedures, including through the use of Mistras Digital, we become more vulnerable to security breaches and other system disruptions.

In addition, we rely on third parties for significant elements of our information technology infrastructure and, as a result, we are managing many independent vendor relationships with third parties who may or could have access to our confidential information.

The size and complexity of our information technology and information security systems, and those of our third-party vendors with whom we contract (and the large amounts of confidential information that is present on them), make such systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from attacks by malicious third parties.

Such attacks are of ever-increasing levels of sophistication and expertise, including organized criminal groups, “hacktivists,” and others.

Due to the nature of some of these attacks, there is a risk that they may remain undetected for a period of time.

While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches.

Any such interruption or breach of our systems could adversely affect our business operations and/or result in the loss of critical or sensitive confidential information, and could result in financial, legal, business and reputational harm to us.

We maintain cyber liability insurance;

however this insurance may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems.

The occurrence or perception of security breaches in connection with our asset protection solutions or our customers’ concerns about internet security or the security of our solutions, whether warranted or not, would likely harm our reputation and business, inhibit market acceptance of our asset protection solutions and cause us to lose customers, any of which would harm our financial condition and results of operations.

In addition, much of our computer and communications hardware is located at a single facility.

We have a back-up data-center and storage in a different geographic area.

Should a natural disaster or some other event occur that damages our primary data center or significantly disrupts its operation, such as human error, fire, flood, power loss, telecommunications failure, break-ins, terrorist attacks, acts of war and similar events, we could suffer temporary interruption of key functions and capabilities before the back-up facility is fully operational.

We are subject to privacy and data security/protection laws in the jurisdictions in which we operate and may be exposed to

substantial costs and liabilities associated with such laws and regulations.

The regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition

of new and changing requirements.

The European Union's General Data Protection Regulation (“GDPR”), which became

effective in May 2018, imposed significant new requirements on how companies process and transfer personal data, as well as

significant fines for non-compliance.

In addition to GDPR, many states in the U.S.

have enacted, or are considering, data

privacy requirements similar to GDPR, and thus we will need to ensure our procedures comply with these various state laws.

Compliance with changes in privacy and information security laws and standards may result in significant expense due to

increased investment in technology and the development of new operational processes, which could have a material adverse

effect on our financial condition and results of operations.

with such a breach, could damage the Company’s reputation and adversely impact product demand and customer relationships.

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If our software or system produces inaccurate information or are incompatible with the systems used by our customers and

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Our software and systems are complex and, accordingly, may contain undetected errors or failures.

Software or system defects

or inaccurate data may cause incorrect recording, reporting or display of information related to our asset protection solutions.

Any such failures, defects and inaccurate data may prevent us from successfully providing our asset protection solutions, which

could result in lost revenues.

Software or system defects or inaccurate data may lead to customer dissatisfaction and could cause

our customers to seek to hold us liable for any damages incurred.

As a result, we could lose customers, our reputation may be

harmed and our financial condition and results of operations could be materially adversely affected.

We currently serve a commercial, industrial and governmental customer base that uses a wide variety of constantly changing

hardware, software solutions and operating systems.

Our asset protection solutions need to interface with these non-standard

systems in order to gather and assess data.

Software or system defects or inaccurate data may cause incorrect recording, reporting or display of information related to our asset protection solutions.

Any such failures, defects and inaccurate data may prevent us from successfully providing our asset protection solutions, which could result in lost revenues.

Software or system defects or inaccurate data may lead to customer dissatisfaction and could cause our customers to seek to hold us liable for any damages incurred.

As a result, we could lose customers, our reputation may be harmed and our financial condition and results of operations could be materially adversely affected.

We currently serve a commercial, industrial and governmental customer base that uses a wide variety of constantly changing hardware, software solutions and operating systems.

Our asset protection solutions need to interface with these non-standard systems in order to gather and assess data.

Our business depends on the following factors, among others:

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• our ability to anticipate and support new standards, especially internet-based standards;

• our ability to integrate additional software modules under development with our existing technology and operational

• our ability to integrate additional software modules under development with our existing technology and operational processes.

If we are unable to adequately address any of these factors, our results of operations and prospects for growth and profitability

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These competitive factors could reduce our market share, revenues and profits.

Due to the participation in multi-employer pension plans by our subsidiaries, these subsidiaries may face withdrawal liability.

Some of our workforce is unionized and the terms of employment for these workers are governed by collective bargaining agreements, or CBAs.

Under these CBAs, we are required to contribute to the national pension funds for the unions representing these employees, which are multi-employer pension plans.

Significant reductions in contributions to these pension plans, or events that result in our subsidiaries no longer contributing to these pension plans, can result in a complete or partial withdrawal liability under ERISA, which can be significant and adversely impact our earnings and cash flow.

The Company recorded a charge of $5.9 million during 2018 and $0.8 million during 2019 for this potential withdrawal liability.

Events such as natural disasters, industrial accidents, epidemics, pandemics, war and acts of terrorism, and adverse weather conditions could disrupt our business or the business of our customers, which could significantly harm our operations, financial results and cash flow.

Our operations and those of our customers are susceptible to the occurrence of catastrophic events outside our control, which may include events like epidemics, pandemics and other health crises, severe weather conditions, industrial accidents, and acts of war and terrorism, to name a few.

Any such events could cause a serious business disruption that reduces our customers’ need or interest in purchasing our asset protection solutions.

In the past, such events have resulted in order cancellations and delays because customer equipment, facilities or operations have been damaged, or are not then operational or available.

A large portion of our customer base has operations in the Gulf of Mexico, which is subject to hurricanes and tropical storms.

Hurricane-related disruptions to our customers’ operations have adversely affected our revenues in the past.

Such events in the future may result in substantial delays in the provision of solutions to our customers and the loss of valuable equipment.

In addition, our results can be adversely impacted by severe winter weather conditions, which can result in lost workdays and temporary closures of customer facilities or outdoor projects.

While our business may not be directly impacted by the COVID-19 coronavirus like other industries such as travel and restaurants, the safety measures being taken in an attempt to slowdown the spread of COVID-19 has resulted in a slowdown of our business.

If there is a significant outbreak in the areas of one of our major locations or a major customer location, our business would be hampered by a customer facility shut down, quarantine or other actions taken to control the spread of the COVID-19.

Because much of our revenue is generated by our technicians working at customer sites, our revenue will be reduced if the customer site reduces or eliminates the presence of third-party contractors and service providers, such as our technicians.

Any cancellations, delays or losses due to such events may significantly reduce our revenues and harm our operating performance.

In addition, these events could disrupt commodity prices or financial markets or have other negative macroeconomic impacts, such as those being caused by COVID-19 coronavirus, which could harm our business.

If we lose key members of our senior management team upon whom we are dependent, we may be less effective in managing our operations and may have more difficulty achieving our strategic objectives.

Our future success depends to a considerable degree upon the availability, contributions, vision, skills, experience and effort of our senior management team.

We have in place various compensation programs, such as an annual cash incentive program, equity incentive program and a severance policy, each designed to incentivize and retain our key senior managers.

At this time, we do not have any reason to believe that we may lose the services of any of these key persons in the foreseeable future and we believe our compensation programs will help us retain these individuals.

We believe we have sufficient depth in our executive management to continue our success if we were to lose the services of an executive.

However, an unplanned loss or interruption of the service of numerous key members of our senior management team could harm our business, financial condition and results of operations and could significantly reduce our ability to manage our operations and implement our strategy.

Deteriorations in economic conditions in certain markets or other factors may cause us to recognize impairment charges for our goodwill.

As of December 31, 2019, the carrying amount of our goodwill was approximately $282.4 million, of which $247.2 million and $35.2 million relate to our Services and International segments, respectively.

Our Services segment is predominantly concentrated in North America whereas a significant portion of our International segment are concentrated in Europe and Brazil.

Significant deterioration in industry or economic conditions in which we operate, disruptions to our business, not effectively integrating acquired businesses, or other factors, may cause impairment charges to goodwill in future periods.

The success of our businesses depends, in part, on our ability to develop new asset protection solutions, increase the functionality of our current offerings and meet the needs and demands of our customers.

The market for asset protection solutions is impacted by technological change, uncertain product lifecycles, shifts in customer demands and evolving industry standards and regulations.

We may not be able to successfully develop and market new asset protection solutions that comply with present or emerging industry regulations and technology standards.

If management fails to execute effective business strategies, and to successfully develop and market new asset protection solutions that comply with present or emerging industry regulations and technology standards our competitive standing and results could suffer.

Also, new regulations or technology standards could increase our cost of doing business.

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From time to time, our customers have requested greater value and functionality in our solutions.

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In addition, our asset protection software is complex and can be expensive to develop, and new software and software enhancements can require long development and testing periods.

If we are unable to develop new asset protection solutions or enhancements that meet market demands on a timely basis, we may experience a loss of customers or otherwise be likely to lose opportunities to earn revenues and to gain customers or access to markets, and our business and results of operations will be adversely affected.

If we are unable to develop new asset protection solutions or enhancements that meet market demands on a timely basis, including against possible alternative products developed and marketed by our competitors, we may experience a loss of customers or otherwise be likely to lose opportunities to earn revenues and to gain customers or access to markets, and our business and results of operations will be adversely affected.

Even if we develop new solutions, if our customers, or potential customers, do not see the value our solutions have over competing products and services, our operating results could be adversely impacted.

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Our Services segment is currently licensed to handle radioactive materials by the U.S.

Nuclear Regulatory Commission (NRC), over 20 state regulatory agencies and the Canadian Nuclear Safety Commission.

Nuclear Regulatory Commission (NRC), more than 20 state regulatory agencies and the Canadian Nuclear Safety Commission.

If we allegedly fail to comply with these regulations, we may be investigated and incur significant legal expenses associated with such investigations, and if we are found to have violated these regulations, we may be fined or lose one or more of our licenses or permits, which would prevent or restrict our ability to provide radiography services.

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We derive a significant amount of revenues and profits from such industries, including oil and gas, power generation and transmission, and chemicals processing.

Such regulations could negatively impact our customers, which could negatively impact the market for the services and products we provide.

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regulations could negatively impact our customers, which could negatively impact the market for the services and products we provide.

This could materially adversely affect our business, financial condition, results of operations and cash flows.

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However, if we fail to maintain our ISO, Nadcap or other certifications, our business may be harmed because our customers generally require that we have these certifications before they purchase our NDT solutions.

Intellectual property may impact our business and results of operations.

Our ability to compete effectively depends in part upon the maintenance and protection of the intellectual property related to our asset protection solutions.

Patent protection is unavailable for certain aspects of the technology and operational processes important to our business and any patent or patent applications, trademarks or copyrights held by us or to be issued to us, may not adequately protect us.

Some of our trademarks that are not in use may become available to others.

To date, we have relied principally on copyright, trademark and trade secrecy laws, as well as confidentiality agreements and licensing arrangements, to establish and protect our intellectual property.

However, we have not obtained confidentiality agreements from all our customers and vendors.

Although we obligate our employees to confidentiality, we cannot be certain that these obligations will be honored or enforceable.

We may require additional capital to support business growth, which might not be available.

We intend to continue making investments to support our business growth and may require additional funds to respond to business challenges or opportunities, including the need to develop new, or enhance our current, asset protection solutions, enhance our operating infrastructure or acquire businesses and technologies.

Accordingly, we may need to engage in equity or debt financings to secure additional funds.

If we raise additional funds through further issuances of equity or convertible debt securities, our current stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.

Our current credit facility meets our current needs, except that due to our current debt levels, the facility limits our ability to make acquisitions until our debt ratio improve.

If we were to secure other debt financing in the future, it could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

In addition, no assurance can be given that adequate or acceptable financing will be available to us, in which case we may not be able to grow our business, including through acquisitions, or respond to business challenges.

Our credit agreement contains financial and operating restrictions that may limit our access to credit.

If we fail to comply with financial or other covenants in our credit agreement, we may be required to repay indebtedness to our existing lenders, which may harm our liquidity.

Our credit agreement contains financial covenants that require us to maintain compliance with specified financial ratios.

If we fail to comply with these covenants, the lenders could prevent us from borrowing under our credit agreement, require us to pay all amounts outstanding, require that we cash collateralize letters of credit issued under the credit agreement and restrict us from making acquisitions.

If the maturity of our indebtedness is accelerated, we then may not have sufficient funds available for repayment or the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us, or at all.

Our current credit agreement also imposes restrictions on our ability to engage in certain activities, such as creating liens, making certain investments, incurring more debt, disposing of certain property, paying dividends and making distributions and entering into a new line of business.

While these restrictions have not impeded our business operations to date, if our plans change, these restrictions could be burdensome or require that we pay fees to have the restrictions waived.

In addition, due to our current debt levels and financial ratios, we do not expect to make any acquisitions in 2020 due to restrictions related to the financial covenants in our credit agreement.

Risks Related to Our Common Stock

A significant stockholder controls the direction of our business.

The concentrated ownership of our common stock may prevent other stockholders from influencing significant corporate decisions.

Vahaviolos, our founder and Executive Chairman, owns approximately 29% of our outstanding common stock.

As a result, Dr.

Vahaviolos has significant control over our Company and has the ability to exert substantial influence over all matters requiring approval by our shareholders, including the election and removal of directors, amendments to our certificate of incorporation, and any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions.

This concentration of ownership could be disadvantageous to other shareholders with differing interests from Dr.

Our stock price could fluctuate for numerous reasons, including variations in our results.

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Our quarterly revenues and operating results may vary depending on a number of factors, including those listed previously under “Risks Related to Our Business.” In addition, the price of our common stock is subject to general economic, market, industry, and competitive conditions, the risk factors discussed below and numerous other conditions outside of our control.

A significant stockholder controls the direction of our business.

The concentrated ownership of our common stock may prevent other stockholders from influencing significant corporate decisions.

Vahaviolos, our founder and Executive Chairman, owns approximately 36% of our outstanding common stock.

As a result, Dr.

This concentration of ownership could be disadvantageous to other shareholders with differing interests from Dr.

We currently have no plans to pay dividends on our common stock.

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This could also impair our ability to raise additional capital in the future through the sale of our equity securities.

Under our certificate of incorporation, we are authorized to issue up to 200,000,000 shares of common stock, of which approximately 29,035 thousand shares of common stock were outstanding as of March 23, 2020.

In addition, we have approximately 824 thousand shares of common stock reserved for issuance related to stock options and restricted stock units that were outstanding as of March 23, 2020.

Under our certificate of incorporation, we are authorized to issue up to 200,000,000 shares of common stock, of which approximately 29,234,143 shares of common stock were outstanding as of March 11, 2021.

In addition, we have approximately 1,414,000 shares of common stock reserved for issuance related to share-based equity awards that were outstanding as of March 11, 2021.

We cannot predict the size of future issuances of our common stock or the effect, if any, that future sales and issuances of shares of our common stock, or the perception of such sales or issuances, would have on the market price of our common stock.

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Provisions of our charter, bylaws and of Delaware law could discourage, delay or prevent a change of control of our company, which may adversely affect the market price of our common stock.

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In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a prescribed period of time.

General Risk Factors

Our credit agreement contains financial and operating restrictions that may limit our access to credit.

If we fail to comply with financial or other covenants in our credit agreement, we may be required to repay indebtedness to our existing lenders, which may harm our liquidity.

Our credit agreement contains financial covenants that require us to maintain compliance with specified financial ratios.

While these restrictions have not impeded our business operations to date, if our plans change, these restrictions could be burdensome or require that we pay fees to have the restrictions waived.

In addition, due to our current debt levels and financial ratios, we do not expect to make any acquisitions in 2021 due to restrictions related to the financial covenants in our credit agreement.

The COVID-19 pandemic has adversely affected and in future periods is expected to continue to adversely affect our business and operations.

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our business and operations and the business and operations of our customers.

We have experienced, and expect to continue to experience, unpredictable

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reductions in demand for our services and products.

In response to the COVID-19 pandemic, companies within the oil and gas and aerospace industries (including our customers) have announced spending cuts and/or slowdowns (or temporary cessation) in production which, in turn, may result in decreases in awards of new contracts or adjustments, reductions, suspensions or cancellations of existing contracts.

In addition, as a result of the COVID-19 pandemic, some of our customers have been and could continue to be negatively impacted as a result of disruption in demand, which has led to delays and could lead to defaults on collections of receivables from them.

Such continued delays could negatively impact our business, results of operations and financial condition.

The continued spread of COVID-19 may result in a decrease in business and/or cause our customers to be unable to meet existing payment or other obligations to us, particularly in the event of a spread of COVID-19 in our market areas.

The continued spread of COVID-19 could also negatively impact the availability of our key personnel necessary to conduct our business.

In addition, any significant disruption of global financial markets, reducing our ability to access capital, could negatively affect our liquidity.

Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the impact on our business, financial condition and results of operations remains uncertain and difficult to predict.

While we expect the COVID-19 pandemic to have an adverse effect on our business, financial condition, liquidity, cash flow and results of operations, we are unable to predict the extent, nature or duration of these impacts at this time, although we expect such negative impacts for at least the next several quarters.

If the economic disruption caused by the COVID-19 pandemic increases in magnitude or continues longer than expected, we may have difficulty meeting the financial covenants in our credit agreement with our banks.

The Company expected that the economic disruption being caused by the COVID-19 pandemic was likely to cause our results in upcoming quarters to be less than what was required to meet the financial covenants in our then existing credit agreement with our banks.

We obtained an amendment to our credit agreement which included, among other terms, modifications to the financial covenants in the credit agreement, and a reduction in our revolving line of credit from $300 million to $175 million.

We believe it is probable that we will be able to meet the amended financial covenants and that sufficient credit remains available under the amended Credit Facility to meet our liquidity needs.

However, due to the uncertainties and risks created by the COVID-19 pandemic, no assurance can be given that we will comply with these amended covenants, particularly if the pandemic increases in intensity or its duration is longer than expected.

If we are not able to meet the financial covenants in our credit agreement in future quarters, and cannot obtain a waiver from our lenders or further amend the Credit Agreement, we will be in default, which would give the lenders the right to terminate the agreement, not allow us to borrow on our line of credit, call all of our loans to be due and payable, and exercise any other remedies available to the lenders.

If we do default on our credit agreement and the lenders elect to not grant us a waiver or amendment and/or to commence exercising their remedies and we are unable to obtain other funding sources, our operations will be materially impacted and we may not be able to continue operating as a going concern.

If we do obtain alternate funding sources, this alternate financing could be on substantially different and adverse terms than our existing credit agreement, materially impacting our operations and profitability, and otherwise could significantly dilute our existing shareholders and have other materially adverse effects on us and our shareholders.

Likewise, any waiver and amendment to our existing credit facility could be on substantially different and adverse terms to those that currently exist, materially impacting our profitability and results of operations.

Deteriorations in economic conditions in certain markets or other factors may cause us to recognize additional impairment charges for our goodwill.

During the first quarter of 2020, the Company’s market capitalization declined significantly compared to the fourth quarter of 2019.

Over the same period, the equity value of the Company’s peer group, and the overall U.S.

stock market also declined significantly amid market volatility.

In addition, oil prices had dropped significantly.

These declines were driven in large part by the uncertainty surrounding the COVID-19 pandemic and other macroeconomic events such as the geopolitical tensions between OPEC and Russia.

Based on these factors, the Company concluded that multiple triggering events occurred and, accordingly, an interim quantitative goodwill impairment test was performed for each reporting unit as of March 31, 2020.

Based upon the results of the interim quantitative goodwill impairment test during the first quarter of 2020, the Company recorded an aggregate impairment charge of $77.1 million, which included $57.2 million in the services reporting unit within the Services segment, and $19.3 million in the European reporting unit and $0.6 million in the Brazilian reporting unit, both within the International segment.

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Significant continued deterioration in industry or economic conditions in which we operate, disruptions to our business, not effectively integrating acquired businesses, or other factors, may cause additional impairment charges to our goodwill in future periods.