What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-16 compared with 2021-03-12 · 325 added, 205 removed, 380 unchanged (58% of the section changed)

20 unchanged sentences

These services can be offered while facilities are running (on-stream), during facility turnarounds or during new construction or expansion activities.

IHT also provides advanced digital imaging including remote digital video imaging, laser scanning and laser profilometry-enabled reformer care services.

MS provides solutions designed to serve clients’ unique needs during both the operational (onstream) and off-line states of their assets.

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(1) highly specialized in-line inspection services for historically unpiggable process piping and pipelines using proprietary in-line inspection tools and analytical software;

(2) advanced engineering and condition assessment services through a multi-disciplined engineering team and related lab support;

and (3) advanced digital imaging including remote digital video imaging, laser scanning and laser profilometry-enabled reformer care services.

and (2) advanced engineering and condition assessment services through a multi-disciplined engineering team and related lab support.

We market our services to companies in a diverse array of heavy industries, which include:

1 unchanged sentence

• Manufacturing and Process (chemical, petrochemical, pulp and paper industries, manufacturing, automotive and mining);

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• Midstream and Others (valves, terminals and storage, pipeline and offshore oil and gas);

15 unchanged sentences

COVID-19 Pandemic and Market Conditions Update .

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the United States and the rest of the world.

Over the past year, the COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty in domestic and international markets including in the markets in which we operate and, as a result, certain clients have responded with capital spending budget cuts, cost cutting measures, personnel layoffs, limited facility access, and facility closures among other actions.

Though the impact of COVID-19 and the decline in crude oil prices on our operations has varied by geographic conditions, the applicable government mandates have adversely affected our workforce and operations, as well as the operations of our clients, suppliers and contractors.

The ultimate duration and impact on our global operations remains unclear.

We expect that our results of operations in future periods may continue to be adversely impacted due to the factors noted above.

To successfully navigate through this unprecedented period, we have continued to focus on the following key priorities:

• the safety of our employees and business continuity;

• decisive and aggressive actions taken to reduce costs, preserve capacity and manage margins to align our business with the near-term decrease in demand for our services;

The impact of COVID-19 and, more recently the Delta and Omicron variants of the COVID-19 virus, continues to affect our workforce and operations, as well as the operations of our clients, suppliers and contractors.

During this period, we have continued to focus on the following key priorities:

• the health and safety of our employees and business continuity;

• the alignment of our business to the near term market dynamics and demand for our services;

• our end market revenue diversification strategy.

To respond to the economic downturn resulting from the COVID-19 pandemic and the drop in oil prices, we initiated a cost reduction and efficiency program during the second quarter of 2020.

All named executive officers have voluntarily taken temporary salary reductions ranging from 15% to 20% of their base salary.

In addition, we instituted a reduction for certain other salaried employees, at lower percentages, and suspended our voluntary match under the executive deferred compensation retirement plan and our 401(k) plan.

Further, our board of directors voluntarily agreed to a 20% reduction of their cash compensation.

These reductions continue into 2021.

Under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), we are qualified to defer the employer portion of social security taxes incurred through the end of calendar 2020.

As of December 31, 2020, we have deferred employer payroll taxes of $14.2 million with approximately half of the deferral due in each of 2021 and 2022.

We may defer additional future employer payroll taxes under the CARES Act.

The ultimate duration and economic impact of the COVID-19 pandemic remains unclear.

However, we believe the increased availability and administration of COVID-19 vaccines, easing of pandemic related restrictions, reopening of economies, and increasing commodity prices are positive signs of broader economic recovery.

The extent of COVID-19’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic (including any resurgences), impact of the new COVID-19 variants and the continued rollout and acceptance of COVID-19 vaccines, and the level of social and economic restrictions imposed in the United States and abroad in an effort to curb the spread of the virus, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.

Under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), we qualified to defer the employer portion of social security taxes incurred through the end of calendar 2020.

As of December 31, 2021, we have deferred employer payroll taxes of $14.1 million.

We paid $7.0 million of the deferred payroll taxes in January 2022 with the remaining balance due at the end of 2022.

Additionally, other governments in jurisdictions where we operate passed legislation to provide employers with relief programs, which include wage subsidy grants, deferral of certain payroll related expenses and tax payments and other benefits.

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As a result, we recognized $6.2 million and $1.5 million as a reduction to operating expenses and selling, general and administrative expenses, respectively, during the twelve months ended December 31, 2021.

As of December 31, 2020, we also deferred certain payroll related expenses and tax payments of $4.6 million under other foreign government programs which will be due in 2021 and 2022.

As of December 31, 2021, we also deferred certain payroll related expenses and tax payments of $3.2 million under other foreign government programs which will be due in 2022.

Goodwill Impairment.

As discussed in Note 7 of the consolidated financial statements further below, we recognized a non-cash goodwill impairment charge during the three months ended March 31, 2020 of $191.8 million for the IHT operating segment.

These charges were a result of an interim goodwill impairment test that was triggered as a result of certain impairment indicators that were present during the quarter, primarily the decline in operating results experienced during the first quarter of 2020 due to COVID-19, lower oil prices and related impacts on the IHT operating segment.

As discussed in Note 8 of the consolidated financial statements further below, we recognized a non-cash goodwill impairment charge during the nine months ended September 30, 2021 of $55.8 million for the MS operating segment and non-cash goodwill impairment charge during the three months ended December 31, 2021 of $8.8 million for the Quest Integrity operating segment.

Total goodwill impairment charges for the twelve months ended December 31, 2021 was $64.6 million.

These charges were a result of goodwill impairment test that was triggered as a result of certain impairment indicators that were present during the quarter, primarily related to the continued curtailment of operations, decline in our

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forecast, continued declines in our stock price, reporting unit operating losses, and continued declines in the reporting units’ net sales compared to forecast.

Recent Financing Transactions.

As more fully described below under “Liquidity and Capital Resources”, on February 11, 2022, we entered into a 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 the Company 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 a delayed draw term loan of up to an incremental $35.0 million (the “Delayed Draw Term Loans”) to be provided by Corre Partners Management, LLC and certain of its affiliates (“Corre”) (the “ABL Credit Facility”).

The ABL Credit Facility matures and all outstanding amounts become due and payable on February 11, 2025, however, if our Notes, which mature on August 1, 2023, have an aggregate principal amount of $10 million or more outstanding 120 days prior to their maturity date (the “Trigger Date”), the ABL Credit Facility will be terminated as of the Trigger Date.

The proceeds of the loans under the ABL Credit Agreement 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.

In connection with the transactions contemplated by the ABL Credit Agreement, Corre, agreed to provide the Company incremental financing, totaling approximately $55.0 million, consisting of (i) $35.0 million Delayed Draw Term Loans under the ABL Credit Facility;

(ii) $10.0 million from Corre in the form of the February 2022 Delayed Draw Term Loan (as defined in the Subordinated Term Loan Credit Agreement (as defined below)) on a pari passu basis with the existing loans issued pursuant to the Subordinated Term Loan Credit Agreement;

and (iii) $10.0 million through an issuance of 11,904,762 shares of our common stock, to Corre Opportunities Qualified Master Fund, LP, Corre Horizon Fund, LP and Corre Horizon II Fund, LP at a price of $0.84 per share.

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Results of Operations

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$ 12,997 $ (174,638) $ 187,635 NM 4

MS 25,879 55,385 (29,506) (53.3) %

(47,728) 25,879 (73,607) NM 4

Quest Integrity 3

900 16,474 (15,574) (94.5) %

Corporate and shared support services (92,151) (85,077) (7,074) (8.3) %

Total operating income (loss) $ (217,362) $ (2,146) $ (215,216) NM 2

Total operating income (loss) $ (125,982) $ (217,362) $ 91,380 42.0 %

Interest expense, net $ (46,308) $ (29,818) $ (16,490) (55.3) %

Loss on warrants (59) — (59) NM 4

Loss on debt extinguishment and modification — (2,224) 2,224 NM 4

1 unchanged sentence

Loss before income taxes $ (174,810) $ (251,918) $ 77,108 30.6 %

Benefit for income taxes 14,715 436 14,279 NM 2

(Provision) benefit for income taxes (11,209) 14,715 (25,924) NM 4

Net loss $ (186,019) $ (237,203) $ 51,184 21.6 %

1 unchanged sentence

1 Includes goodwill impairment charge of $191.8 million for the twelve months ended December 31, 2020.

2 Includes goodwill impairment charge of $55.8 million for the twelve months ended December 31, 2021.

3 Includes goodwill impairment charge of $8.8 million for the twelve months ended December 31, 2021.

4 NM - Not meaningful

Total revenues declined $310.8 million or 26.7% from the same period in the prior year.

Excluding the unfavorable impact of $2.3 million due to foreign currency exchange rate changes, total revenues decreased by $308.5 million, IHT revenues decreased by $137.9 million, MS revenues decreased by $141.5 million and Quest Integrity revenues decreased by $29.1 million.

Decreased activity levels in IHT, MS and Quest Integrity were primarily due to volumes being negatively impacted by the outbreak of COVID-19 and the oversupplied oil market causing certain clients to temporarily close facilities and/or curtail operations, resulting in the postponement of client projects and lower demand for our services.

Within the oil and gas industry, we expect refining utilization rates to gradually recover through 2021.

Without the COVID-19 pandemic effects, we would typically benefit for a period of 12 to 18 months following a refining utilization rate drop, however, current market dynamics have delayed the demand growth for our products and services.

The unfavorable impacts of foreign exchange rate changes are primarily due to the strengthening of the U.S.

dollar relative to the foreign currencies to which we have exposure during this period.

Total revenues increased $22.0 million or 2.6% from the same period in the prior year.

Excluding the favorable impact of $15.0 million due to foreign currency exchange rate changes, total revenues increased by $7.0 million, IHT revenues increased by $35.1 million, MS revenues decreased by $21.4 million and Quest Integrity revenues decreased by $6.7 million.

The increase in revenues in IHT is due to increased turnaround and project work in both the US and Canada.

The decrease in revenue for MS was primarily due to decrease in maintenance activities and non-recurring projects from the prior year.

The favorable impacts of foreign exchange rate changes are primarily due to the weakening of the U.S.

dollar relative to the foreign currencies to which we have exposure during the current year.

Operating loss.

Overall operating loss was $126.0 million, compared to an operating loss of $217.4 million in the prior year.

The increase in operating loss was primarily attributable to a non-cash goodwill impairment charge of $191.8 million during the first quarter of 2020, which was triggered by the existence of impairment indicators, including the decline in our forecasts as a result of the COVID-19 pandemic and the related decline in market conditions in our IHT operating segment.

The overall decrease in operating loss is attributable to IHT, which experienced an increase in operating income of $187.6 million due to a non-cash goodwill impairment charge recorded during the first quarter of 2020, arising from the impacts of COVID-19.

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Operating loss for the current year includes net expenses totaling $83.9 million that we do not believe are indicative of our core operating activities, while the same period in the prior year included $205.2 million of such items.

The detail of non-core expenses reflected in operating income (loss) are as follows (unaudited):

The detail of non-core expenses reflected in operating income (loss) are as follows (unaudited) (in thousands):

IHT MS Quest Integrity Corporate and shared support services Total

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Goodwill impairment charge — 55,837 8,795 — 64,632

Natural disaster costs 4

21 479 — — 500

Total $ 661 $ 56,361 $ 9,152 $ 17,689 $ 83,863

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— — — 1,947 1,947

Restructuring and other related charges 3

Severance charges,net 3

1,572 3,048 517 740 5,877

Goodwill impairment charge 191,788 — — — 191,788

Natural disaster costs 4

21 479 — — 500

Total $ 193,381 $ 3,527 $ 517 $ 7,749 $ 205,174

1 unchanged sentence

1 Consists primarily of professional fees and other costs for assessment of corporate and support cost structures.

For the twelve months ended December 31, 2020 and 2019, includes $3.2 million and $12.3 million, respectively, associated with the OneTEAM program (exclusive of restructuring costs).

2 For the twelve months ended December 31, 2020, primarily relates to accrued costs due to international legal and internal control review matters.

For the twelve months ended December 31, 2019, primarily relates to accrued costs due to the resolution of a legal matter.

3 For the twelve months ended December 31, 2020 and twelve months ended December 31, 2019, includes $3.4 million and $1.7 million of severance charges associated with the OneTEAM program, including international restructuring under the OneTEAM program.

For the twelve months ended December 31, 2020, $2.5 million in other severance charges were due to the impact of COVID-19.

For the twelve months ended December 31, 2021, includes $1.9 million of costs associated with the Operating Group Reorganization, $3.9 million related to costs associated with debt financing, $2.8 million of corporate support costs, and $0.3 million associated with the OneTEAM program (exclusive of restructuring costs).

For the twelve months ended December 31, 2020, includes $3.2 million associated with the OneTEAM program (exclusive of restructuring costs).

2 For the twelve months ended December 31, 2021, primarily relates to accrued legal matters and other legal fees.

For the twelve months ended December 31, 2020, primarily relates to international legal and internal control review matters.

3 For the twelve months ended December 31, 2021, includes $2.9 million of severance charges associated with the Operating Group Reorganization and $0.2 million associated with other severances.

For the twelve months ended December 31, 2020, $3.4 million of severance charges were associated with the OneTEAM program and $2.5 million in other severance charges were due to the impact of COVID-19.

4 Amount represents the insurance deductible amount for hurricane damage incurred during the period.

The detail of operating income (loss) excluding non-core expenses are as follow (unaudited):

The detail of operating income (loss) excluding non-core expenses are as follow (unaudited) (in thousands):

Twelve Months Ended

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Corporate and shared support services (74,462) (77,328) 2,866 3.7 %

Total operating income (loss), excluding non-core expenses $ (12,188) $ 21,145 $ (33,333) (157.6) %

Excluding the impact of non-core expenses, the overall decrease in operating income is primarily attributable to our MS and Quest Integrity segments, which experienced a decrease in operating income of $26.4 million and $11.8 million, respectively.

The lower operating income in MS and Quest Integrity reflects lower activity levels due to a decline in market conditions as a result of the COVID-19 pandemic and the decline in oil prices.

These movements were partially offset by a decrease in corporate and shared support service expenses of $10.5 million, which was driven primarily by lower payroll and noncash compensation expenses.

Total operating income (loss), excluding non-core expenses $ (42,119) $ (12,188) $ (29,931) NM 1

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1 NM - Not meaningful

Excluding the impact of non-core expenses, the overall decrease in operating income is primarily attributable to our IHT, MS and Quest Integrity segments, which experienced a decrease in operating income of $5.1 million, $20.8 million and $6.9 million, respectively.

The lower operating income in Quest Integrity reflects lower activity levels due to travel restrictions as a result of COVID-19 and decline in overall activity levels.

The operating loss increase in MS was largely attributable to a decrease in maintenance activities and non-recurring projects from the prior year.

The prior year comparable is also challenging given that the pandemic did not have a material impact on the first three months of operations in 2020 as well as inflationary cost pressures in 2021.

These movements were partially offset by a decrease in corporate and shared support service expenses of $2.9 million, which was driven primarily by lower payroll expenses.

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Other (income) expense, net.

Other expense, net increased $1.8 million, or 252%, from the same period in the prior year, primarily from foreign currency transaction losses in the current year compared to the prior year.

Other expense, net increased $0.1 million, from the same period in the prior year, primarily from foreign currency transaction losses in the current year compared to the prior year.

Foreign currency transaction losses in the current year period reflect the effects of fluctuations in the U.S.

Dollar relative to the foreign currencies to which we have exposure.

Other expense, net also include certain components of our net periodic pension cost (credit).

Other expense, net also include certain components of our net periodic pension cost (credit) and a gain on disposal .

Loss on debt extinguishment and modification.

In December 2020, we entered into lending arrangements, repaid all amounts outstanding under our prior credit facility (the “Credit Facility”) and retired $136.9 million par value of our 5.00% Convertible Senior Notes due 2023 (the “Notes”).

the extinguishment of the Notes, partially offset by a $2.2 million gain on extinguishment of the Notes.

See further discussion of our debt in Note 10.

Long-term debt, derivatives and letters of credit to our consolidated financial statements included in this report.

The write-off of debt issuance costs of $0.3 million for the year ended December 31, 2019 was associated with a reduction in capacity of the revolving portion of the Credit Facility in July 2019.

The benefit for income tax was $14.7 million on the pre-tax loss from continuing operations of $251.9 million in the current year compared to the benefit for income tax of $0.4 million on pre-tax loss from continuing operations of $32.9 million in the prior year.

The effective tax rate was a benefit of 5.8% for the year ended December 31, 2020 and a benefit of 1.3% for the year ended December 31, 2019.The higher effective rate benefit in 2020 is primarily attributable to the tax benefit related to the goodwill impairment loss taken during the year, a portion of which is not deductible for tax purposes, and tax benefits recorded as a result of certain provisions within the CARES Act, enacted on March 27, 2020.

The rate was also positively impacted by a decrease in valuation allowance on the expected realizability of the Company’s deferred tax assets for net operating loss carryforwards in certain foreign jurisdictions in which the Company operates.

These benefits were offset by an increase in valuation allowance on the expected realizability of the Company’s deferred tax assets for federal and state tax net operating loss carryforwards.

The CARES Act was enacted as a stimulus package to mitigate the negative financial impact of the COVID-19 pandemic on the economy.

A provision in the CARES Act allows for the carryback of net operating losses generated in certain tax years, which were previously only allowed to be carried forward, to recover income taxes paid at a higher statutory tax rate than the rate under current law.

A tax benefit in the amount of $7.3 million was recorded during the year related to the carryback of net operating losses.

In connection with these transactions, we recognized a loss of $2.2 million, comprised of approximately $4.4 million in unamortized debt issuance costs on the Credit Facility and expenses associated with the extinguishment of the Notes, partially offset by a $2.2 million gain on extinguishment of the Notes.

Loss on warrants.

In November 2021, the Company entered into an Amended and Restated Common Stock Purchase Warrant (the “A&R Warrant”) with APSC Holdco II, L.P.

(“APSC Holdco”) pursuant to which the warrant issued in December 2020 to Atlantic Park Strategic Capital Fund, L.P.

(“APSC”) to purchase up to 3,582,949 shares of Company common stock, which was initially exercisable at the holder’s option at any time, in whole or in part, until June 14, 2028, at an exercise price of $7.75 per share (the “Existing Warrant”) was amended and restated to provide for the purchase of up to 4,082,949 shares of Company common stock (which includes 500,000 of the shares of common stock issuable pursuant to additional warrants to APSC, providing for the purchase of an aggregate of 1,417,051 shares of our common stock (the “APSC Warrants”)) and to reduce the exercise price of the Existing Warrant to $1.50 per share.

In connection with this transaction, reclassification of the A&R Warrant from a liability classification to equity post receipt of NYSE approval with the related change in fair value being recognized in the income statement resulted in a loss of $0.1 million.

The provision for income tax was $11.2 million on the pre-tax loss from continuing operations of $174.8 million in the current year compared to the benefit for income tax of $14.7 million on pre-tax loss from continuing operations of $251.9 million in the prior year.

The effective tax rate was a provision of 6.4% for the year ended December 31, 2021 and a benefit of 5.8% for the year ended December 31, 2020.The higher effective rate in 2021 is primarily attributable to the goodwill impairment loss taken during the year, a portion of which is not deductible for tax purposes and an increase in the valuation allowance.

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

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Quest Integrity 85,315 114,992 (29,677) (25.8) %

Total $ 1,163,314 $ 1,246,929 $ (83,615) (6.7) %

Total revenues $ 852,539 $ 1,163,314 $ (310,775) (26.7) %

Operating income (loss):

IHT $ 24,084 $ 37,329 $ (13,245) (35.5) %

$ (174,638) $ 24,084 $ (198,722) NM 1

MS 25,879 55,385 (29,506) (53.3) %

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Corporate and shared support services (85,077) (110,372) 25,295 22.9 %

Total $ (2,146) $ (38,961) $ 36,815 94.5 %

Total operating income (loss) $ (217,362) $ (2,146) $ (215,216) NM 1

Interest expense, net $ (29,818) $ (29,713) $ (105) (0.4) %

Loss on debt extinguishment and modification (2,224) (279) (1,945) NM 1

Other expense, net (2,514) (715) (1,799) NM 1

Loss before income taxes $ (251,918) $ (32,853) $ (219,065) NM 1

Benefit for income taxes 14,715 436 $ 14,279 NM 1

Net loss $ (237,203) $ (32,417) $ (204,786) NM 1

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1 Not meaningful

2 Includes goodwill impairment charge of $191.8 million for the twelve months ended December 31, 2020.

Total revenues declined $310.8 million or 26.7% from the same period in the prior year.

Excluding the unfavorable impact of $11.8 million due to foreign currency exchange rate changes, total revenues decreased by $71.8 million, IHT revenues decreased by $101.7 million, MS revenues increased by $10.9 million and Quest Integrity revenues increased by $19.0 million.

The unfavorable impacts of foreign exchange rate changes are primarily due to the strengthening of the U.S.

dollar relative to the Euro, the British Pound, the Canadian dollar and the Australian dollar.

Decreased activity levels in IHT were associated with volume declines due to regional competitive pressures along the U.S.

Gulf Coast, deliberate market share loss due to a continued focus on pricing discipline, Canadian end-market challenges and some weather related impacts.

Also contributing to the decrease was the loss of revenue from certain under-performing businesses in IHT that closed down in late 2018.

For MS, revenue increased primarily due to higher on-stream services.

Within Quest Integrity, the increase in revenue is primarily the result of higher demand for Quest Integrity’s proprietary services and tools as well as growth from certain geographic expansion.

dollar relative to the foreign currencies to which we have exposure during this period.

Operating income (loss).

Overall operating loss was $217.4 million, compared to an operating loss of $2.1 million in the year ended December 31, 2019.

The overall decrease in operating loss is primarily attributable to the MS segment, which experienced an increase in operating income of $49.1 million.

Additionally, operating income for Quest Integrity increased by

$8.6 million.

Partially offsetting these improvements was the decrease in operating income in IHT of $13.2 million and the increase in corporate and shared support service expenses of $7.6 million.

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Operating income (loss) for the year ended December 31, 2020 included net expenses totaling $205.2 million that we do not believe are indicative of our core operating activities, while the same period in the prior year included $23.3 million of such items, as detailed by segment in the table below (in thousands):

Expenses reflected in operating income (loss) that are not indicative of our core operating activities (unaudited):

Expenses reflected in operating income (loss) that are not indicative of our core operating activities (unaudited) (in thousands):

IHT MS Quest Integrity Corporate and shared support services Total

4 unchanged sentences

— — — 1,947 1,947

Restructuring and other related charges 3

Severance charges, net 3

1,572 3,048 517 740 5,877

Goodwill impairment charge 191,788 — — — 191,788

Natural disaster costs 4

21 479 — — 500

Total $ 193,381 $ 3,527 $ 517 $ 7,749 $ 205,174

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249 418 62 947 1,676

Revaluation of contingent consideration — — — (202) (202)

Asset write-offs and disposals — 1,429 — — 1,429

Implementation of the new Enterprise Resource Planning system — — — 87 87

Total $ 249 $ 418 $ 62 $ 22,562 $ 23,291

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1 Consists primarily of professional fees and other costs for assessment of corporate and support cost structures, acquired business integration, natural disaster costs and transition/severance costs associated with certain executive leadership changes.

1 Consists primarily of professional fees and other costs for assessment of corporate and support cost structures.

For the twelve months ended December 31, 2020 and 2019, includes $3.2 million and $12.3 million, respectively, associated with the OneTEAM program (exclusive of restructuring costs).

2 For the twelve months ended December 31, 2019, primarily relates to accrued costs due to resolutions of certain legal matters.

For the twelve months ended December 31, 2018, relates to intellectual property legal defense costs associated with Quest Integrity.

3 Relates to restructuring costs incurred associated with the OneTEAM program.

See Note 16 to the consolidated financial statements for additional information.

Excluding the impact of these identified items in both periods, operating loss changed favorably by $26.2 million, consisting of increased operating income in MS and Quest Integrity of $45.2 million and $8.3 million, respectively, partially offset by decreased operating income in IHT of $17.1 million and an increase in corporate and shared support services expenses of $10.2 million.

The higher operating income in MS is primarily due to improvements in project execution pricing and cost.

Additionally, MS incurred $12.4 million of amortization expense in 2018 due to the accelerated amortization of the Furmanite trade name intangible asset.

Management determined that, as a result of initiatives to consolidate branding, the useful life of Furmanite trade name intangible asset was not expected to extend beyond December 31, 2018.

We accounted for the change in useful life prospectively effective January 1, 2018 and amortized the remaining balance over 2018, which resulted in the incremental amortization expense in 2018.

Within Quest Integrity, the higher operating income reflects both higher activity levels and a favorable project mix.

The lower operating income in IHT reflects lower activity levels due to a decline in market conditions.

The operating loss increase in corporate and shared support services was driven by corporate cost increases in technology expenses, labor costs and conclusion of certain legal settlements offset by lower non-cash compensation costs.

Interest expense.

Interest expense decreased from $30.9 million in the prior year to $29.7 million in the current year.

The decrease is primarily due to a lower overall debt balances outstanding.

2 For the twelve months ended December 31, 2020, primarily relates to accrued costs due to international legal and internal control review matters.

For the twelve months ended December 31, 2019, primarily relates to accrued costs due to the resolution of a legal matter.

For the twelve months ended December 31, 2020, $2.5 million in other severance charges were due to the impact of COVID-19.

4 Amount represents the insurance deductible amount for hurricane damage incurred during the period.

The detail of operating income (loss) excluding non-core expenses are as follow (unaudited) (in thousands):

Twelve Months Ended

December 31, Increase

2020 2019 $ %

Operating income (loss), excluding non-core expenses:

IHT $ 18,743 $ 24,333 $ (5,590) (23.0) %

MS 29,406 55,803 (26,397) (47.3) %

Quest Integrity 16,991 28,819 (11,828) (41.0) %

Corporate and shared support services (77,328) (87,810) 10,482 11.9 %

Total operating income (loss), excluding non-core expenses $ (12,188) $ 21,145 $ (33,333) (157.6) %

The lower operating income in MS and Quest Integrity reflects lower activity levels due to a decline in market conditions as a result of the COVID-19 pandemic and the decline in oil prices.

These movements were partially offset by a decrease in corporate and shared support service expenses of $10.5 million, which was driven primarily by lower payroll and noncash compensation expenses.

Other (income) expense, net.

Other expense, net increased $1.8 million, or 252%, from the same period in the prior year, primarily from foreign currency transaction losses in the current year compared to the prior year.

Foreign currency transaction losses in the current year period reflect the effects of fluctuations in the U.S.

Dollar relative to the foreign currencies to which we have exposure.

Other expense, net also include certain components of our net periodic pension cost (credit).

Loss on debt extinguishment and modification.

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the extinguishment of the Notes, partially offset by a $2.2 million gain on extinguishment of the Notes.

See further discussion of our debt in Note 11- Long-term debt, to our consolidated financial statements included in this report.

The write-off of debt issuance costs of $0.3 million for the year ended December 31, 2019 was associated with a reduction in capacity of the revolving portion of the Credit Facility in July 2019.

Loss on convertible debt embedded derivative.

For the twelve months ended December 31, 2018, we recorded a loss of $24.8 million associated with the increase in fair value of our convertible debt embedded derivative liability.

The loss recognized during this period is primarily attributable to the increase in our stock price during the period.

As discussed further in Note 10 to the consolidated financial statements, in accordance with ASC 815-15, we recorded a loss to adjust the embedded derivative liability to its fair value as of May 17, 2018 and then reclassified the balance of $45.4 million to stockholders’ equity in the second quarter of 2018.

As a result of this reclassification, the embedded derivative liability is no longer marked to fair value each period.

Other (income) expense, net.

Non-operating results include foreign currency transaction losses of $0.5 million for the year ended December 31, 2019 compared to foreign currency transaction losses of $1.7 million in the same period last year.

The foreign currency transaction losses in both periods reflect the effects of fluctuations in the U.S.

Dollar relative to the currencies to which we have exposure, including but not limited to, the Brazilian Real, British Pound, Canadian Dollar, Euro, Australian Dollar, New Zealand Dollar, Norwegian Kroner, Malaysian Ringgit, Mexican Peso and Singapore Dollar.

Non-operating results also include certain components of our net periodic pension cost (credit).

The effective tax rate was a benefit of 1.3% for the year ended December 31, 2019 and a benefit of 33.0% for the year ended December 31, 2018.

The lower effective rate benefit in 2019 is primarily attributable to an increase in valuation allowance on the expected realizability of our deferred tax assets for federal, foreign and state tax net operating loss carryforwards.

These benefits were offset by an increase in valuation allowance on the expected realizability of the Company’s deferred tax assets for federal and state tax net operating loss carryforwards.

The CARES Act was enacted as a stimulus package to mitigate the negative financial impact of the COVID-19 pandemic on the economy.

A tax benefit in the amount of $7.3 million was recorded during the year related to the carryback of net operating losses.

Non-GAAP Financial Measures and Reconciliations

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We define adjusted net income (loss), adjusted net income (loss) per diluted share and adjusted EBIT to exclude the following items:

costs associated with our OneTEAM program, non-routine legal costs and settlements, restructuring charges, certain severance charges, goodwill impairment charges, loss on debt extinguishment and certain other items that we believe are not indicative of core operating activities.

Beginning in the third quarter of 2020, we have modified our presentation of non-GAAP financial measures to reconcile net income (loss) to consolidated adjusted EBIT and EBITDA.

costs associated with our OneTEAM program, costs associated with the Operating Group Reorganization (as defined in Note 17 to the consolidated financial statements), non-routine legal costs and settlements, restructuring charges, certain severance charges, goodwill impairment charges and certain other items that we believe are not indicative of core operating activities.

Consolidated adjusted EBIT, as defined by us, excludes the costs excluded from adjusted net income (loss) as well as income tax expense (benefit), interest charges, foreign currency (gain) loss, and items of other (income) expense.

Consolidated adjusted EBITDA further excludes from consolidated adjusted EBIT depreciation, amortization and non-cash share-based compensation costs.

Segment adjusted EBIT is equal to segment operating income (loss) excluding costs associated with our OneTEAM program, non-routine legal costs and settlements, restructuring charges, goodwill impairment charges and certain other items as determined by management.

Segment adjusted EBIT is equal to segment operating income (loss) excluding costs associated with our OneTEAM program, costs associated with the Operating Group Reorganization, non-routine legal costs and settlements, restructuring charges, certain severance charges, goodwill impairment charges and certain other items as determined by management.

Segment adjusted EBITDA further excludes from segment adjusted EBIT depreciation, amortization, and non-cash share-based compensation costs.

Consolidated adjusted EBITDA margin is defined as consolidated adjusted EBITDA divided by revenue.

Free cash flow is defined as net cash provided by (used in) operating activities minus capital expenditures.

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Reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure are presented below.

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The following tables set forth the reconciliation of Adjusted Net Income (Loss), EBIT and EBITDA to their most comparable GAAP financial measurements:

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Natural disaster costs 4

Loss on warrants 59 59

Loss on debt extinguishment — 2,224 — 2,224

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(102) 137 (622) (244)

Gain on disposal (2,591) — (2,591) —

Loss on debt extinguishment and modification — 2,224 — 2,224

Loss on warrants 59 — 59 —

Professional fees and other 1

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Consolidated Adjusted EBITDA $ 1,647 $ 13,077 $ 6,412 $ 40,027

Net loss margin (7.2) % (2.5) % (27.8) % (2.8) %

Consolidated Adjusted EBITDA margin 6.3 % 8.0 % 4.7 % 6.9 %

Free Cash Flow:

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____________________________________

1 For the three and twelve months ended December 31, 2020, includes $0.6 million and $3.2 million, respectively, associated with the OneTEAM program (exclusive of restructuring costs).

1 For the three and twelve months ended December 31, 2021, includes $0.2 million and $1.9 million, respectively, of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

There were also $3.9 million related to costs associated with debt financing, $2.8 million of corporate support costs, and $0.3 million associated with the OneTEAM program (exclusive of restructuring costs).

For the three and twelve months ended December 31, 2020, includes $0.6 million and $3.2 million, respectively, associated with the OneTEAM program (exclusive of restructuring costs).

2 For the three and twelve months ended December 31, 2020, primarily relates to costs associated with international legal and internal control review matters.

For the three and twelve months ended December 31, 2019, primarily relates to resolution of a legal matter.

3 For the three months ended December 31, 2020, there were no severance charges associated with the OneTEAM program and for the twelve months ended December 31, 2020, $3.4 million, are severance charges associated with the OneTEAM program.

For the three and twelve months ended December 31, 2020, $0.9 million and $2.5 million respectively, in severance charges were due to the impact of COVID-19.

For the three and twelve months ended December 31, 2019, severance charges are associated with the OneTEAM program.

4 Amount represents the insurance deductible for hurricane damage incurred for the three and twelve months ended December 31, 2020.

5 Represents the tax effect of the adjustments at an assumed marginal tax rate of 21% for the three and twelve months ended December 31, 2020 and 2019 except for the adjustment of the goodwill impairment charge for which the actual tax impact was used.

2 For the three and twelve months ended December 31, 2021, primarily relates to accrued legal matters and other legal fees.

For the three months and twelve months ended December 31, 2020, primarily relates to costs associated with international legal matters.

3 For the three months and twelve months ended December 31, 2021, $0.3 million and $2.9 million, respectively, associated with the Operating Group Reorganization and other continuing restructuring measures.

For the three and twelve months ended December 31, 2020, severance charges are associated with the OneTEAM program, including international operations.

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4 Amount represents the insurance deductible for hurricane damage incurred for the twelve months ended December 31, 2020.

5 Represents the tax effect of the adjustments.

Beginning in Q2 2021, we now use the statutory tax rate, net of valuation allowance by legal entity to determine the tax effect of the adjustments.

Prior to Q2 2021, we used an assumed marginal tax rate of 21% except for the adjustment of the goodwill impairment charge in Q1 2020 for which the actual tax impact was used.

We have updated the prior period tax impact to use the statutory tax rate by legal entity, net of valuation allowance.

6 Represents foreign currency gain/loss.

For prior periods, includes other nominal fees.

7 Represents pension expense (credit) for the U.K.

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The pension plan has had no new participants added since the plan was frozen in 1994 and accruals for future benefits ceased in connection with a plan curtailment in 2013.

7 Represents foreign currency gain/loss.

For prior periods, includes other nominal fees.

AND SUBSIDIARIES

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Adjusted EBITDA $ 5,330 $ 9,051 $ 26,617 $ 33,634

Operating income $ 5,377 $ 13,663 $ 25,879 $ 55,385

Operating income (loss) $ 3,071 $ 5,377 $ (47,728) $ 25,879

Severance charges, net 1

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Natural disaster costs 2

Goodwill impairment loss — — 55,837 —

Adjusted EBIT 3,101 5,432 8,633 29,406

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Quest Integrity

Operating income $ 6,673 $ 10,667 $ 16,474 $ 28,757

Operating income (loss) $ (6,252) $ 6,673 $ 900 $ 16,474

Severance charges, net 1

83 191 357 517

Goodwill impairment loss 8,795 — 8,795 —

Adjusted EBIT 2,626 6,864 10,052 16,991

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(102) 137 (622) (244)

Loss on warrants 59 — 59 —

Professional fees and other 5

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___________________

1 Relates to severance charges incurred associated with the OneTEAM program, including international restructuring under the OneTEAM program for the three and twelve months ended December 31, 2020 and 2019.

Also includes severance charges due to the impact of COVID-19 for the three and twelve months ended December 31, 2020.

2 Amount represents the insurance deductible for hurricane damage incurred for the three months and twelve months ended December 31, 2020.

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1 Primarily relates to severance charges incurred associated with the Operating Group Reorganization and other continuing restructuring measures for the three and twelve months ended December 31, 2021.

For the three and twelve months ended December 31, 2020, relates to severance charges associated with the OneTEAM program, including international restructuring under the OneTEAM program.

2 Amount represents the insurance deductible for hurricane damage incurred for the twelve months ended December 31, 2020.

3 Represents foreign currency gain/loss.

For prior periods, includes other nominal fees.

4 Represents pension expense (credit) for the U.K.

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The pension plan has had no new participants added since the plan was frozen in 1994 and accruals for future benefits ceased in connection with a plan curtailment in 2013.

4 For the three and twelve months ended December 31, 2020, includes $0.6 million and $3.2 million, respectively, associated with the OneTEAM program (exclusive of restructuring costs).

5 For the three and twelve months ended December 31, 2021, includes $0.2 million and $1.9 million, respectively, of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

For the three and twelve months ended December 31, 2020, includes $0.6 million and $3.2 million, respectively, associated with the OneTEAM program (exclusive of restructuring costs).

5 For the three and twelve months ended December 31, 2020, primarily relates to costs associated with international legal and internal control review matters.

For the three and twelve months ended December 31, 2019, primarily relates to resolution of a legal matter.

6 Represents foreign currency gain/loss.

For prior periods, includes other nominal fees.

6 For the three and twelve months ended December 31, 2021, primarily relates to accrued legal matters and other legal fees.

For the three and twelve months ended December 31, 2020, primarily relates to costs associated with international legal matters.

Liquidity and Capital Resources

Financing for our operations consists primarily of our ABL Facility (defined below) and cash flows attributable to our operations, which we believe are sufficient to satisfy our anticipated cash requirements for our existing operations for at least the next twelve months.

Our long-term liquidity needs primarily relate to debt service requirements.

From time to time, we may experience periods of weakness in the industries in which we operate, with activity levels below historical levels.

These conditions, depending on their duration and severity, have the potential to adversely impact our operating cash flows.

Since the oil and gas market downturn and outbreak of COVID-19 in the United States beginning in March 2020, we have maintained a continuous process of actively managing our strategy, operations and resources to changing market conditions.

We have implemented workforce furloughs, reduced personnel compensation, reduced headcount, eliminated all non-essential costs, lowered capital expenditure budgets by more than 30% and reviewed all business operations within the evolving market conditions amongst other initiatives.

Additionally, when the COVID-19 pandemic and oil and gas industry downturn depressed commodity prices beginning in March 2020, our active management actions helped ensure adequate available liquidity resources for the foreseeable future.

We intend to continue managing the business to the new market realities to ensure our access to capital remains sufficient.

We periodically explore alternative financing to improve our balance sheet and liquidity or in the event that existing liquidity sources are no longer sufficient for our capital requirements.

Any such financing could be on substantially different and more onerous terms than those of our ABL Facility, including with respect to interest rates, financial and other covenants and required collateral, and could include an equity component, which would be dilutive to our shareholders.

However, there can be no assurance that such financing would be available on terms acceptable to us, if at all.

From time to time, we may also seek to retire, repurchase or exchange our Notes in open market purchases or privately negotiated transactions dependent upon market conditions, liquidity, and contractual obligations and other factors.

Financing for our operations consists primarily of our ABL Credit Facility, Term Loan, Subordinated Term Loan (defined below) and cash flows attributable to our operations.

Our principal uses of cash are for working capital needs and operations.

We have suffered recurring operating losses related to COVID-19 pandemic and related economic repercussions, and difficult market conditions.

Subsequent to year-end, we had limited borrowing capacity to fund our increasing working capital needs.

In response to the above, (i) we have entered into the Recent Financing Transactions (as further described in Note 1 - Summary of Significant Accounting Policies and Practices) to address our near-term liquidity needs;

and (ii) we have taken definitive actions to reduce costs, improve operations, profitability, and liquidity, and position the Company for future growth.

Our ability to maintain compliance with the financial covenants contained in ABL Credit Facility, Term Loan Credit Agreement, and Subordinated Term Loan Credit Agreement 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 related economic repercussions 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 Credit Facility.

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.

ABL Facility.

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.

On December 18, 2020, we entered into an asset-based credit agreement (such agreement, as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) led by Citibank, N.A.

(“Citibank”), as agent, which provides for available borrowings up to $150 million (the “ABL Facility”).

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

However, if our Notes, which mature on August 1, 2023, 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 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 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 million outstanding and we do not have sufficient availability of more than 20% under the ABL Facility on the Trigger Date, the ABL Facility will terminate on the Trigger Date.

The ABL Facility includes a $50 million sublimit for letters of credit issuance and $35 million sublimit for swingline borrowings.

Additionally, subject to certain conditions, including obtaining additional commitments, the ABL Facility may be increased by an amount not to exceed $50 million.

On December 8, 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 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 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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Our obligations under the ABL Facility are guaranteed by certain of our direct and indirect subsidiaries, as set forth in the ABL Facility agreement.

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Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate of either a base rate (“Base Rate”) or a LIBOR rate, plus an applicable margin.

The Base Rate is defined as a fluctuating interest rate equal to the greatest of (i) the federal funds rate plus 0.50%, (ii) Citibank, N.A.’s prime rate, and (iii) the one-month LIBOR rate plus 1.00%.

Depending on the amount of average excess availability, the applicable margin is between 1.75% to 2.25% for Base Rate borrowings with a 1.75% Base Rate floor and between 2.75% and 3.25% for LIBOR rate borrowings with a 0.75% LIBOR rate floor.

The Base Rate is defined as a fluctuating interest rate equal to the greatest of (i) the federal funds rate plus 0.50%, (ii) Citibank’s prime rate, and (iii) the one-month LIBOR rate plus 1.00%.

The applicable margin for LIBOR borrowings is 4.25% and for Base Rate borrowings is 3.25%.

The all-in Base Rate floor is 1.75% and for LIBOR rate borrowings, the LIBOR rate, exclusive of spread, has a 0.75% LIBOR rate floor.

Interest is payable either (i) monthly for Base Rate borrowings or (ii) the last day of the interest period for LIBOR rate borrowings, as set forth in the ABL Facility agreement.

The fee for undrawn amounts ranges from 0.375% to 0.5%, depending on usage and are due quarterly.

The fee for undrawn amounts ranges from 0.375% to 0.5%, depending on usage and is due quarterly.

The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that restrict our ability to sell assets, makes changes to the nature of our business, engage in mergers and acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distribution or redeem or repurchase capital stock.

In the event that our excess availability is less than the greater of (i) $15.0 million and (ii) 10.00% of the lesser of (1) the current borrowing base and (2) the commitments under the ABL Facility then in effect, a consolidated fixed charge coverage ratio of at least 1.00 to 1.00 must be

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

At December 31, 2020, we had $24.6 million of cash on hand and approximately $59.5 million of available borrowing capacity under the ABL Facility.

At December 31, 2021, we had $65.3 million of cash on hand, of which, $4.1 million was restricted for interest due on the Term Loan and about $4.0 million of cash is located in countries where currency restrictions exist.

We had approximately $4.2 million of available borrowing capacity under the ABL Facility.

Direct and incremental costs associated with the issuance of the ABL Facility were approximately $4.8 million and were capitalized as debt issuance costs.

These costs are being amortized on a straight-line basis over the term of the ABL Facility.

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

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”) (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 noted 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.

Our obligations under the ABL Credit Facility are guaranteed by certain of our direct and indirect subsidiaries (other than certain excluded subsidiaries) (the “ABL Guarantors” and, together with the Company, the “ABL Loan Parties”).

Our obligations under the ABL Credit Facility are secured on a first priority basis by, among other things, accounts receivable, deposit accounts, securities accounts and inventory of the ABL Loan Parties and are secured on a second priority basis by substantially all of the other assets of the ABL Loan Parties.

Availability under the revolving credit line under ABL Credit Facility is based on the percentage of the value of accounts receivable and inventory, as reduced by certain reserves.

Revolving Credit Loans under the ABL Credit Facility 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.

We may make voluntary prepayments of the loans under the ABL Credit Facility from time to time,

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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 Facility, 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.

Atlantic Park Term Loan.

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”).

On December 18, 2020, we also entered into that certain Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with the financial institutions from time to time party thereto, and APSC, as agent, pursuant to which we borrowed a $250.0 million term loan (the “Term Loan”).

The Term Loan was issued with a 3.00% original issuance discount (“OID”), such that total proceeds received were $242.5 million.

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However, 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.

As set forth in the Term Loan agreement, the Term Loan is secured by substantially all assets, other than those secured on a first lien basis by the ABL Facility, and we may increase the Term Loan by an amount not to exceed $100 million.

The Term Loan bears interest through maturity at a variable rate based upon, at our option, an annual rate of either a Base rate or a LIBOR rate, plus an applicable margin.

The Base rate is defined as a fluctuating interest rate equal to the greatest of (i) the federal funds rate plus 0.50%, (ii), the prime rate as specified in the Term Loan agreement, and (iii) one-month LIBOR rate plus 1.00%.

As set forth in the Term Loan Credit Agreement, the Term Loan is secured by substantially all assets, other than those secured on a first lien basis by the ABL Facility, and we may increase the Term Loan by an amount not to exceed $100 million.

The Term Loan bears an interest through maturity at a variable rate based upon, at our option, an annual rate of either a Base rate or a LIBOR rate, plus an applicable margin.

The Base rate is defined as a fluctuating interest rate equal to the greatest of (i) the federal funds rate plus 0.50%, (ii), the prime rate as specified in the Term Loan Credit Agreement, and (iii) one-month LIBOR rate plus 1.00%.

The applicable margin is defined as a rate of 6.50% for Base rate borrowings with a 2.00% Base rate floor and 7.50% for LIBOR rate borrowings with a 1.00% LIBOR rate floor.

Interest is payable either (i) monthly for Base rate borrowings or (ii) the last day of the interest period for LIBOR rate borrowings, as set forth in the Term Loan agreement.

The loans under the Term Loan were issued with an original issue discount of 3.00%, and are, in whole or in part, prepayable any time and from time to time, at a prepayment premium (including a make whole during the first two years) specified in the Term Loan agreement (subject to certain exceptions), plus accrued and unpaid interest.

Interest is payable either (i) monthly for Base rate borrowings or (ii) the last day of the interest period for LIBOR rate borrowings, as set forth in the Term Loan Credit Agreement.

The loans under the Term Loan were issued with an original issue discount of 3.00%, and are, in whole or in part, prepayable any time and from time to time, at a prepayment premium (including a make whole during the first two years) specified in the Term Loan Credit Agreement (subject to certain exceptions), plus accrued and unpaid interest.

The effective interest rate on the Term Loan at December 31, 2021 was 20.90%.

The Term Loan contains customary payment penalties, events of default and covenants, including but not limited to, covenants that restrict our ability to sell assets, make changes to the nature of our business, engage in mergers or acquisitions, incur additional indebtedness and guarantees, pay dividends, issue equity instruments and make distributions or redeem or repurchase capital stock.

Commencing with the fiscal quarter ending 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, provided that 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.

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.

On October 19, 2021, we entered into Amendment No.

1 (the “First Amendment”) to the Term Loan Credit Agreement with the financial institutions party thereto from time to time (the “Lenders”) and APSC, as agent.

The First Amendment, among other things, (i) deferred an October 19, 2021 interest payment until October 29, 2021;

(ii) required that the Company use commercially reasonable efforts to appoint an additional independent director to our Board of Directors who is acceptable to the agent;

(iii) provided the Lenders with additional information rights;

and (iv) tightened certain negative covenants included in the Term Loan Credit Agreement until the deferred interest is made current.

On October 29, 2021, we entered into Amendment No.

2 (the “Second Amendment”) to the Term Loan Credit Agreement.

The Second Amendment, among other things, (i) further deferred an October 29, 2021 interest payment until November 15, 2021;

(ii) contained certain milestones;

(iii) provided the Lenders with a 10-day right of first refusal regarding any refinancing of the Company’s obligations under the ABL Facility;

(iv) obligated the Company to establish, pursuant to a charter to be adopted by the our Board of Directors and reasonably acceptable to the Agent, a special committee that shall have exclusive responsibility and authority to make recommendations to our Board of Directors regarding certain transactions;

and (v) provided that the Company will not permit a covenant trigger event under the ABL Facility to occur.

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On November 8, 2021, we entered into Amendment No.3 (the “Third Amendment”) to the Term Loan Credit Agreement.

The Third Amendment, among other things, (i) waived certain covenants until September 30, 2022 and modified covenants thereafter to provide us with more flexibility and (ii) required us to seek shareholder approval (or an exception therefrom) to issue the APSC Warrants, and to amend the Existing Warrants, to provide for, an exercise price of $1.50 per share.

The Third Amendment also reduced the amount of principal outstanding on the Notes on the Trigger date from $50 million to $10 million.

On December 2, 2021 and December 7, 2021, respectively, we entered into Amendment No.

4 (the “Fourth Amendment”) to the Term Loan Credit Agreement and Amendment No.

5 (the “Fifth Amendment”) to the Term Loan Credit Agreement, respectively.

The Fourth and Fifth Amendments extended the date upon which the Company must issue the APSC Warrants to December 7, 2021 and December 8, 2021, respectively.

The business purpose of these amendments was to further extend the Company’s liquidity runway while field audit exams were completed in connection to the transactions completed on February 11, 2022.

On December 8, 2021 we entered into the Second Amended and Restated Common Stock Purchase Warrant No.

1 (the “Second A&R Warrant”) with APSC Holdco, pursuant to which the A&R Warrant was amended and restated to provide for the purchase of up to 5,000,000 shares of our common stock (including 4,082,949 shares of our common stock issuable pursuant to the A&R Warrant) exercisable at the holder’s option at any time, in whole or in part, until December 8, 2028, at an exercise price of $1.50 per share, and (ii) entered into the Common Stock Purchase Warrants with each of Corre Opportunities Qualified Master Fund, LP, Corre Horizon Fund, LP and Corre Horizon Fund II, LP providing for the purchase of an aggregate of 5,000,000 shares of our common stock, exercisable at such holder’s option at any time, in whole or in part, until December 8, 2028, at an exercise price of $1.50 per share (the “Corre Warrants”).

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.

Subordinated Term Loan Credit Agreement .

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%.

Under the Subordinated Term Loan Credit Agreement, we are required to, among other things, (i) subject to certain conditions, issue the lenders Corre Warrants, (ii) amend our charter, bylaws, and all other necessary corporate governance documents to reduce the size of our Board of Directors to seven directors, one of whom will include our Chief Executive Officer, and (iii) reconstitute our Board of Directors.

The Subordinated Term Loan also contains other customary prepayment provisions, events of default and covenants.

On November 30, 2021, we entered into Amendment No.

1 (the “Corre Amendment 1”) to the Subordinated Term Loan Credit Agreement.

The Corre Amendment 1 (i) extended the payment date for interest in the form of payment-in-kind interest (“PIK Interest”) with respect to the Initial Term Loans (as defined in the Subordinated Term Loan Credit Agreement), (ii) extended the date upon which the Company must deliver a fully executed ABL Consent (as defined in the Subordinated Term Loan Credit Agreement) to, in each case, 11:59 P.M.

on December 6, 2021 and (iii) extended the date upon which we must issue the Corre Warrants to 11:59 P.M.

on December 7, 2021.

On December 6, 2021, we entered into Amendment No.

2 (the “Corre Amendment 2”) to the Subordinated Term Loan Credit Agreement.

The Corre Amendment 2 (i) extended the payment for interest in the PIK Interest with respect to the Initial Term Loans, and (ii) extended the date upon which we must deliver a fully executed ABL Consent to, in each case, 11:59 P.M.

on December 7, 2021.

On December 7, 2021, we entered into Amendment No.

3 (the “Corre Amendment 3”) to the Subordinated Term Loan Credit Agreement.

The Corre Amendment 3, among other things, (i) extended the payment date for interest in the form of PIK Interest with respect to the Initial Term Loans, (ii) extended the date upon which we must deliver a fully executed ABL Consent and (iii) extended the date upon which we must issue the Corre Warrants to, in each case, 11:59 P.M.

on December 8, 2021.

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The business purpose of each of the Corre Amendments was to further extend the liquidity runway of the Company and support ongoing negotiations of the financing transactions completed on February 11, 2022.

On December 8, 2021, we entered into Amendment No.

4 (the “Corre Amendment 4”) to the Subordinated Term Loan Credit Agreement.

The Corre Amendment 4 appointed Cantor Fitzgerald Securities as successor Agent.

In connection with the transactions contemplated by the ABL Credit Agreement on February 11, 2022, Corre agreed to provide the Company incremental financing (the “Incremental Financing”), totaling $55.0 million, consisting of (i) $35 million Delayed Draw Term Loans;

(ii) $10.0 million from Corre in the form of the February 2022 Delayed Draw Term Loan (as defined in the Subordinated Term Loan Credit Agreement ) on a pari passu basis with the existing loans issued pursuant to the Subordinated Term Loan Credit Agreement;

and (iii) $10.0 million through an issuance of 11,904,762 shares (the “PIPE Shares”) of the our common stock, to Corre Opportunities Qualified Master Fund, LP, Corre Horizon Fund, LP and Corre Horizon II Fund, LP (the “Corre Holders”) at a price of $0.84 per share (the “Equity Issuance”).

In connection with the Incremental Financing and Equity Issuance, on February 11, 2022, we entered into a common stock subscription agreement (the “Subscription Agreement”) with the Corre Holders, pursuant to which we issued and sold the PIPE Shares to the Corre Holders on February 11, 2022.

Pursuant to the Subscription Agreement, subject to certain exceptions, each of the Corre Holders has agreed not to sell its portion of the PIPE Shares until the earliest to occur of (i) the date that is 180 days from the date of the Subscription Agreement, and (ii) such date on which we complete a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of our stockholders having the right to exchange their shares of our common stock for cash, securities or other property, without our consent.

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 the February 2022 Delayed Draw Term Loan in the form of 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 Agreement, (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 contained in the ABL Credit Agreement, the Term Loan Credit Agreement and the Subordinated Term Loan Credit Agreement 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 resulting economic repercussions could have a significant adverse effect on our financial position and business condition, as well as our clients and suppliers.

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 resulting 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.

In order to secure our casualty insurance programs, we are required to post letters of credit generally issued by a bank as collateral.

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We were contingently liable for outstanding stand-by letters of credit totaling $23.5 million at December 31, 2021 and $19.5 million at December 31, 2020.

Outstanding letters of credit reduce amounts available under our ABL Facility and are considered as having been funded for purposes of calculating our financial covenants.

Use of Proceeds and Debt Issuance Costs.

Outstanding letters of credit reduced amounts available under our ABL Facility and are considered as having been funded for purposes of calculating our financial covenants.

Debt Issuance Costs.

Direct and incremental costs associated with the issuance of the Term Loan were approximately $6.5 million and were capitalized as debt issuance costs.

The debt issuance costs and the OID will be amortized using the effective interest method over the term of the Term Loan.

We used a portion of the proceeds from the Term Loan, totaling approximately $128.8 million, to repay all borrowings, including accrued interest, outstanding under our Credit Facility.

The Credit Facility, which was comprised of a revolver and term loan, was retired.

Unamortized costs associated with the Credit Facility were $2.2 million at time of repayment and were expensed as loss on debt extinguishment.

We retired $136.9 million par value of our Notes for $135.5 million, excluding accrued interest, using proceeds from the Term Loan and borrowings under the ABL Facility.

ASC 470 requires that the fair value of consideration transferred at settlement be allocated between the debt component and equity component of the Notes.

To determine the fair value of the debt component of the Notes, we measured the fair value of a similar debt instrument without an associated conversion feature.

The remaining fair value was allocated to the equity component of the Notes.

The amounts allocated to the debt and equity components were in accordance with ASC 470 and ASC 815, Derivatives and Hedging (“ASC 815”).

We determined the fair value of the retired Notes was $121.8 million at extinguishment, with the remaining consideration of $13.7 million allocated to the equity component.

The carrying amount of the retired Notes at extinguishment, net of unamortized discount and debt issuance costs was $124.0 million.

Therefore, in connection with the retirement of the Notes, we recognized a gain on extinguishment of $2.2 million.

Additionally, we incurred approximately $2.6 million in third-party fees in connection with the retirement of the Notes, of which $2.2 million were expensed as loss on debt extinguishment and $0.4 million recorded as equity reacquisition costs.

Direct and incremental costs associated with the Subordinated Term Loan were approximately $14.8 million and were capitalized as debt issuance costs.

The debt issuance costs and the OID will be amortized using the effective interest method over the term of the Term Loan and Subordinated Term Loan.

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Convertible Senior Notes.

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If holders elect to convert the Notes in connection with certain fundamental change transactions described in the indenture governing the Notes, we will, under certain circumstances described in the indenture governing the Notes, increase the conversion rate for the Notes so surrendered for conversion.

We may not redeem the Notes prior to August 5, 2021.

We will have the option to redeem all or any portion of the Notes on or after August 5, 2021, if certain conditions are met (including that our common stock is trading at or above 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption) at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

As per the agreement, we may not redeem the Notes prior to August 5, 2021.

The agreement noted that we will have the option to redeem all or any portion of the Notes on or after August 5, 2021, if certain conditions were met (including that our common stock is trading at or above 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption) at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

Net proceeds received from the Offering were approximately $222.3 million after deducting discounts, commissions and expenses.

Cost Savings and Business Improvement Initiatives.

In the fourth quarter of 2017, we engaged outside consultants to assess all aspects of our business for improvement and cost saving opportunities, including centralizing support/shared services.

In the first quarter of 2018, we completed the design phase of the project, known as OneTEAM, for our domestic operations, and entered into the deployment phase in the second quarter of 2018.

We incurred $3.2 million and $12.3 million of expenses during the twelve months ended December 31, 2020 and 2019, respectively, primarily related to professional fees associated with the OneTEAM project.

Additionally, we incurred $3.4 million and $1.7 million of severance-related costs during the twelve months ended December 31, 2020 and 2019, respectively, related to the elimination of certain employee positions in conjunction with the OneTEAM project.

We expect the program-related expenses to continue through the first quarter of 2021.

In the third quarter of 2019, we began the design phase of OneTEAM for our international operations (“OneTEAM International”) which was deployed in the fourth quarter of 2019.

We incurred various additional expenses associated with the execution of OneTEAM International through 2020 with funding provided by our operating cash flows and lending arrangements.

During the first quarter of 2020, in response to COVID-19 and the decline in oil and gas end markets, we expanded and accelerated the operations and center led pillars from the OneTEAM program in order to implement permanent cost savings and identify further opportunities to optimize our organization (“OneTEAM Tune-Up”).

We achieved OneTEAM and other cost reduction savings of $110 million dollars of savings for the twelve months ended December 31, 2020, up from our previous estimate of $85 million to $95 million of permanent and temporary cost savings.

On January 13, 2022, we entered into a supplemental indenture with Truist Bank, as trustee, (the “Supplemental Indenture”) to the indenture (the “Indenture”) governing the Notes to effect certain amendments (the “Amendments”) to the Indenture and to modify the Notes held by consenting holders (the “Consenting Holders”) of $51,969,000 in aggregate principal amount of the Notes (such modified Notes, the “PIK Securities”).

The Supplemental Indenture amends the Indenture to, among other things:

(i) allow for interest payable on the PIK Securities on February 1, 2022 to be paid in PIK Interest (as defined in the Supplemental Indenture) and on subsequent interest payment dates to be payable, at the Company’s option, at a rate of 5.00% per annum entirely in cash or at a rate of 8.00% per

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annum in PIK Interest;

(ii) provide for additional changes to the Indenture to allow for the payment of PIK Interest and for the PIK Securities to be issued in denominations of $1,000 and integral multiples thereof (or if PIK Interest has been paid with respect to the PIK Securities, in minimum denominations of $1.00 and integral multiples of $1.00 in excess thereof);

(iii) clarify that the unmodified Notes and PIK Securities will be treated as a single series of Notes for all purposes under the Indenture, other than the option of the Company to pay PIK Interest on the PIK Securities;

and (iv) make certain conforming changes, including conforming modifications to certain definitions and cross-references as a result of such amendments.

Notes held by holders other than the Consenting Holders were not modified and interest on such Notes will continue to be paid in cash at a rate of 5.00% per annum as set forth in the Indenture.

Cash and cash equivalents.

Our cash and cash equivalents at December 31, 2020 totaled $24.6 million, of which $18.8 million was in foreign accounts, primarily in the U.K., Europe, Canada and Australia.

Our cash and cash equivalents at December 31, 2021 totaled $65.3 million, of which $4.1 million was restricted for interest due on the Atlantic Park Term Loan.

Additionally, $23.8 million of the $65.3 million of cash and cash equivalents was in foreign accounts, primarily in the Europe, Canada and Australia including $4.0 million of cash located in countries where currency restrictions exist.

Cash flows attributable to our operating activities.

For the year ended December 31, 2021, net cash used in operating activities was $35.5 million.

Although we incurred a net loss of $186.0 million, the goodwill impairment of $64.6 million, the effect of depreciation and amortization of $41.5 million, a decrease in working capital of $18.8 million, non-cash compensation cost of $7.0 million, amortization of debt issuance costs and debt discount of $13.8 million and deferred income taxes of $4.5 million primarily due to net tax refunds, resulted in negative operating cash flow.

For the year ended December 31, 2020, net cash provided by operating activities was $52.8 million.

Although we incurred a net loss of $237.2 million, the goodwill impairment of $191.8 million, the effect of depreciation and amortization of $45.9 million, a decrease in working capital of $37.3 million, non-cash compensation cost of $6.3 million, amortization of debt issuance costs and debt discount of $8.8 million and deferred income taxes of $4.0 million primarily due to net tax refunds, resulted in positive operating cash flow.

For the year ended December 31, 2019, net cash used in operating activities was $58.8 million.

For the year ended December 31, 2019, net cash provided by operating activities was $58.8 million.

Although we incurred a net loss of $32.4 million, the effect of depreciation and amortization of $49.1 million, a decrease in working capital of $25.0 million, non-cash compensation cost of $10.1 million, amortization of debt issuance costs and debt discount of $7.7 million and deferred income taxes of $3.8 million primarily due to net tax refunds, resulted in positive operating cash flow.

For the year ended December 31, 2018, net cash used in operating activities was $41.9 million.

Although we incurred a net loss of $63.1 million, the effect of depreciation and amortization of $64.9 million, a non-cash loss on our convertible debt embedded derivative of $24.8 million, a decrease in working capital of $19.0 million, non-cash compensation cost of $12.3 million and a provision for credit losses of $11.7 million, partially offset by deferred tax benefits of $31.7 million, resulted in positive operating cash flow.

Cash flows attributable to our investing activities.

As a response to the COVID-19 pandemic, oil and gas industry outlook, and in order to preserve liquidity, at this time we are limiting capital spending to critical client projects that offer the highest rate of return.

For the year ended December 31, 2021, net cash used in investing activities was $14.1 million, consisting primarily of $17.6 million of capital expenditures.

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Cash flows attributable to our financing activities.

For the year ended December 31, 2020, net cash used in financing activities was $23.5 million, consisting primarily of $126.6 million net debt repayments under the Credit Facility, $135.5

million for partial extinguishment of convertible debt, $35.0 million of payments under the ABL facility, $9.1 million of term loan debt issuance costs, $2.4 million of debt extinguishment costs, and $1.0 million in withholding tax payments related to share-based compensation, partially offset by net borrowings on our Term Loan of $242.5 million and net borrowings on our ABL Credit Facility of $44.0 million.

For the year ended December 31, 2021, net cash provided by in financing activities was $91.9 million, consisting primarily of $137.0 million of payments under the ABL Facility, $10.5 million of term loan debt issuance costs, and $0.2 million in withholding tax payments related to share-based compensation, partially offset by gross borrowings on our ABL Facility of $128.0 million and borrowings of $50.0 million under the Subordinated Term Loan.

For the year ended December 31, 2020, net cash used in financing activities was $23.5 million, consisting primarily of $126.6 million net debt repayments under the Credit Facility, $135.5 million for partial extinguishment of convertible debt, $35.0 million of payments under the ABL Facility, $9.1 million of term loan debt issuance costs, $2.4 million of debt extinguishment costs, and $1.0 million in withholding tax payments related to share-based compensation, partially offset by net borrowings on our Term Loan of $242.5 million and net borrowings on our ABL Facility of $44.0 million.

For the year ended December 31, 2019, net cash used in financing activities was $36.8 million, consisting primarily of $82.4 million net debt repayments under the revolving portion of our Credit Facility, $1.9 million in withholding tax payments related to share-based compensation, $0.4 million in contingent consideration payments and $1.5 million of Credit Facility debt issuance costs, partially offset by net borrowings on our Credit Facility term loan of $49.7 million.

For the year ended December 31, 2018, net cash used in financing activities was $23.0 million, consisting primarily of $19.7 million net debt repayments under the revolving portion of our Credit Facility, $1.4 million in withholding tax payments related to share-based compensation, $1.1 million in contingent consideration payments and $0.9 million of Credit Facility debt issuance costs.

Effect of exchange rate changes on cash.

For the year ended December 31, 2020, the effect of foreign exchange rate changes on cash was a positive impact of $1.4 million.

The positive impact in the current year is primarily attributable to favorable fluctuations in U.S.

For the year ended December 31, 2021, the effect of foreign exchange rate changes on cash was a negative impact of $1.6 million.

The negative impact in the current year is primarily attributable to unfavorable fluctuations in U.S.

Dollar exchange rates with the Canadian Dollar, the Euro, the British Pound the Australian Dollar and Mexican Peso.

For the years ended December 31, 2019 and 2018, the effect of foreign exchange rate changes on cash was a negative impact of $43.0 thousand and $2.1 million, respectively.

The negative impact in both periods is primarily attributable to unfavorable fluctuations in U.S.

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For the years ended December 31, 2020 and 2019, the effect of foreign exchange rate changes on cash was a positive impact of $1.4 million and negative impact of $43.0 thousand, respectively.

The positive impact in the 2020 is primarily attributable to unfavorable fluctuations in U.S.

Dollar exchange rates with the Canadian Dollar, the Euro, the British Pound the Australian Dollar and Mexican Peso.

The impact in 2019 periods is primarily attributable to fluctuations in U.S.

Dollar exchange rates with the Canadian Dollar, Australian Dollar, the British Pound, the Euro and the Brazilian Real.

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Critical Accounting Policies

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The quantitative test involves comparing the fair value of each of our reporting units with its carrying amount, including goodwill.

During the first quarter of 2020, our assessment of qualitative indicators associated with our interim goodwill impairment test indicated an impairment existed as the carrying value of the IHT reporting unit exceeded its fair value.

During the third and fourth quarter of 2021, our assessment of qualitative indicators associated with our interim and annual goodwill impairment tests indicated an impairment existed as the carrying value of the MS and Quest Integrity reporting units, respectively, exceeded its fair value.

See Note 8 in the notes to consolidated financial statements for further details.

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If we determine that we would be unable to realize our deferred tax assets, we would make an adjustment to the deferred tax asset valuation allowance.

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We establish reserves for uncertain tax positions when it is not more likely than not that the position will be sustained upon challenge.

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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 7. Management’s Discussion and Analysis