What changed in this filing

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Item 1A. Risk Factors

2024-03-11 compared with 2023-03-15 · 36 added, 50 removed, 259 unchanged (25% of the section changed)

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For example, the COVID-19 pandemic has had a dramatic negative impact on the health of citizens of many countries, and resulted in major disruptions in economies and markets around the world, including our key markets.

In addition, it is unclear what effects the war between Russia and Ukraine is likely to have on the world economy and certain of our target markets, including particularly the oil and gas market, in the near and long term.

In addition, it is unclear what effects the on-going war between Russia and Ukraine and the conflict in the Middle East between Israel and Hamas are likely to have on the world economy and certain of our target markets, including particularly the oil and gas market, in the near and long term.

In addition, macroeconomic factors such as inflation, unemployment, and interest rates, amongst others, will impact our business.

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If the price of oil were to decrease, our revenues, profits and cash flows may be reduced.

If the price of oil

reaches record, or near record levels as it did in 2022, we may experience delays or deferrals in performing inspection services to customers in the oil and gas industry.

If the price of oil reaches record, or near record levels as it did in 2022, we may experience delays or deferrals in performing inspection services to customers in the oil and gas industry.

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.

In addition, it is unclear what the continued effects the war between Russia and Ukraine and the conflict in the Middle East between Israel and Hamas are likely to have on the world economy and certain of our target markets, including particularly the oil and gas market, in the near and long term.

However, during 2022, we experienced unfavorable foreign currency exchange impacts as it relates to our European operations.

Additionally, the Russian-Ukrainian war continues to create disruptions in the oil and gas market and the supply chain in general, which is resulting in some disruption to our business operations.

Our European operations are currently experiencing increased costs associated with higher energy costs, among others, due in part to the Russian-Ukrainian war.

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

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Any of these factors, individually or 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.

In addition, changes in international, federal, state and local legislation and regulation based on concerns about climate change and increasing climate-related disclosures, including the rules proposed by the SEC, could result in increased compliance and data collection costs if, and when, such laws and regulations become effective.

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

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• fluctuations in currency exchange rates and interest rates;

• varying regional and geopolitical business and economic conditions and demands;

• regional micro and macro-economic pressures, inflationary costs, energy costs and geopolitical factors;

• compliance with applicable foreign regulations and licensing requirements, and U.S.

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• the complexity of maintaining effective policies and procedures in locations around the world;

• political instability and civil unrest;

• political instability, war or conflicts and civil unrest;

• increased risk of hacking, malware or security breaches of our data and databases;

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• other potentially adverse tax consequences.

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

While we have not fully recovered to pre-COVID19 levels across all end markets in which we operate, we expect to grow in the scope of our operations over the long-term.

To effectively manage our anticipated future growth, we must continue to implement and improve our managerial, operational, compliance, financial and reporting systems and capabilities, expand our facilities and continue to recruit and train additional qualified personnel.

We expect that all these measures will require significant expenditures and will demand the attention of management.

Failure to manage our growth effectively could lead us to over or under-invest in technology and operations, result in weaknesses in our infrastructure, systems, compliance programs or controls, and give rise to operational mistakes, the loss of business opportunities, the loss of employees and reduced productivity among remaining employees.

Our anticipated growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of new solutions.

If our management is unable to effectively manage our anticipated growth, our expenses may increase more than expected, our profit margins may suffer, our revenues could decline or may grow more slowly than expected and we may be unable to implement our business strategy as anticipated.

Our operating results could be adversely affected by a reduction in business with our significant customers.

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Taken as a group, our top ten customers were responsible for approximately 35%, 33%, and 33% of our revenues for the years ended December 31, 2023, 2022 and 2021, respectively.

This concentration pertains almost exclusively to our Services segment, which accounted for 83%, 82% and 80% of our revenues for the years ended December 31, 2022, 2021 and 2020, respectively.

This concentration pertains almost exclusively to our North America segment, which accounted for 82%, 83% and 82% of our revenues for the years ended December 31, 2023, 2022 and 2021, respectively.

These customers are primarily in the oil and gas sector.

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For example, the transportation and overnight storage of radioactive materials used in providing certain of our asset protection solutions such as radiography are subject to regulation under federal and state laws and licensing requirements.

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

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

Nuclear Regulatory Commission, more than 30 state regulatory agencies and the Canadian Nuclear Safety Commission.

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In addition, while we are being investigated, we may be required to suspend work on the projects associated with our alleged noncompliance, resulting in loss of profits or customers, and damage to our reputation.

Many of our customers have strict requirements concerning safety or loss time occurrences and if we are unable to meet these requirements it could result in lost revenues.

Many of our customers have strict requirements concerning safety or loss time occurrences and if we are unable to meet these requirements it could result in lost

In the future, governmental agencies may seek to change current regulations or impose additional regulations on our business.

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In addition, if our costs of labor or related costs increase for other reasons or if new or revised labor laws, rules or regulations or healthcare laws are adopted or implemented that further increase our labor costs, our financial performance could be materially adversely affected.

Our initiatives to improve our financial performance may not achieve results within expected time frames, or at expected levels.

We have undertaken strategies to transform our business so that we may operate more effectively, streamline and rationalize our cost structures, and look for strategic opportunities to expand our revenue and become more profitable.

The extent of our future success depends on how successful we are in these endeavors.

In 2023, we commenced a broad review of our operations, which we refer to as "Project Phoenix".

Through Project Phoenix, we have been exploring ways to improve profitability and Adjusted EBITDA, through meaningful margin improvement and sustained cost savings.

We have completed most phases of the project, wherein efficiency and profitability opportunities were identified, actionable initiatives were validated, and many of these actions have been implemented prospectively.

Project Phoenix has resulted in significant cost reductions, primarily through headcount reductions, more efficient workflows, and streamlining of processes, and also led to developing and initiating action plans to increase revenue.

We believe our Project Phoenix initiatives will benefit the Company and our stockholders in the long run.

However, we cannot be certain that some of the cost reductions could result in problems with our operations, lost opportunities, weakening of controls and procedures or other adverse effects if we misjudged the impact of the headcount reductions and other changes that we have implemented and are currently implementing.

In addition, headcount reductions can result in lower employee morale and result in employees deciding to leave the Company, which would further adversely impact our businesses.

We operate in competitive markets and if we are unable to compete successfully, we could lose market share and revenues and our margins could decline.

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In addition, because the asset protection solutions industry is evolving, we could lose insight into trends that may be emerging, which would further harm our competitive position by making it difficult to predict and respond to customer needs.

If the market for our asset protection solutions does not continue to develop, our ability to grow our business would be limited and we might not be able to maintain

profitability.

If the market for our asset protection solutions does not continue to develop, our ability to grow our business would be limited and we might not be able to maintain profitability.

If we cannot convince our customers of the advantages and value of our advanced NDT services, we could lose large contracts or suffer lower profit margin.

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We believe that it is probable, based on the New Credit Agreement (as defined herein), that we will be able to comply

with the financial covenants in our credit agreement and that sufficient credit remains available under the credit agreement to

meet our liquidity needs.

However, due to the uncertainties being caused by the significant volatility in oil prices and volatility

in the aerospace production, such matters cannot be predicted with certainty.

with the financial covenants in our existing credit agreement and that sufficient credit remains available under the credit agreement to meet our liquidity needs.

However, due to the uncertainties being caused by the significant volatility in oil prices and volatility in the aerospace production, such matters cannot be predicted with certainty.

Our current credit agreement also imposes restrictions on our ability to engage in certain activities, such as creating liens,

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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

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.

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of war and terrorism, to name a few.

We continue to actively monitor the war between Russia and Ukraine and the sanctions

imposed upon Russia in order to assess impacts to our customers and our operations.

At this time, we do not believe there is a

material impact on our operations, however the future impact of the conflict, and additional sanctions imposed, are uncertain.

We continue to actively monitor the conflict in the Middle East between Israel and Hamas, and the war between Russia and Ukraine and the sanctions imposed upon Russia in order to assess impacts to our customers and our operations.

At this time, we do not believe there is a material impact on our operations, however the future impact of the conflict, and additional sanctions imposed, are uncertain.

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

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In addition, these events could disrupt commodity prices or financial markets or have other negative macroeconomic impacts,

such as the on-going war between Ukraine and Russia, which could harm our business.

Our long-term growth strategy may include acquisitions.

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

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

A significant factor in our growth over the years has been based upon our ability to make acquisitions and successfully integrate these acquired businesses.

We have used acquisitions both to expand into new markets and to enhance our position in existing markets.

This strategy has provided us with many benefits and has helped fuel our growth, but also carries with it many risks.

We have not made a material acquisition in the past four years, and we do not expect to make material acquisitions in 2023.

acquisitions provide the potential for greater exposure to risks associated with international operations.

We have a significant amount of goodwill and other intangible assets on our balance sheet from our acquisitions.

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.

such as the conflict in the Middle East between Hamas and Israel and the on-going war between Ukraine and Russia, which could harm our business.

Risks Related to Our Common Stock

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

Vahaviolos, our founder and Executive Chairman, owns approximately 6% of our outstanding common stock, his three adult children own an additional 6%, in the aggregate, and a grantor retained annuity trust he created, for which his daughter is the sole trustee, owns approximately 23%.

Vahaviolos, our fo under and Chairman Emeritus, owns approximately 6% of our outstanding common stock, his three adult children own an additional 6%, in the aggregate, and a grantor retained annuity trust he created, for which his daughter is the sole trustee, owns approximately 22%.

As a result, Dr.

Vahaviolos and his family have significant control over our Company and have 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.

Vahaviolos and his family have significant control over the Company and they have the ability to exert substantial influence over all matters requiring approval by our stockholders, 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 stockholders with differing interests from Dr.

Vahaviolos and his family.

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We currently have approximately 170 million shares of common stock available for issuance.

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.

Provisions of our certificate of incorporation, 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.

Certain provisions of our certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition, or other change of control that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares.

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and numerous other conditions outside of our control.

The COVID-19 pandemic has adversely affected our business and operations and may continue to do so in the future.

Throughout 2022, conditions continued to improve and subside related to the COVID-19 coronavirus (COVID-19) pandemic in domestic and international markets and operations began approaching pre-pandemic levels of activity.

While we recovered during 2022 from most of the negative effects of the COVID-19 pandemic on our business and operations, we are unable to predict the nature or duration of the COVID-19 pandemic and the effect the pandemic will have on our business, financial condition, liquidity, cash flow and results of operations in the future.

If the pandemic re-emerges, or another similar outbreak occurs, longer or in a manner more adverse that expected, or has a greater adverse impact on our customers, our financial conditions could be adversely impacted and we may encounter difficulties meeting the financial covenants in our credit agreement.

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

While we significantly recovered during 2022, future deterioration in industry or economic conditions in which we operate, including disruptions in Europe or elsewhere as a result of the war between Russia and Ukraine, disruptions to our business, not effectively integrating acquired businesses, or other factors, may cause impairment charges to our goodwill in future periods.

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

During the year ended December 31, 2023, we recognized goodwill impairment charges of $13.8 million within the International reporting units.

Future deterioration in industry or economic conditions in which we operate, including increased inflationary costs, energy costs, labor costs, social pressures and disruptions in Europe, the Middle East or elsewhere as a result of the war between Russia and Ukraine and the conflict between Israel and Hamas, disruptions to our business, not effectively integrating acquired businesses, macroeconomic factors or other factors, may cause impairment charges to our goodwill in future periods.

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.

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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.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors