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Item 1A. Risk Factors

2022-03-16 compared with 2021-03-12 · 181 added, 86 removed, 195 unchanged (58% of the section changed)

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Risks Related to Market Conditions

The recent COVID-19 pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic and its effect on the oil and gas industry, could have a material adverse effect on our business, liquidity, consolidated results of operations, and consolidated financial condition.

The COVID-19 pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic and its effect on the oil and gas industry, could have a material adverse effect on our business, liquidity, consolidated results of operations, and consolidated financial condition.

Our clients in the oil and gas industry have historically accounted for a substantial portion of our revenues.

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty and turmoil in the oil and gas industry resulting in reductions in demand for oil and gas supply.

These events have directly affected our business and have exacerbated the potential negative impact from many of our risks, including those relating to our clients’ capital spending and trends in oil and natural gas prices.

As COVID-19 continues to have global impacts, including significant impacts in the United States, Canada and the European Union, where we operate, we are taking a variety of measures to ensure the availability of our services, promote the safety and security of our employees, and preserve liquidity.

However, despite our efforts to manage the impacts, public and private sector policies and initiatives to reduce the transmission of COVID-19, such as closures of businesses and manufacturing facilities, the promotion of social distancing, the adoption of working from home by companies and institutions, and travel restrictions, could continue to adversely affect demand for our services.

These policies and initiatives have not only led to operational inefficiencies but have had a negative impact on our cost of operations and continued COVID-19 outbreaks have led to deferrals of client projects.

In addition, COVID-19 and related initiatives may result in greater supply chain disruption, which could have an adverse impact on volumes and make it more difficult for us to serve our clients.

The full extent to which COVID-19 impacts operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the duration or future recurrence of the outbreak, emerging scientific or technological information concerning prevention, treatment and vaccination, and new governmental policies put in place to contain the health and economic impact of COVID-19 in the future, among others.

Potential conflicts between federal and local government guidelines and best practices that are intended to reduce the spread of COVID-19 could result in stricter measures in certain locations that could expose us to increased risks and costs.

The confluence of events described above have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic and its effect on the oil and gas industry, could have a material adverse effect on our business, liquidity, results of operations, and financial condition.

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty and turmoil in the oil and gas industry in the past two years.

Since the onset of the pandemic in early 2020, these events have directly affected our business and have exacerbated the potential negative impact from many of our risks, including those relating to the worldwide demand for oil and natural gas, our clients’ capital spending and trends in oil and natural gas prices.

In addition, the pandemic and efforts to mitigate its spread have resulted in logistical challenges to our operations, including travel restrictions that prevent our personnel from commuting to certain facilities and job sites.

These logistical challenges could increase if the pandemic worsens or persists.

Oil demand during 2020 and 2021 was substantially less than demand in 2019 as a result of the virus and corresponding measures taken around the world to mitigate its spread.

Though demand began to increase during the latter part of 2021, a worsening of the virus could result in an increase in mitigation efforts and a reduction in demand for oil and gas and our services and products.

Given the nature and significance of the events described above, we are not able to enumerate all related potential risks to our business;

however, we believe that in addition to the impacts described above, other current and potential impacts of these recent events include, but are not limited to:

greater supply chain disruption, which could have an adverse impact on volumes and make it more difficult for us to serve our clients;

liquidity challenges, including impacts related to delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies;

notices from customers, suppliers, and other third parties arguing that their non-performance under our contracts with them is permitted as a result of force majeure or other reasons;

cybersecurity issues, as digital technologies may become more vulnerable and experience a higher rate of cyberattacks in the current environment of remote connectivity;

litigation risk and possible loss contingencies related to COVID-19 and its impact, including with respect to commercial contracts, employee matters, and insurance arrangements;

infections and quarantining of our employees and the personnel of our customers, suppliers, and other third parties in areas in which we operate;

actions undertaken by national, regional, and local governments and health officials to contain COVID-19 or treat its effects;

and structural shift in the global economy and its demand for oil and natural gas as a result of changes in the way people work, travel, and interact, or in connection with a global recession or depression.

Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and related market conditions will persist or any changes in their severity, the full extent of the impact they will have on our business, liquidity, results of operations, and financial condition or the pace or extent of any recovery.

To the extent COVID-19 adversely affects our business, liquidity, results of operations, and financial condition, it may also have the effect of heightening other risks.

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The economic environment may affect client demand for our services.

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Sales of our services are dependent on clients in certain industries, particularly the refining and petrochemical industries.

As we have experienced in the past, and as we expect to occur in the future, downturns characterized by diminished demand for services in these industries as well as potential changes due to

consolidation or changes in client businesses or governmental regulations, could have a material impact on our results of operations, financial position or cash flows.

Certain of our clients have employees represented by unions and could be subject to temporary work stoppage which could impact our activity level.

As we have experienced in the past, and as we expect to occur in the future, downturns characterized by diminished demand for services in these industries as well as potential changes due to consolidation or changes in client businesses or governmental regulations, could have a material impact on our results of operations, financial position or cash flows.

Certain clients have employees represented by unions and could be subject to temporary work stoppage which could impact our activity level.

We sell our services in highly competitive markets, which places pressure on our profit margins and limits our ability to maintain or increase the market share of our services.

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We may fail to generate sufficient revenue, operating margin or other value to justify our investments in such new client markets, thereby harming our ability to generate revenue.

If we cannot regain compliance with the NYSE’s continuing listing requirements and rules, the NYSE may delist our common stock, which could negatively affect our company, the price of our common stock and your ability to sell our common stock.

On February 2, 2022, we were notified by the NYSE that the average closing price of our common stock, over a prior 30 consecutive trading day period was below $1.00 per share, which is the minimum average closing price per share required to maintain listing on the NYSE under Section 802.01C of the NYSE Listed Company Manual.

We have a period of six months following the receipt of the notice to regain compliance with the minimum share price requirement, with the possibility of extension at the discretion of the NYSE.

In order to regain compliance, on the last trading day in any calendar month during the cure period, our common stock must have:

(i) a closing price of at least $1.00 per share;

and (ii) an average closing price of at least $1.00 per share over the 30 trading day period ending on the last trading day of such month.

If we fail to regain compliance with Section 802.01C of the NYSE Listed Company Manual by the end of the cure period, our common stock will be subject to the NYSE’s suspension and delisting procedures.

We are closely monitoring the closing share price of our common stock and are considering all available options.

We intend to regain compliance with the NYSE listing standards by pursuing measures that are in the best interests of the Company and our shareholders, including potentially through the consummation of a reverse stock split, subject to Board of Director and shareholder approval.

A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock;

reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing;

limiting our ability to issue additional securities or obtain additional financing in the future;

decreasing the amount of news and analyst coverage of us;

and causing us reputational harm with investors, our employees, and parties conducting business with us.

A delisting of our common stock could constitute a “fundamental change” under the terms of our 5.00% Convertible Notes due 2023 (the “Notes”), requiring us to make an offer to repurchase the Notes at par.

There can be no assurance we would have sufficient funds available to us to repurchase the Notes if required to do so.

Failure to repurchase the Notes also could cause a cross-default under our ABL Credit Facility and Term Loans, which would permit the holders of the indebtedness to accelerate the maturity thereof and proceed against their collateral and could have a material adverse effect on our business and financial condition.

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Risks Related to Our Operations

If we are not able to implement commercially competitive services in a timely manner in response to changes in the market, client requirements, competitive pressures and technology trends, our business and results of operations could be materially and adversely affected .

Competition can place downward pressure on our contract prices and profit margins.

Competition can place downward pressure on our prices and profit margins.

Our share of the market for our services is characterized by continual technological developments to provide better and more cost-effective services.

If we are not able to implement commercially competitive services and products in a timely manner in response to changes in the market, client requirements, competitive pressures and technology trends, our business and results of operations could be materially and adversely affected.

If we are not able to implement commercially competitive services and products in a timely manner in response to changes in the market, client requirements, competitive pressures, inflationary pressures and technology trends, our business and results of operations could be materially and adversely affected.

Likewise, if our proprietary technologies, equipment, facilities, or work processes become obsolete, we may no longer be competitive, and our business and results of operations could be materially and adversely affected.

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The competition for these individuals is intense.

Due to the impacts of COVID-19, we have implemented workforce furloughs, reduced personnel compensation, reduced headcount and eliminated all non-essential costs, which increases our risk of losing key skilled employees.

Due to the impacts of COVID-19, we implemented cost reductions and organizational changes which increases our risk of losing key skilled employees.

Furthermore, once the economic environment and demand for our services has recovered, we will be under pressure to re-hire or onboard employees during a time when there could be a significant demand for skilled labor.

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The loss or unavailability of any of our executive officers or other key employees could have a material adverse effect on our business operations.

Unsatisfactory quality of service execution, including safety performance, can affect client relationships, eliminate or reduce revenue streams from our largest clients, result in higher operating costs and negatively impact our ability to hire

and retain a skilled technical workforce.

The services we provide could incur quality of execution issues that may be caused by our workforce personnel and/or components we purchase from other manufacturers or suppliers.

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We assess or test goodwill for impairment at least annually in accordance with Generally Accepted Accounting Principles in the U.S.

(“GAAP”), while our other long-lived assets, including our finite-lived intangible assets, are tested for impairment when circumstances indicate that the carrying amount may not be recoverable.

(“GAAP”), while our other long-lived assets, including our finite-lived intangible assets, are tested for impairment when

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circumstances indicate that the carrying amount may not be recoverable.

A decrease in our market capitalization or profitability or unfavorable changes in market, economic and industry conditions all would increase the risk of impairment.

As discussed, the COVID-19 pandemic and subsequent mitigation efforts, which included global business and societal shutdowns and the implementation of mandatory social distancing requirements, created an unprecedented disruption to our business during 2020.

These mitigation efforts coupled with the negative economic impacts to the oil and gas industry caused by the substantial decline in the global demand for oil and the concurrent surplus in the supply of oil have significantly impacted our business.

Even though our services are primarily related to infrastructure support, the oil and gas industry is one of the key industries we serve, and our clients have been significantly impacted as a result of these events.

As our clients continue to adjust spending levels in response to the lower commodity prices, we have experienced activity reductions and pricing pressure for our products and services, primarily in our IHT and MS reporting units, which we expect to continue.

In line with these rapidly changing market conditions, our market capitalization also deteriorated during 2020 and most significantly in late March 2020.

In response to these events and the related decline in our forecasts from the COVID-19 pandemic, we announced cost-cutting measures to offset the expected impact to our business.

We determined the totality of these events constituted a triggering event that required us to perform an interim goodwill impairment assessment as of March 31, 2020.

Based upon our impairment assessment, we determined the carrying amount of our IHT reporting unit exceeded the fair value.

As a result, we recorded $191.8 million in goodwill impairment charges on our IHT segment during the first quarter of 2020.

The fair value of the MS and Quest Integrity reporting units exceeded their respective carrying values.

We test goodwill annually for impairment as of December 1 of each year.

Our annual goodwill impairment tests for 2020 did not result in any additional impairment.

However, there can be no assurance that the estimates and assumptions made for purposes of our most recent goodwill impairment test will prove to be accurate predictions of the future.

Accordingly, we may be required to recognize additional impairment charges in future reporting periods, which could materially and adversely impact our results of operations and financial condition.

We have three reporting units and perform a goodwill impairment test at a reporting unit level on an annual basis on December 1 of each year and, as discussed above, whenever there are sufficient indicators that the carrying value of a reporting unit exceeds its fair value.

As a result of revenue and earnings declines and sustained declined in our stock price through September 30, 2021, we determined that a triggering event had occurred as it was more likely than not that the carrying values of our reporting units exceeded their fair values.

Our revenue growth and profitability are influenced by several industry trend factors, including end markets capital spending levels, supply and demand levels and technology.

With oil prices and demand increasing, refiners (represents approximately 40% of our customers) are recovering;

however, capital expenditures have not fully recovered resulting in lower current activity and pricing pressure for our products and services.

Accordingly, we performed a quantitative assessment of the fair value of goodwill as of September 30, 2021.

Based upon our impairment assessment, we determined the carrying amount of our MS reporting unit exceeded the fair value.

As a result, we recorded $55.8 million in goodwill impairment charges on our MS reporting unit during the three months ended September 30, 2021.

The fair value of the Quest Integrity reporting unit exceeded its carrying value at September 30, 2021.

Our IHT reporting unit has no goodwill associated as it was determined to be fully impaired on March 31, 2020.

For our annual goodwill impairment test as of December 1, 2021, we elected to perform a quantitative assessment to determine if it was more likely than not (that is, a likelihood of more than 50 percent) that the fair value of our reporting unit was less than its carrying value as of the test date.

Based on the quantitative assessment, we concluded that the carrying amount of our Quest Integrity reporting unit exceeded the fair value.

As a result, we recorded $8.8 million in goodwill impairment charges on our Quest Integrity reporting unit during the three months ended December 31, 2021.

GAAP requires that we evaluate the useful lives of our intangible assets subject to amortization each reporting period.

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Improvements in operating results from expected savings in operating costs from workforce reductions and other cost saving and business improvement initiatives may not be realized in the estimated amounts, may take longer to be realized, or could be realized only for a limited period.

In the fourth quarter of 2017, we engaged outside consultants to assess all aspects of our business for improvement and cost saving opportunities as part of a new cost savings and business improvement project.

In the first quarter of 2018, we completed the design phase of the project, known as OneTEAM, and are now in the deployment phase.

In the third quarter of 2019, we began the design phase of OneTEAM for our international operations.

We expect to incur various additional expenses associated with the execution of the OneTEAM project through the first quarter of 2021 with funding provided by our operating cash flows and our credit facilities.

In 2017 through the first quarter of 2021, we developed and implemented a project known as OneTEAM, an assessment of all aspects of our business, including international operations, for improvement and cost saving opportunities.

In January 2021, we announced a new strategic organizational structure to better position ourselves for the recovery after the COVID-19 pandemic, continue service diversification, and enhance client value.

These organizational changes resulted in restructuring charges and other cost saving opportunities.

However, in order to implement this or any other future cost savings or business improvement initiatives, we expect to incur additional expenses, which could adversely impact our financial results prior to the realization of the expected benefits associated with the initiatives.

Due to numerous factors or future developments, we may not achieve cost reductions or other business improvements consistent with our expectations or

the benefits may be delayed.

Due to numerous factors or future developments, we may not achieve cost reductions or other business improvements consistent with our expectations or the benefits may be delayed.

These factors or future developments could include (i) the incurrence of higher than expected costs or delays in reassigning and retraining remaining employees or outsourcing or eliminating duties and functions of eliminated employees, (ii) unanticipated delays in discharging employees in eliminated positions as a result of regulatory or legal limitations on employee terminations in certain jurisdictions, (iii) actual savings differing from anticipated cost savings, (iv) anticipated benefits from business improvement initiatives not materializing and (v) disruptions to normal operations or other unintended adverse impacts resulting from the initiatives.

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Our initiatives may negatively affect our ability to retain and attract qualified personnel, who may experience uncertainty about their future roles with us.

We may experience cost overruns on our projects.

We may experience inflationary pressures in our operating costs and cost overruns on our projects.

A number of our clients are serviced under fixed price contracts or contracts including a combination of fixed and variable elements, where we bear a portion of the risk for cost overruns.

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Our profitability depends heavily on our ability to make accurate estimates.

Inaccurate estimates, or changes in other circumstances, such as unanticipated technical problems, difficulties obtaining permits or approvals, changes in local laws or labor conditions, weather delays, cost of raw materials, trade disputes and tariffs, currency fluctuations or our suppliers' or subcontractors' inability to perform could result in substantial losses, as such changes adversely affect the revenues recognized on each project.

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trade disputes and tariffs, currency fluctuations, inflation pressures or our suppliers' or subcontractors' inability to perform could result in substantial losses, as such changes adversely affect the revenues recognized on each project.

Additionally, we may incur significant costs in excess of estimates due to changes to any work orders requested by our clients materially changing the scope of work to be completed by us.

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A portion of our operations are conducted and located outside the U.S., 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.

In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by U.S.

and foreign anti-corruption regulations applicable to us such as the U.S.

Foreign Corrupt Practices Act and the United Kingdom Bribery Act.

Our international business operations may include projects in countries where corruption is prevalent.

Although we have, and continue to, implement and enforce policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors or agents, including those representing us in countries where practices which violate such anti-corruption laws may be customary, will not take actions in violation of our policies and procedures.

Although we have, and continue to, implement and enforce policies and procedures designed to ensure compliance with the U.S.

Foreign Corrupt Practices Act and the United Kingdom Bribery Act, there can be no assurance that all of our employees, contractors or agents, including those representing us in countries where practices which violate such anti-corruption laws may be customary, will not take actions in violation of our policies and procedures.

Any violation of foreign or U.S.

laws by our employees, contractors or agents, even if such violation is prohibited by our policies and procedures, could have a material adverse effect on our results of operations, financial position or cash flows.

Business acquisitions entail risk for investors.

From time to time, we pursue acquisitions in, or complementary to, the specialty maintenance and specialty industrial services, including inspection, engineering assessment and mechanical services to complement and diversify our existing business.

We may also acquire other businesses that enhance our services or geographic scope.

Business acquisitions and divestitures entail risk for investors.

From time to time, we seek growth through strategic acquisitions while also evaluating our portfolio for potential divestitures in, or complementary to, the specialty maintenance and specialty industrial services, including inspection, engineering assessment and mechanical services to complement, diversify or rationalize our existing business.

We may also acquire other businesses that enhance our services or geographic scope and/or divest certain businesses or service offerings to rationalize our operations and take advantage of strategic opportunities.

We may not be able to expand our market presence through acquisitions, and acquisitions may present unforeseen integration difficulties or costs.

No assurances can be made that we will realize the cost savings, synergies or revenue enhancements that we may anticipate from any acquisition, or that we will realize such benefits within the time frame that we expect.

If we are not able to address the challenges associated with acquisitions and successfully integrate acquired businesses, or if our integrated product and service offerings fail to achieve market acceptance, our business could be adversely affected.

The consideration paid in connection with an acquisition may also affect our share price or future financial results depending on the structure of such consideration.

No assurances can be made that we will realize the cost savings, synergies or revenue enhancements that we may anticipate from any acquisition or divestiture, or that we will realize such benefits within the time frame that we expect.

The transactions may also affect our share price or future financial results depending on the structure of such considerations.

To the extent we issue stock or other rights to purchase stock, including options or other rights, existing shareholders may be diluted and earnings per share may decrease.

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The price of our outstanding securities may be volatile.

It is possible that in some future quarter (or quarters) our revenues, operating results or other measures of financial performance will not meet the expectations of public stock market

analysts or investors, which could cause the price of our outstanding securities to decline or be volatile.

It is possible that in some future quarter (or quarters) our revenues, operating results or other measures of financial performance will not meet the expectations of investors, which could cause the price of our outstanding securities to decline or be volatile.

Historically, our quarterly and annual sales and operating results have fluctuated.

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If we are unable to collect amounts owed to us, or retain amounts paid to us, our cash flows would be reduced and we could experience losses.

We would also recognize losses with respect to any receivables that are impaired as a result of our clients’ financial difficulties or bankruptcies.

We would also

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recognize losses with respect to any receivables that are impaired as a result of our clients’ financial difficulties or bankruptcies.

The risk of loss may increase for capital projects where we provide services over a longer period of time.

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We are subject to risks associated with indebtedness under our credit facilities, including the risk of failure to maintain compliance with financial covenants, the risk of being unable to make interest and principal payments when due and the risk of rising interest rates.

On December 18, 2020, we entered into an asset-based credit agreement (the “ABL Facility”) led by Citibank, N.A., as agent, which provides for available borrowings up to $150 million.

Additionally, due to our significant debt and high leverage there could be a negative impact on our financing options and liquidity position.

We have a significant amount of debt as discussed below, and our overall leverage and the terms of our financing arrangements could:

• limit our ability to obtain additional financing in the future for working capital, capital expenditures, to fund growth or for general corporate purposes;

• make it more difficult for us to satisfy the terms of our debt obligations;

• make it more difficult for us to manage increases in interest rates;

• limit our ability to refinance our existing debt on terms acceptable to us, or at all;

• require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, thereby limiting the availability of our cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements;

• subject us to higher levels of indebtedness than our competitors, which may cause a competitive disadvantage and may reduce our flexibility in responding to increased competition.

Our ability to meet expenses and debt service obligations will depend on our future performance, which will be affected by financial, business, economic and other factors.

If we do not generate enough cash to pay our debt service obligations, we may be required to refinance all or part of our debt, sell assets, borrow more money or raise additional equity capital.

On December 18, 2020, we entered into an asset-based credit agreement (the “Credit Agreement”) led by Citibank, N.A., as agent, which provides for available borrowings up to $150.0 million (the “ABL Facility”).

The ABL Facility matures and all outstanding amounts become due and payable on December 18, 2024.

However, if our 5.00% Convertible Senior Notes, which mature on August 1, 2023 (the “Notes”), have an aggregate principal amount of $50 million or more outstanding 120 days prior to their maturity date (the “Trigger Date”), or if there are Notes in an aggregate principal amount of less than $50 million outstanding and we do not have sufficient excess availability of more than 20% under the ABL Facility on the Trigger Date, the ABL Facility will terminate on the Trigger Date.

However, if our Notes, which mature on August 1, 2023, have an aggregate principal amount of $10.0 million (updated from $50.0 million to $10.0 million as part of the Third Amendment to the Term Loan) or more outstanding 120 days prior to their maturity date (the “Trigger Date”), or if there are Notes in an aggregate principal amount of less than $10.0 million outstanding and we do not have sufficient excess availability of more than 20% under the ABL Facility on the Trigger Date, the ABL Facility will terminate on the Trigger Date.

On December 7, 2021, the Company entered into Amendment No.

2 (the “ABL Amendment No.

2”) to the Credit Agreement.

ABL Amendment No.

2, among other things, (i) revises the applicable margin to 4.25% for LIBOR rate advances, (ii) provides that at all times beginning on the effective date of the ABL Amendment No.

2 and ending on the date Citibank shall have received and approved the borrowing base certificate for the calendar month ending December 31, 2021, the borrowing base shall not exceed the lesser of (a) the borrowing base calculated as set forth in the borrowing base certificate for the calendar month ending December 31, 2021 and (b) $108,500,000, (iii) establishes an interest reserve account for certain payments due under the Term Loan Credit Agreement, (iv) provides that after giving effect to any borrowing and any disbursements to be made by the Company with the proceeds of such borrowing, within one business day of such borrowing, the Company and its U.S.

subsidiaries may not have more than $5.0 million cash on hand, (v) provides for weekly variance testing to be delivered to Citibank, (vi) requires the Company to have used all of the proceeds borrowed under the Subordinated Term Loan Credit Agreement prior to borrowing under the Credit Agreement, and (vii) increases the amount of subordinated debt available to be incurred by the Company to account for (a) the additional $27.5 million borrowed under the Subordinated Term Loan Credit Agreement, (b) any additional amount borrowed under the Subordinated Term Loan Credit Agreement not to exceed $75.0 million in the aggregate, and (c) the payment of interest in the form of payment-in-kind interest with respect to the Initial Term Loans (as defined in the Subordinated Term Loan Credit Agreement).

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The ABL Facility contains customary conditions to borrowings, events of default and covenants.

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Upon the occurrence of certain events of default, an additional 2.0% interest maybe required on the outstanding loans under the ABL Facility.

On February 11, 2022, we entered into a new credit agreement with the lender parties thereto, and Eclipse Business Capital, LLC, a Delaware limited liability company, as agent, (“Eclipse”) (such agreement, the “ABL Credit Agreement”).

Available funding commitments to us under the ABL Credit Agreement, subject to certain conditions, include a revolving credit line in an amount of up to $130.0 million to be provided by certain affiliates of Eclipse (the “Revolving Credit Loans”), with a $35.0 million sublimit for swingline borrowings and a $26.0 million sublimit for issuances of letters of credit, and an incremental delayed draw term loan of up to $35.0 million (the “Delayed Draw Term Loans”) to be provided by Corre Partners Management, LLC and certain of its affiliates (“Corre”) (collectively, the “ABL Credit Facility”).

The ABL Credit Facility matures and all outstanding amounts become due and payable on February 11, 2025, however, the ABL Credit Facility is subject to the Trigger Date as defined above.

The proceeds of the loans under the ABL Credit Facility were used to, among other things, pay off the amounts owed under the Credit Agreement, which was repaid and terminated in full on February 11, 2022.

Revolving Credit Loans bear interest through maturity at a variable rate based upon an annual rate of a LIBOR Rate (or a Base Rate (as defined below) if the LIBOR Rate is unavailable for any reason), plus an applicable margin (“LIBOR Rate Loan” and “Base Rate Loan”, respectively).

The “Base Rate” is defined as a fluctuating interest rate equal to the greatest of (1) the federal funds rate plus 0.50%, (2) Wells Fargo Bank, National Association’s prime rate, and (3) the one-month LIBOR Rate.

The “applicable margin” is defined as a rate of 3.15%, 3.40% or 3.65% for Base Rate Loans with a 2.00% Base Rate floor and a rate of 4.15%, 4.40% or 4.65% for LIBOR Rate Loans with a 1.00% LIBOR floor, in each case depending on the amount of EBITDA as of the most recent measurement period, as reported in a monthly compliance certificate.

The Delayed Draw Term Loans shall bear interest through maturity at a rate of the LIBOR Rate plus 10.0%, with a 1.00% LIBOR floor.

The fee for undrawn revolving amounts is 0.50% and the fee for undrawn Delayed Draw Term Loan amounts is 3.00%.

Interest under the ABL Credit Facility is payable monthly.

We will also be required to pay customary letter of credit fees, as necessary.

The Company may make voluntary prepayments of the loans under the ABL Credit Facility from time to time, subject, in the case of the Delayed Draw Term Loans, to certain conditions.

Mandatory prepayments are also required in certain circumstances, including with respect to the Delayed Draw Term Loan, if the ratio of aggregate value of the collateral under the ABL Credit Facility to the sum of the delayed draw term loans plus revolving facility usage outstanding is less than 130%.

Amounts repaid may be re-borrowed, subject to compliance with the borrowing base and the other conditions set forth in the ABL Credit Agreement, subject, in the case of the Delayed Draw Term Loans to a maximum of four such borrowings in any 12-month period.

Certain permanent repayments of the ABL Credit Facility loans are subject to the payment of a premium of 2.00% during the first year of the facility, 1.00% during the second year of the facility, and 0.50% in the last year of the facility.

The ABL Credit Agreement contains customary conditions to borrowings and covenants, including covenants that restrict our ability to sell assets, make changes to the nature of our business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of certain debt.

The ABL Credit Agreement also requires that we will not exceed $20.0 million in unfinanced capital expenditures in any calendar year;

provided that this requirement will not apply if we maintain a net leverage ratio of less than or equal to 4.00 to 1.00 as of the end of the second and fourth fiscal quarter of each calendar year.

In addition, the ABL Credit Agreement includes customary events of default, the occurrence of which may require that we pay an additional 2.0% interest on the outstanding loans under the ABL Credit Agreement.

On December 18, 2020, we also entered into a credit agreement with Atlantic Park Strategic Capital Fund, L.P., as agent, and APSC Holdco II, L.P.

(“APSC”), as lender, pursuant to which we borrowed a $250.0 million term loan (the “Term Loan”).

(“APSC”), as lender (the “Term Loan Credit Agreement”), pursuant to which we borrowed a $250.0 million term loan (the “Term Loan”).

The Term Loan matures, and all outstanding amounts become due and payable on December 18, 2026, provided that certain conditions could result in an earlier maturity, including if the Notes have an aggregate principal amount outstanding of $10.0 million or more on the Trigger Date, in which case the Term Loan will terminate on the Trigger Date.

The Term Loan contains customary payment penalties, events of default and covenants.

Commencing with the fiscal quarter ended March 31, 2022, we are also required to maintain a net leverage ratio of less than or equal to 7.00 to 1.00, calculated quarterly on a trailing twelve-month basis.

In addition, our capital expenditures may not exceed $33.0 million during any four fiscal quarter period.

This covenant will not apply if the total net leverage ratio is less than or equal to 4.00 to 1.00 at the end of the second and fourth quarter of each year.

On February 11, 2022, we entered into Amendment No.

6 (the “Sixth Amendment”) to the Term Loan Credit Agreement.

The Sixth Amendment, among other things and subject to the terms thereof, (i) permits the entry into the ABL Credit Agreement, (ii) permits certain interest payments due under the Term Loan Credit Agreement to be paid in kind, (iii) permits certain asset sales and requires certain related mandatory prepayments, subject to an applicable prepayment premium, and (iv) amends the financial covenants, such that the maximum net leverage ratio of 7.00 to 1.00 will not be tested until the fiscal quarter ending March 31, 2023, and the Company is not permitted to exceed $20.0 million in unfinanced capital expenditures in any calendar year;

provided, that this unfinanced capital expenditures requirement will not apply if the Company maintains a net leverage ratio of less than or equal to 4.00 to 1.00 as of the end of the second and fourth fiscal quarter of each calendar year.

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On November 9, 2021, we entered into a credit agreement (the “Subordinated Term Loan Credit Agreement”) with Corre Credit Fund, LLC (“Corre Fund”), as agent, and the lenders party thereto providing for an unsecured $50.0 million delayed draw subordinated term loan facility (the “Subordinated Term Loan”).

Pursuant to the Subordinated Term Loan Credit Agreement, we borrowed $22.5 million on November 9, 2021, and an additional $27.5 million on December 8, 2021.

The Subordinated Term Loan matures, and all outstanding amounts become due and payable, on the earlier of December 31, 2026 and the date that is two weeks later than the maturity or full repayment of the Term Loan.

The stated interest rate on the Subordinated Term Loan is 12%.

On February 11, 2022, we entered into Amendment No.

5 (the “Corre Amendment 5”) to the Subordinated Term Loan Credit Agreement with the lenders from time to time party thereto (including Corre), and Cantor Fitzgerald Securities, as agent.

The Corre Amendment 5, among other things, (i) provides for an additional commitment of $10.0 million in subordinated delayed draw term loans to be available for borrowing by the Company until July 1, 2022, (ii) permits the entry into the ABL Credit Facility, (iii) permits certain asset sales and requires certain related mandatory prepayments, subject to an applicable prepayment premium, and (iv) amends the financial covenants, such that the maximum net leverage ratio of 7.00 to 1.00 will not be tested until the fiscal quarter ending March 31, 2023, and the Company is not permitted to exceed $20.0 million in unfinanced capital expenditures in any calendar year;

Our ability to maintain compliance with the financial covenants is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties.

The effects of the COVID-19 pandemic and the decline in oil and gas end markets could have a significant adverse effect on our financial position and business condition, as well as our clients and suppliers.

Additionally, these events may, among other factors, impact our ability to generate cash flows from operations, access the capital markets on acceptable terms or at all, and affect our future need or ability to borrow under our ABL Facility.

The effects of the COVID-19 pandemic and the related economic repercussions could have a significant adverse effect on our financial position and business condition, as well as our clients and suppliers.

In addition to our current sources of funding our business, the effects of such events may impact our liquidity or our need to revise our allocation or sources of capital, implement further cost reduction measures and/or change our business strategy.

Although the COVID-19 pandemic and decline in the oil and gas end markets could have a broad range of effects on our liquidity sources, the effects will depend on future developments and cannot be predicted at this time.

Although the COVID-19 pandemic and related economic repercussions could have a broad range of effects on our liquidity sources, the effects will depend on future developments and cannot be predicted at this time.

We rely primarily on cash flows from our operations to make required interest and principal payments on our debt.

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Based on borrowings outstanding at December 31, 2021, an increase in market interest rates of 100 basis points would increase our interest expense and decrease our operating cash flows by approximately $3.1 million on an annual basis.

Our ABL Facility and Term Loan restrict our ability to, among other items, incur additional indebtedness, engage in mergers, acquisitions and dispositions and alter the business conducted by us.

Our ABL Credit Facility and Term Loan restrict our ability to, among other items, incur additional indebtedness, engage in mergers, acquisitions and dispositions and alter the business conducted by us.

These restrictions could adversely affect our ability to operate our businesses and may limit our ability to take advantage of potential business opportunities as they arise.

We may not be able to continue as a going concern.

We have suffered recurring operating losses related to the COVID pandemic, related economic repercussions, and difficult market conditions and prior to the Recent Financing Transactions discussed below, the Company required additional liquidity to continue its operations over the next twelve months.

During the year, revenues and margins continued to decline against forecast along with margin pressures from inflationary costs including labor, materials, and transportation resulting in further operating losses.

As of December 31, 2021, we are in compliance with our debt covenants;

however, our financial forecasts as of December 31, 2021 indicated insufficient cash flows from operations to address our near-term liquidity needs and maintain compliance with our debt covenants within one year following the date that our financial statements are issued.

As discussed in Note 1 – Recent Financing Transactions, on February 11, 2022, the Company successfully closed on financing transactions that provided improved liquidity and runway to execute on the business turnaround, support working capital needs and pursue potential strategic alternatives.

Following the Recent Financing Transactions, we evaluated the Company’s liquidity within one year after the date of issuance of these consolidated financial statements to determine if there is substantial doubt about the Company’s ability to continue as a going concern.

In the preparation of this liquidity assessment, we applied judgment to estimate the projected cash flows of the Company, including the following:

(i) projected cash outflows, (ii) projected cash inflows, and (iii) excess availability level under the Company’s existing debt arrangements.

The cash flow projections were based on known or planned cash requirements for operating and financing costs.

We believe, based on the

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Company’s forecast, that current working capital and capital expenditure financing is sufficient to fund the operations, maintain compliance with our debt covenants, and satisfy the Company’s obligations as they come due within one year after the date of issuance of these financial statements.

While the Recent Financing Transactions provide us with additional funding to meet our near-term liquidity needs and included a waiver of our debt covenants through March 31, 2023, there can be no assurance that (i) our lenders will provide additional waivers or amendments in the event of future non-compliance with our debt covenants, or other possible events of default that could happen, or (ii) that we will generate adequate liquidity to fund our operations, or to satisfy the obligations under our convertible debt and potential acceleration of debt maturities that may become due on April 3, 2023 related to the Trigger Date.

The accounting method for our convertible debt securities may have a material effect on our reported financial results.

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Risks Related to Information Systems

Our operations and information systems, including our employee, client and financial records, are subject to cybersecurity risks .

We continue to increase dependence on digital technologies to conduct our operations.

Many of our files, including employee, client and financial records, are digitized and more employees are working in almost paperless and remote environments.

We have also outsourced certain information technology development, maintenance and support functions.

As a result, we may be exposed to potentially severe cyber incidents at both our internal locations and outside vendor locations that could result in a theft of sensitive data and/or intellectual property, alteration or deletion of critical data and/or disruption of its operations for an extended period of time.

This could also result in claims, losses, fines and higher costs to correct and remedy the effects of such incidents, although no such material incidents have occurred to date to our knowledge.

Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security or those of third-party providers.

In the ordinary course of our business, we continue to increase dependencies on digital technologies to conduct our business.

Sensitive data is also transmitted on our networks and systems, including our intellectual property and proprietary information that is confidential to the business, to our customers and our business partners.

We have also outsourced significant elements of our information technology infrastructure and, as a result, third parties may or could have access to our confidential information.

The secure maintenance of this information is critical to our business and reputation.

Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, ransomware, cyber fraud, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization.

The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, encrypted, lost or stolen.

Any such access, inappropriate disclosure of confidential or proprietary information or other loss of information, including our data being breached at third-party providers, could result in legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal information, disruption of our operations with increases in costs and decline in revenues, damage to intellectual property or our product development programs and damage to our reputation, which could adversely affect our business.

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Furthermore, we and our third-party providers rely on electronic communications and information system to conduct our operations.

We and our third-party providers have been, and may continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate bank accounting information, passwords, or other personal information or to introduce viruses or other malware to our information systems.

We currently maintain an insurance related to cybersecurity breaches and are exploring a range of steps to enhance our security protections and prevent future unauthorized activity.

Though we endeavor to mitigate these threats, cyber-attacks against us or our third-party providers and business partners remain a serious issue.

The pervasiveness of cybersecurity incidents in general and the risks of cyber-crime are complex and continue to evolve.

Fortunately, our cybersecurity posture continued to improve in 2021.

One of the legacy ERP systems was migrated into the Company’s main US ERP system, and several aging applications on our externally facing firewalls were upgraded.

However, a number of other ERP systems are out of vendor support with no assurance that our security efforts will be effective or that security breaches would not be damaging.

Interruptions in the proper functioning of our information systems could disrupt operations and cause increases in costs and/or decreases in revenues.

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The new Presidential administration has also emphasized its intention to actively pursue its policy goals of addressing global climate change through significant economy-wide reductions in greenhouse gases and hastening the transition from carbon-based energy sources.

The adoption of new or more stringent legislation or regulatory programs limiting greenhouse gas emissions from clients, particularly those in refining and petrochemical industries, for whom we provide repair and maintenance services, or reducing the demand for those clients’ products, could in turn affect demand for our products and

The adoption of new or more stringent legislation or regulatory programs limiting

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greenhouse gas emissions from clients, particularly those in refining and petrochemical industries, for whom we provide repair and maintenance services, or reducing the demand for those clients’ products, could in turn affect demand for our products and services.

Some of our clients are modifying their plants and facilities in efforts to better align their operations and products with these energy transition issues, but there is no assurance that such modified facilities will require the same level of services and product that we currently provide.

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On January 31, 2020, the U.K.

departed from the EU (commonly referred to as “Brexit”).

Although the long-term effects of Brexit will depend on any agreements the U.K.

makes to retain access to the EU markets, Brexit has created additional uncertainties that may result in new regulatory costs and challenges such as increased restrictions on imports and exports throughout Europe.

The effects of Brexit will depend on any agreements the U.K.

reaches to retain access to EU markets.

departed from the EU (commonly referred to as “Brexit”) and the effects of the United Kingdom’s departure from the EU have been and are expected to continue to be far-reaching.

The outcome of Brexit caused volatility in global stock markets and foreign currency exchange rate fluctuations and uncertainty about the terms and impact of Brexit may continue to do so in the future.

Brexit could adversely affect U.K., regional European and worldwide economic and market conditions and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the British Pound and Euro, which in turn could adversely affect our clients, particularly in the U.K.

In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K.

negotiates with the EU.

In particular, depending on the terms of Brexit, we may face new regulatory costs and challenges, including additional regulatory licensing to operate in the U.K.

market, adding costs and potential inconsistency to our business and we could also be required to comply with regulatory requirements in the U.K.

that are in addition to, or inconsistent with, the regulatory requirements of the EU.

Any of these effects of Brexit and others we cannot anticipate could adversely affect our business, results of operations, financial condition and cash flows.

Given these possibilities and others we may not anticipate, as well as the lack of comparable precedent, Brexit and the perceptions as to its potential impact may continue to adversely affect business activity and economic conditions.

It could also lead to legal uncertainty and potentially divergent national laws and regulations as the U.K.

determines which EU laws to replace or replicate.

Any potential negative effects and the full extent to which our business, results of operations, financial condition, and cash flows could be adversely affected by Brexit is uncertain.

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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We cannot assure you that our insurance will be adequate in risk coverage or policy limits to cover all losses or liabilities that we may incur.

Moreover, in the future, due to evolving market conditions and its impact on pricing, we cannot assure that we will be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate.

Moreover, in the future, due to evolving market conditions, our higher risk profile due to the nature of our operations and claims history, and expected impact on pricing, we cannot assure that we will be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate.

Any future damages caused by our products or services that are not covered by insurance or are in excess of policy limits could have a material adverse effect on our results of operations, financial position or cash flows.

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Legal proceedings can be

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expensive to defend and can divert the attention of management and other personnel for significant periods of time, regardless of the ultimate outcome.

An unsuccessful defense of a liability claim could have an adverse effect on our business, results of operations, financial position or cash flows.

Other Risk Factors

Other risk factors may include interruption of our operations, or the operations of our clients due to fire, floods, hurricanes, earthquakes, power loss, telecommunications failure, terrorist attacks, labor disruptions, health epidemics and other events beyond our control.

General Risk Factors

Other risk factors may include interruption of our operations, or the operations of our clients due to fire, floods, hurricanes, earthquakes, power loss, war, political or civil unrest, telecommunications failure, terrorist attacks, labor disruptions, health epidemics and other events beyond our control.

Any of these factors, individually or in combination, could materially and adversely affect our future results of operations, financial position, cash flows and/or stock price and could also affect whether any forward-looking statements in this Annual Report on Form 10-K ultimately prove to be accurate.

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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