What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-11 compared with 2021-11-12 · 382 added, 335 removed, 195 unchanged (79% of the section changed)

1 unchanged sentence

Unless otherwise indicated, the terms “Team, Inc.,” “Team,” “we,” “our” and “us” are used in this report to refer to Team, Inc., to one or more of its consolidated subsidiaries or to all of them taken as a whole.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this report, and the consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Critical Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2020 (“the 2020 Form 10-K”).

Cautionary Note Regarding Forward-Looking Statements.

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There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this report.

Important factors that could cause our actual results to differ materially from those expressed as forward-looking statements are set forth in the 2020 Form 10-K in Part I, Item 1A under the heading “Risk Factors,” and in our subsequently filed Quarterly Reports on Form 10-Q.

Such risks, uncertainties and other important factors include, among others, risks related to:

• our ability to continue as a going concern;

• our ability to manage inflationary pressures in our operating costs;

• the impact to our business, financial condition, results of operations and cash flows due to negative market conditions, including from the impact of the COVID-19 pandemic, and future economic uncertainties, particularly in industries in which we are heavily dependent;

• delays in the commencement of major projects, loss of employees, supply availability, pricing pressures, cost overruns on our projects and the timing of new client contracts and termination of existing contracts may result in unpredictable fluctuations in our cash flows and financial results;

• our business may be affected by seasonal and other variations, including severe weather conditions and the nature of our clients’ industry;

• our ability to expand into new markets (including low carbon energy transition) and attract clients in new industries may be limited due to our competitions breadth of service offerings and intellectual property;

• delays in the commencement of major projects, whether due to the COVID-19 pandemic or other factors;

• our business may be affected by seasonal and other variations, including severe weather conditions and the nature of our client s’ industry;

• our ability to expand into new markets (including low carbon energy transition) and attract clients in new industries may be limited due to our competition’s breadth of service offerings and intellectual property;

• we have significant debt and high leverage which could have a negative impact on our financing options, liquidity position and ability to manage increases in interest rates;

• the timing of new client contracts and termination of existing contracts may result in unpredictable fluctuations in our cash flows and financial results;

• risk of non-payment and/or delays in payment of receivables from our clients;

• our ability to generate sufficient cash from operations for working capital and liquidity needs, access our ABL Facility, or maintain our compliance with our ABL Facility and Term Loan covenants;

• environmental, health and safety regulations, including those related to climate change and emission of “greenhouse gases” that impact the demand for our services and products;

• our ability to generate sufficient cash from operations, access our ABL Credit Facility (defined below), or maintain our compliance with our ABL Credit Agreement (defined below), Term Loan Credit Agreement (defined below), and Subordinated Term Loan Credit Agreement (defined below) covenants;

• compliance with continued listing standards of the New York Stock Exchange;

• our financial forecasts are based upon estimates and assumptions that may materially differ from actual results;

• we may incur liabilities and suffer negative financial or reputational impacts relating to occupational health and safety matters, including costs incurred in connection with the implementation of preventative measures required in regard to mitigation of the spread of COVID-19;

• changes in laws or regulations in the local jurisdictions that we conduct our business;

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

• our ability to forecast our liquidity needs, future operating results, including our ability to predict revenue and expense levels, and plan for and model future operating results;

• the loss of employees and its impact on the control environment;

• the inherently uncertain outcome of current and future litigation;

• if we fail to maintain effective internal controls, we may not be able to report our financial results accurately or timely or prevent or detect fraud, which could have a material adverse effect on our business;

• acts of terrorism, war or political or civil unrest in the United States or elsewhere, including the current events involving Russia and Ukraine, changes in laws and regulations, or the imposition of economic or trade sanctions affecting international commercial transactions

General Description of Business

We are a global leading provider of integrated, digitally-enabled asset performance assurance and optimization solutions.

We deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability and operational efficiency for our client’s most critical assets.

We conduct operations in three segments:

Inspection and Heat Treating (“IHT”), Mechanical Services (“MS”) and Quest Integrity.

Through the capabilities and resources in these three segments, we believe that Team is uniquely qualified to provide integrated solutions involving in their most basic form:

Through the capabilities and resources in these three segments, we believe that Team we are uniquely qualified to provide integrated solutions involving:

inspection to assess condition;

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In addition, we are capable of escalating with the client’s needs, as dictated by the severity of the damage found and the related operating conditions, from standard services to some of the most advanced services and integrated asset integrity and reliability management solutions available in the industry.

We also believe that Team is unique in its ability to provide services in three distinct client demand profiles:

We also believe that we are unique in our ability to provide services in three distinct client demand profiles:

(i) turnaround or project services, (ii) call-out services and (iii) nested or run-and-maintain services.

IHT provides integrity management and performance solutions, conventional and advanced non-destructive testing (“NDT”) services, heat treating and thermal services, tank management solutions, and pipeline integrity solutions, as well as associated engineering and condition assessment services.

IHT provides conventional and advanced non-destructive testing (“NDT”) services primarily for the process, pipeline and power sectors, pipeline integrity management services, and field heat treating and thermal services, tank management solutions, and pipeline integrity solutions, as well as associated engineering and condition assessment services.

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

MS provides machining, bolting, and vapor barrier weld testing services, hot tap and line intervention services, valve management solutions, and emission control services primarily as call-out and turnaround services under both on-stream and off-line/shut down circumstances.

On-stream services offered by MS represent the services offered while plants are operating and under pressure.

Turnaround services are project-related and demand is a function of the number and scope of scheduled and unscheduled facility turnarounds as well as new industrial facility 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.

Our onstream services include our range of standard to custom-engineered leak repair and composite solutions;

emissions control and compliance;

hot tapping and line stopping;

and on-line valve insertion solutions, which are delivered while assets are in an operational condition, which maximizes client production time.

Asset shutdowns can be planned, such as a turnaround maintenance event, or unplanned, such as those due to component failure or equipment breakdowns.

Our specialty maintenance, turnaround and outage services are designed to minimize client downtime and are primarily delivered while assets are off-line and often through the use of cross-certified technicians, whose multi-craft capabilities deliver the production needed to achieve tight time schedules.

These critical services include on-site field machining;

bolted-joint integrity;

vapor barrier plug testing;

and valve management solutions.

Quest Integrity provides integrity and reliability management solutions for the process, pipeline and power sectors.

These solutions encompass three broadly-defined disciplines including highly specialized in-line inspection services for historically unpiggable process piping and pipelines using proprietary in-line inspection tools and analytical software;

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

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

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

• Energy (refining, power, and nuclear);

• Energy Transition (liquefied natural gas, hydrogen, carbon capture & sequestration, biofuels, and renewable power);

These solutions encompass two broadly-defined disciplines:

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

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:

• Energy (refining, power, renewables, nuclear and liquefied natural gas);

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

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

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

• Public Infrastructure (amusement parks, bridges, ports, construction and building, roads, dams and railways);

• Aerospace and Defense.

Certain service lines can also support our clients in mitigating key environmental performance, social impact, and governance issues.

We believe our ability to apply appropriate technology based on identified risks allows our clients to recognize issues quickly, mitigate their impact, and manage costs effectively.

We further believe our professional teams of experienced engineers and technicians support each client with the best on the job safety and service training, equipment and technical support in the industry.

In January 2021, we announced a new strategic organizational structure (the “Operating Group Reorganization”).

In January 2021, we announced a strategic reorganization (the “Operating Group Reorganization”).

The new streamlined structure supports our global operations with greater focus on further improving operational and financial performance through three new operating groups:

Inspection and Heat Treating Group (the “IHT Group”), Mechanical & Onstream Services group (the “MOS Group”) and Asset Integrity & Digital (the “AID Group”).

The IHT Group, which includes the IHT segment, is dedicated to growing its stable nested footprint as regulatory compliance requirements increase, expanding turnaround activity, and diversifying its end markets globally, such as through increased investment in the Aerospace business line.

The MOS Group, which includes the MS segment, continues to target turnarounds and capital projects, and improve performance, efficiency, and longevity of aging critical assets.

We believe that the MOS Group is primed to grow with the industry recovery led by the high demand of maintenance and call-out work.

The AID Group, which includes the Quest Integrity segment, will focus on expanding mechanical and pipeline integrity, risk-based inspection, remote visual inspection,

and digital platform.

The IHT Group, which included in the IHT segment, is dedicated to growing its stable nested footprint as regulatory compliance requirements increase, expanding turnaround activity, and diversifying its end markets globally, such as through increased investment in the Aerospace business line.

The MOS Group, which is included the MS segment, continues to target turnarounds and capital projects, and improve performance, efficiency, and longevity of aging critical assets.

The MOS Group is primed to grow with the industry recovery led by the high demand of maintenance and call-out work.

The AID Group, which is included in our Quest Integrity segment, will focus on expanding mechanical and pipeline integrity, risk-based inspection, remote visual inspection, and digital platform.

The AID Group will also optimize our research and development activities, including product and technology development.

These changes had no effect on our reportable segments.

Significant Factors Impacting Results and Recent Developments

Our revenues, gross margins and other results of operations can be influenced by a variety of factors in any given period, including those described in Cautionary Note Regarding Forward-Looking Statements above and Part 1, Item 1A of our Annual Report on Form 10-K.

“Risk Factors” included in our Annual Report on Form 10-K include items which have caused fluctuations in our results in the past and are expected to cause fluctuations in our results in the future.

See Note 1 to our unaudited condensed consolidated financial statements and the notes thereto included in this report for a description of our Recent Financing Transactions.

Ongoing Effects of COVID

The impact of COVID and, more recently the Delta variant of the COVID 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.

Additional information with respect to certain factors are described below.

COVID-19 Pandemic and Market Conditions Update.

The impact of COVID-19 and variants of the COVID-19 virus had less effect on our workforce and operations during the first quarter of 2022, as well as the operations of our clients, suppliers and contractors.

The proliferation and acceptance of COVID-19 vaccines, and the level of social and economic restrictions lifted in the United States and abroad has improved market conditions.

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

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

The extent of COVID’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 variants and the continued rollout and acceptance of COVID 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 September 30, 2021, we have deferred employer payroll taxes of $14.2 million with half of the deferral due in each of 2021 and 2022.

As of March 31, 2022, we have deferred employer payroll taxes of $7.1 million.

As of December 31, 2021 we had $14.1 million outstanding and we paid $7.0 million of the deferred payroll taxes in January 2022, the remaining balance of $7.1 million is 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.

We elected to treat qualified government subsidies from Canada and other governments as offsets to the related expenses.

As a result, we recognized $1.8 million and $0.3 million during the three months ended September 30, 2021 and $5.6 million and $1.0 million during the nine months ended September 30, 2021 as a reduction to operating expenses and selling, general and administrative expenses, respectively, compared to $3.8 million and $1.0 million as a reduction to operating expenses and selling, general and administrative expenses, respectively for the three months ended September 30, 2020 and $7.6 million and $1.9 million as a reduction to operating expenses and selling, general and administrative expenses, respectively for the nine months ended September 30, 2020.

As of September 30, 2021, we also deferred certain payroll related expenses and tax payments of $4.4 million under other foreign government programs which will be due in 2021 and 2022.

We recognized $0.6 million and $0.1 million as a reduction to operating expenses and selling, general and administrative expenses, respectively during the three months ended March 31, 2022 and $2.0 million and $0.4 million as a reduction for operating expenses and selling, general and administrative expenses, respectively, during the three months ended March 31, 2021.

Recent Financing Transactions.

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

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

The ABL Credit Facility matures and all outstanding amounts become due and payable on February 11, 2025.

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

On May 6, 2022, we entered into Amendment No.

1 (the “ABL Credit Agreement Amendment No.

1”) to the ABL Credit Agreement.

The ABL Credit Agreement Amendment No.

1, among other things, modifies the Maturity Reserve Trigger Date (as defined in the ABL Credit Agreement) such that the date on which a reserve must, subject to certain conditions, be put into place with respect to the outstanding principal amount of 5.00% Convertible Senior Notes due 2023 (the “Notes”) is 75 days prior to their maturity date, instead of 120 days prior to their maturity date.

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

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

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

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

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

Interest under the ABL Credit Facility is payable monthly.

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

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

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

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

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

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

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

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

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

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

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

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

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) permitted the entry into the ABL Credit Agreement, (ii) permitted 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) amended 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 such unfinanced capital expenditures limitation 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.

On May 6, 2022, we entered into Amendment No.

7 (the “Seventh Amendment”) to the Term Loan Credit Agreement.

The Seventh Amendment, among other things and subject to the terms thereof, (i) modifies the Maturity Trigger Date (as defined in the Term Loan Credit Agreement) such that the date on which the maturity of the Term Loan Credit Agreement is triggered as a result of there being an aggregate principal amount of more than $10.0 million outstanding under the Notes is 75 days prior to their maturity date instead of 120 days prior to their maturity date, and (ii) amends the financial covenants, such that the maximum net leverage ratio to be tested for the fiscal quarter ending March 31, 2023 will be increased from 7.00 to 1.00 to 12.00 to 1.00.

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

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

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

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

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

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

The Corre Amendment 5, among other things, (i) provided for an additional commitment of $10.0 million in subordinated delayed draw term loans to be available for borrowing by the Company until July 1, 2022, (ii) permitted the entry into the ABL Credit Facility, (iii) permitted certain asset sales and requires certain related mandatory prepayments, subject to an applicable prepayment premium, and (iv) amended 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;

On May 6, 2022, we entered into Amendment No.

6 (the “Corre Amendment No.

6”) 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 No.

6, among other things, amends the financial covenants, such that the maximum net leverage ratio to be tested for the fiscal quarter ending March 31, 2023 will be increased from 7.00 to 1.00 to 12.00 to 1.00.

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 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.

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

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

If we are unable to generate sufficient cash flows from our operations, we may be unable to pay interest and principal obligations on our debt when they become due.

Failure to comply with these obligations or failure to comply with the financial covenants discussed above could result in an event of default, which would permit our lenders to accelerate the repayment of the debt.

If our lenders accelerate the repayment of debt, there is no assurance that we could refinance such debt on terms favorable to us or at all.

Our ABL Credit Facility and Term Loan bear interest at variable market rates.

If market interest rates increase, our interest expense and cash flows could be adversely impacted.

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

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

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

Team Regains Compliance with NYSE Continue Listings Standards.

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

On April 1, 2022, we were notified by the NYSE that we have regained compliance with the NYSE continued listing standard.

Accordingly, the ".bc" indicator following the Company's symbol "TISI" was subsequently removed by the NYSE.

Results of Operations

The following is a comparison of our results of operations for the three months ended September 30, 2021 compared to September 30, 2020.

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

The components of revenue and operating income (loss) from our operations consisted of the following (in thousands):

Three Months Ended September 30, Increase

The following is a comparison of our results of operations for the three months ended March 31, 2022 compared to March 31, 2021.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The following table sets forth the components of revenue and operating loss from our operations for the period ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31, Increase

2022 2021 $ %

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Operating income (loss):

IHT $ 3,065 $ 7,720 $ (4,655) (60.3) %

MS (53,242) 9,581 (62,823) (655.7) %

Quest Integrity 1,702 3,006 (1,304) (43.4) %

IHT $ 134 $ 364 $ (230) NM

MS 513 115 398 NM

Quest Integrity 6,204 (252) 6,456 NM

Corporate and shared support services (23,054) (24,527) 1,473 6.0 %

Total operating income (loss) $ (70,526) $ 2,297 $ (72,823) (3,170.4) %

Total operating loss $ (16,203) $ (24,300) $ 8,097 33.3 %

Interest expense, net (18,605) (9,396) (9,209) 98.0 %

Other expense, net (1,760) (655) (1,105) (168.7) %

Other income (expense), net 2,702 (950) 3,652 NM

Loss before income taxes $ (32,106) $ (34,646) $ 2,540 7.3 %

Provision for income taxes (8,922) (2,958) (5,964) (201.6) %

(Provision) benefit for income taxes (356) 355 (711) NM

Net loss $ (32,462) $ (34,291) $ 1,829 5.3 %

Total revenues decreased $1.7 million or 0.8% from the prior year quarter.

Excluding the favorable impact of $3.3 million due to foreign currency exchange rate changes, total revenues decreased by $5.0 million, IHT revenues increased by $3.7 million offset by decreases in MS revenue of $7.1 million and Quest Integrity revenue of $1.6 million after excluding foreign currency exchange rate changes.

The increased revenue for IHT was due to an increase in nested technicians and from increased economic activity in the U.S.

and select international markets as economies eased COVID-related shutdowns.

Additionally, revenue was positively impacted by several large turnaround projects that were completed during the quarter.

Revenue growth this quarter was negatively impacted by Hurricane Ida which caused significant disruptions before and after making landfall in late August, resulting in wind and water damage as well as knocking out electricity to many areas along the Gulf Coast.

The impact of the hurricane caused at least ten refineries and numerous petrochemical plants to significantly reduce run rates or temporarily shut down, resulting in project delays and lowering technician activity levels.

NM = Not meaningful

Total revenues increased $24.0 million or 12.3% from the prior year quarter.

IHT revenues increased by $4.5 million, MS revenue increased by $6.0 million and Quest Integrity revenue increased by $13.5 million.

IHT segment’s first quarter revenue grew 4.9% more than the prior year quarter, primarily driven by higher domestic activity levels in the Western U.S.

and increases in Canadian turnarounds.

Our capital project activity increased in March 2022 as our clients began to return to a more stable operating environment.

The MS segment delivered first quarter revenue growth of 6.9% over the prior year quarter, primarily from increases in Canadian call-outs as well as higher activity levels in Latin America.

The increased revenue for Quest Integrity was due to approximately $6 million of projects deferred by customers in 2021 that were executed in the period ending March 31, 2022, including subsea projects in Africa and increased activity for multiple areas in the U.S.

Operating income (loss).

Overall operating loss was $70.5 million in the current year quarter compared to operating income of $2.3 million in the prior year quarter.

The overall increase in operating loss is primarily attributable to MS, which experienced a decrease in operating income of $62.8 million primarily due to the goodwill impairment.

IHT experienced a decrease of $4.7 million due to inflationary costs pressures associated with the increased economic activity.

We continue to realize cost inflation in several areas, such as raw materials, transportation, and labor costs.

Additionally, Quest Integrity realized a decrease in operating income of $1.3 million and corporate and shared services expenses increased by $4.0 million primarily driven by an increase in legal costs, bad debts expense and other costs associated with reinstatement of the prior year temporary cost actions during the quarter.

For the three months ended September 30, 2021, operating loss includes net expenses totaling $60.3 million that we do not believe are indicative of our core operating activities, the prior year quarter included $3.3 million of such items, as detailed by segment in the table below (in thousands):

Overall operating loss was $16.2 million in the current year quarter compared to operating loss of $24.3 million in the prior year quarter.

The overall decrease in operating loss is primarily attributable to Quest Integrity, which experienced an increase in operating income of $6.5 million due to return in demand by clients across all regions and end markets as well as the widespread relaxation of pandemic-related international travel requirements.

IHT experienced a decrease of $0.2 million in operating income due to inflationary costs pressures associated with the increased economic activity and the absence of temporary cost containment actions.

MS continued to focus on enhancing margins and capturing market share in its product and service lines.

Corporate operating loss improved due to the credit in non cash compensation, partially off set by the increase in professional fees.

Additionally, we continue to realize cost inflation in several areas across all segments, such as raw materials, transportation, and labor costs.

For the three months ended March 31, 2022, operating loss includes net expenses totaling $7.2 million that we do not believe are indicative of our core operating activities, the prior year quarter included $5.7 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):

IHT MS Quest Integrity Corporate and shared support services Total

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

Professional fees and other 1

4 unchanged sentences

16 — — 1,334 1,350

Goodwill impairment charge — 55,837 — — 55,837

Total $ 16 $ — $ — $ 7,206 $ 7,222

Three Months Ended September 30, 2020

Three Months Ended March 31, 2021

Professional fees and other 1

4 unchanged sentences

475 139 209 1,224 2,047

Natural disaster costs 4

21 479 — — 500

Total $ 475 $ 139 $ 209 $ 4,845 $ 5,668

_________________

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

For the three months ended September 30, 2021, includes $0.2 million of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

For the three months ended September 30, 2020, includes $0.6 million of costs associated with the OneTEAM program (exclusive of restructuring costs).

2 For the three months ended September 30, 2021, primarily relates to accrued legal matters and other legal fees.

For September 30, 2020, primarily relates to costs associated with international legal and internal control review matters.

3 For the three months ended September 30, 2021, includes $0.5 million primarily related to the Operating Group Reorganization.

For September 30, 2020, $0.3 million of severance charges associated with the OneTEAM program, including international restructuring under the OneTEAM program and $1.3 million of other severance charges due to the impact of COVID-19.

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

1 For the three months ended March 31, 2022, includes $4.7 million related to costs associated with the debt financing and $0.6 million of corporate support costs.

For the three months ended March 31, 2021, includes $0.8 million of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

2 For the three months ended March 31, 2022, primarily relates to accrued legal matters and legal fees associated with the debt financing.

For March 31, 2021, primarily relates to accrued legal matters and other legal fees.

3 For the three months ended March 31, 2022, $1.3 million primarily related to customary severance costs associated with executive departures.

For the three months ended March 31, 2021, includes $1.9 million related to the Operating Group Reorganization and $0.2 million associated with other severances.

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

Three Months Ended

September 30, Increase

2021 2020 $ %

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

IHT $ 3,155 $ 7,829 $ (4,674) (59.7) %

MS 2,734 11,386 (8,652) (76.0) %

Quest Integrity 1,725 3,192 (1,467) (46.0) %

Corporate and shared support services (17,838) (16,816) (1,022) (6.1) %

Total operating income (loss), excluding non-core expenses $ (10,224) $ 5,591 $ (15,815) (282.9) %

Excluding the impact of these identified non-core items in both periods, operating loss increased by $15.8 million, consisting of lower operating income in MS, IHT, and Quest of $8.7 million, $4.7 million, and $1.5 million, respectively, and an increase in corporate and shared support services expenses of $1.0 million.

The lower operating income in MS is due to

project delays, the negative impact of Hurricane Ida, and an increase in inflationary cost pressures associated with the ramp up in economic activity.

Interest expense, net.

Interest expense, net increased $2.2 million, or 28.6%, from the prior year quarter primarily due to higher borrowing costs on our ABL Facility and Term Loan, which were entered into in December 2020, partially offset by lower average long-term debt balances outstanding.

Other expense, net .

Other expense, net increased $1.1 million from the prior year quarter primarily due to foreign currency transaction losses.

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

Dollar relative to the currencies to which we have exposure.

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

Income tax expense was $8.9 million on the pre-tax loss of $82.3 million in the current year quarter compared to an expense of $3.0 million on the pre-tax loss of $6.1 million in the prior year quarter.

The effective tax rate, inclusive of discrete items, was 10.9% for the three months ended September 30, 2021, compared to a provision of 48.4% for the three months ended September 30, 2020.

The effective tax rate change from the prior year quarter compared to the current year quarter is due to a significant portion of the income tax losses being offset by valuation allowances and the correlation in the prior year of domestic and foreign income and losses.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

The following is a comparison of our results of operations for the nine months ended September 30, 2021 compared to September 30, 2020.

The components of revenue and operating income (loss) from our operations consisted of the following (in thousands):

Nine Months Ended September 30, Increase

2021 2020 $ %

(unaudited) (unaudited)

Revenues by business segment:

IHT $ 310,077 $ 284,992 $ 25,085 8.8 %

MS 280,966 299,077 (18,111) (6.1) %

Quest Integrity 59,858 61,167 (1,309) (2.1) %

Total revenues $ 650,901 $ 645,236 $ 5,665 0.9 %

Operating income (loss):

IHT $ 10,824 $ (179,690) $ 190,514 106.0 %

MS (50,799) 20,502 (71,301) (347.8) %

Quest Integrity 7,152 9,801 (2,649) (27.0) %

Corporate and shared support services (67,997) (65,614) (2,383) (3.6) %

Total operating loss $ (100,820) $ (215,001) $ 114,181 53.1 %

Interest expense, net (28,968) (21,847) (7,121) (32.6) %

Other expense, net (3,754) (1,292) (2,462) (190.6) %

Loss before income taxes $ (133,542) $ (238,140) $ 104,598 43.9 %

(Provision) Benefit for income taxes (9,424) 15,812 (25,236) (159.6) %

Net loss $ (142,966) $ (222,328) $ 79,362 35.7 %

Total revenues increased $5.7 million or 0.9% from the prior year period.

Excluding the favorable impact of $15.2 million due to foreign currency exchange rate changes, total revenues decreased by $9.6 million, IHT revenues increased by $19.9 million offset by decreases in MS revenue of $26.3 million and Quest Integrity revenues of $3.1 million.

in revenues in IHT is due to higher activity levels as a result of the increased economic activity during the quarter.

The decrease in revenue for MS was primarily due to lingering COVID price-related concessions which largely rolled off at the end of the quarter along with large project deferrals.

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 quarter.

Operating loss.

Overall operating loss was $100.8 million in the current year period compared to an operating loss of $215.0 million in the prior year period.

The overall decrease in operating loss is attributable to IHT, which experienced an increase in operating income of $190.5 million due to a non-cash goodwill impairment charge recorded during the first quarter of 2020, arising from the impacts of COVID.

Additionally, operating loss for the period was impacted by an increase in corporate and shared services expenses of $2.4 million along with decreases in operating income in MS and Quest Integrity of $71.3 million and $2.6 million, respectively.

For the nine months ended September 30, 2021, operating loss includes net expenses totaling $68.6 million that we do not believe are indicative of our core operating activities, while the prior year period included $203.2 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):

IHT MS Quest Integrity Corporate and shared support services Total

Nine Months Ended September 30, 2021

Professional fees and other 1

$ — $ — $ — $ 3,107 $ 3,107

Legal costs 2

— — — 6,845 6,845

Severance charges, net 3

575 494 274 1,461 2,804

Goodwill impairment charge — 55,837 — — 55,837

Total $ 575 $ 56,331 $ 274 $ 11,413 $ 68,593

Nine Months Ended September 30, 2020

Professional fees and other 1

$ — $ — $ — $ 3,986 $ 3,986

Legal costs 2

— — — 1,926 1,926

Severance charges, net 3

1,126 2,993 326 556 5,001

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

Natural disaster costs 4

21 479 — — 500

Total $ 192,935 $ 3,472 $ 326 $ 6,468 $ 203,201

_________________

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

For the nine months ended September 30, 2021, includes $1.7 million of costs associated with the Operating Group Reorganization (exclusive of restructuring costs) and $0.3 million of costs associated with the OneTEAM program (exclusive of restructuring costs).

For the nine months ended September 30, 2020, includes $2.6 million of costs associated with the OneTEAM program (exclusive of restructuring costs).

2 For the nine months ended September 30, 2021, primarily relates to accrued legal matters and other legal fees.

For September 30, 2020, primarily relates to costs associated with international legal and internal control review matters.

3 For the nine months ended September 30, 2021, includes $2.6 million related to the Operating Group Reorganization and $0.2 million associated with other severances.

For September 30, 2020, $3.4 million of severance charges associated with the OneTEAM program, including international restructuring under the OneTEAM program and $1.6 million of other severance charges due to the impact of COVID.

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 follows (unaudited) (in thousands):

Nine Months Ended

September 30, Increase

March 31, Increase

2022 2021 $ %

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

IHT $ 11,399 $ 13,245 $ (1,846) (13.9) %

MS 5,532 23,974 (18,442) (76.9) %

Quest Integrity 7,426 10,127 (2,701) (26.7) %

IHT $ 150 $ 839 $ (689) NM

MS 513 254 259 NM

Quest Integrity 6,204 (43) 6,247 NM

Corporate and shared support services (15,848) (19,682) 3,834 19.5 %

Total operating loss, excluding non-core expenses $ (8,981) $ (18,632) $ 9,651 51.8 %

Excluding the impact of these identified non-core items in both periods, operating loss increased by $20.4 million, consisting of lower operating income in IHT, MS and Quest Integrity of $1.8 million, $18.4 million and $2.7 million,

respectively, offset by a decrease in corporate and shared support services expenses of $2.6 million.

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

The operating loss increase in MS was largely attributable to lingering COVID-related price concessions which largely rolled off at the end of the second quarter and additional large project deferrals combined with a tough comparable 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 associated with the ramp up in economic activity.

NM - Not Meaningful

Excluding the impact of these identified non-core items in both periods, operating loss decreased by $9.7 million, consisting of lower operating income at IHT of $0.7 million, higher operating income at MS and Quest Integrity of $0.3 million and $6.2 million respectively and a decrease in corporate and shared support services expenses of $3.8 million.

The lower operating income in IHT is due to project delays, and increases in inflationary cost pressures associated with the ramp up in economic activity.

Interest expense, net.

Interest expense, net increased $7.1 million, or 32.6%, from the prior year period primarily due to higher borrowing costs on our ABL Facility and Term Loan, which were entered into in December 2020, partially offset by lower average long-term debt balances outstanding.

Other expense, net .

Other expense, net increased $2.5 million from the prior year period primarily due to foreign currency transaction losses.

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

Dollar relative to the currencies to which we have exposure.

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

Income tax expense was $9.4 million on the pre-tax loss of $133.5 million in the current year-to-date compared to a benefit of $15.8 million on the pre-tax loss of $238.1 million in the prior year-to-date.

The effective tax rate was a provision of 7.1% for the nine months ended September 30, 2021, compared to a benefit of 6.6% for the nine months ended September 30, 2020.

The effective tax rate was a provision for the nine months ended September 30, 2021 versus a benefit for the nine months ended September 30, 2020 due to a significant portion of the income tax losses being offset by valuation allowances.

Interest expense increased $9.2 million, or 98.0% compared to the prior year quarter, primarily due to the increased outstanding debt amounts, from the new debt instruments executed in the period ended March 31, 2022.

Additionally, due to the debt extinguishment of the Citi ABL Facility on February 11, 2022, during the three months ended March 31, 2022, the Company recognized in interest expense $2.7 million of financing costs previously capitalized.

Other income (expense), net.

Other income, net increased $3.7 million from the prior year quarter expense of $1.0 million to a gain of $2.7 million primarily on the sale of equipment and inventory, which was completed on March 7, 2022 with Superior Plant Rentals (“SPR”) for $3.0 million in cash.

The provision for income tax was $0.4 million on the pre-tax loss from continuing operations of $32.1 million in the current year quarter, compared to a $0.4 million income tax benefit on a pre-tax loss of $34.6 million in the prior year quarter.

The effective tax rate, inclusive of discrete items, was a provision of 1.1% for the three months ended March 31, 2022,

compared to a benefit of 1.0% for the three months ended March 31, 2021.

The effective tax rate change from the prior year quarter compared to the current year quarter is due to tax losses being offset by valuation allowances.

Non-GAAP Financial Measures and Reconciliations

4 unchanged sentences

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, 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 that we believe are not indicative of core operating activities.

costs associated with our our past integration and transformation 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 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, 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 EBIT is equal to segment operating income (loss) excluding costs associated with our our past integration and transformation 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.

15 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Adjusted Net Income (Loss):

1 unchanged sentence

Professional fees and other 1

1,273 929 3,107 3,986

Legal costs 2

2,736 230 6,845 1,926

Severance charges, net 3

456 1,635 2,804 5,001

Natural disaster costs 4

Goodwill impairment charges 55,837 — 55,837 191,788

Tax impact of adjustments and other net tax items 4

(305) (692) (368) (15,610)

Adjusted net loss $ (25,244) $ (29,813)

Adjusted net loss per common share:

Basic $ (1.01) $ (0.21) $ (2.42) $ (1.14)

Diluted $ (1.01) $ (0.21) $ (2.42) $ (1.14)

Basic and diluted $ (0.67) $ (0.97)

Consolidated Adjusted EBIT and Adjusted EBITDA:

1 unchanged sentence

Provision (benefit) for income taxes 356 (355)

Gain on equipment sale (2,314) $ —

Interest expense, net 18,605 9,396

Foreign currency losses 7

1,933 752 4,274 1,641

Pension credits 6

(173) (129) (520) (381)

Foreign currency (gain) loss 5

Pension credit 6

Professional fees and other 1

1,273 929 3,107 3,986

Legal costs 2

2,736 230 6,845 1,926

Severance charges, net 3

456 1,635 2,804 5,001

Natural disaster costs — 500 500

Goodwill impairment charges 55,837 — 55,837 191,788

Consolidated Adjusted EBIT (8,981) (18,632)

6 unchanged sentences

Free Cash Flow:

Cash (used in) provided by operating activities $ (1,062) $ (7,080) $ (35,861) $ 20,165

Cash used in operating activities $ (50,006) $ (17,183)

Capital expenditures (7,068) (3,413)

1 unchanged sentence

____________________________________

1 For the three and nine months ended September 30, 2021, includes $0.2 million and $1.7 million, respectively, of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

For the three and nine months ended September 30, 2020, includes $0.6 million and $2.6 million, respectively, associated with the OneTEAM program (exclusive of restructuring costs).

2 For the three and nine months ended September 30, 2021, primarily relates to accrued legal matters and other legal fees.

For the three months and nine months ended September 30, 2020, primarily relates to costs associated with international legal matters.

3 For the three months and nine months ended September 30, 2021, $0.5 million and $2.6 million, respectively, associated with the Operating Group Reorganization and other continuing restructuring measures.

For the three and nine months ended September 30, 2020, severance charges are associated with the OneTEAM program, including international operations.

4 Amount represents the insurance deductible for hurricane damage incurred for the three months ended September 30, 2020.

1 For the three months ended March 31, 2022, includes $4.7 million related to costs associated with the debt financing and $0.6 million of corporate support costs.

For the three months ended March 31, 2021, includes $0.8 million of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

2 For the three months ended March 31, 2022, primarily relates to accrued legal matters and legal fees associated with the debt financing.

For March 31, 2021, primarily relates to accrued legal matters and other legal fees.

3 For the three months ended March 31, 2022, $1.3 million primarily related to customary severance costs associated with executive departures.

For the three months ended March 31, 2021, includes $1.9 million related to the Operating Group Reorganization and $0.2 million associated with other severances.

4 Represents the tax effect of the adjustments.

2 unchanged sentences

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

5 Represents foreign currency (gain) in current period primarily due to strengthening USD against EUR, GBP, and AUD.

6 Represents pension credits for the U.K.

1 unchanged sentence

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 losses.

For prior period, includes other nominal fees.

AND SUBSIDIARIES

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Segment Adjusted EBIT and Adjusted EBITDA:

Operating income (loss) $ 3,065 $ 7,720 $ 10,824 $ (179,690)

Operating income $ 134 $ 364

Severance charges, net 1

90 88 575 1,126

Natural disaster costs 2

Goodwill impairment charge — — — 191,788

Adjusted EBIT 150 839

3 unchanged sentences

Severance charges, net 1

139 1,326 494 2,993

Natural disaster costs 2

Goodwill impairment charge 55,837 — 55,837 —

Adjusted EBIT 513 254

2 unchanged sentences

Quest Integrity

Operating income $ 1,702 $ 3,006 $ 7,152 $ 9,801

Operating income (loss) $ 6,204 $ (252)

Severance charges, net 1

23 186 274 326

Adjusted EBIT 6,204 (43)

5 unchanged sentences

Interest expense, net 18,605 9,396

Foreign currency losses 6

1,933 752 4,274 1,641

Foreign currency (gain) losses 2

Pension credit 3

(173) (129) (520) (381)

Professional fees and other 4

1,273 929 3,107 3,986

Legal costs 5

2,736 230 6,845 1,926

Severance charges, net 1

204 35 1,461 556

Adjusted EBIT (15,849) (19,682)

3 unchanged sentences

___________________

1 Primarily relates to severance charges incurred associated with the Operating Group Reorganization and other continuing restructuring measures for the three and nine months ended September 30, 2021.

For the three and nine months ended September 30, 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 three months ended September 30, 2020.

3 Represents pension credit for the U.K.

1 For the three months ended March 31, 2022, $1.3 million primarily related to customary severance costs associated with executive departures.

For the three months ended March 31, 2021, includes $1.9 million related to the Operating Group Reorganization and $0.2 million associated with other severances.

2 Represents foreign currency (gain) in current period primarily due to strengthening USD against EUR, GBP, and AUD.

3 Represents pension credits for the U.K.

pension plan based on the difference between the expected return on plan assets and the cost of the discounted pension liability.

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 nine months ended September 30, 2021, includes $0.2 million and $1.7 million, respectively, of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

For the three and nine months ended September 30, 2020, includes $0.6 million and $2.6 million, respectively, associated with the OneTEAM program (exclusive of restructuring costs).

5 For the three and nine months ended September 30, 2021, primarily relates to accrued legal matters and other legal fees.

For the three and nine months ended September 30, 2020, primarily relates to costs associated with international legal matters.

6 Represents foreign currency gain/loss.

For prior periods, includes other nominal fees.

4 For the three months ended March 31, 2022, includes $4.7 million related to costs associated with the debt financing and $0.6 million of corporate support costs.

For the three months ended March 31, 2021, includes $0.8 million of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

5 For the three months ended March 31, 2022, primarily relates to accrued legal matters and legal fees associated with the debt financing.

For March 31, 2021, primarily relates to accrued legal matters and other legal fees.

Liquidity and Capital Resources

Financing for our operations consists primarily of our ABL Facility (defined below) and cash flows attributable to our operations.

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

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.

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

We are in compliance with our debt covenants, however, our current financial forecasts indicate insufficient cash flows from operations to maintain compliance with our ABL covenants and repay our outstanding debt if it were to come due.

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

These factors raise substantial doubt about our ability to continue as a going concern.

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;

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

and (iii) we are actively pursuing other strategic alternatives.

While the Recent Refinancing Transactions provide us with additional funding to meet our short-term liquidity needs, there can be no assurance that we will generate adequate liquidity to fund operations and meet our debt service obligations in the future or that our lenders will continue to provide amendments to the Company.

The effects of COVID and the impact on oil and gas markets could have a significant adverse effect on our financial position and business condition, as well as our clients and suppliers.

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 the 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.

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.

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

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.

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

The ABL Facility is secured on a first priority basis by, among other things, our accounts receivable, deposit accounts, securities accounts and inventory, including those of our direct and indirect subsidiary guarantors, and on a second priority basis by substantially all other assets of our direct and indirect subsidiary guarantors.

Borrowing availability under the ABL Facility is based on a percentage of the value of accounts receivable and inventory, reduced for certain reserves.

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.

Borrowings made through a Base Rate do not have a stated maturity date, however, LIBOR borrowings are typically issued with terms of 90 days or less.

For purposes of classification of borrowings and payments made under the ABL Facility in the Statement of Cash Flows, we report Base Rate borrowings on a gross basis, while LIBOR borrowings (and swingline borrowings, which are due on demand) are presented on a net basis.

At September 30, 2021, we had $17.0 million of cash on hand, of which, about $4.0 million of cash is located in countries where currency restrictions exist.

We also had approximately $27.0 million of available borrowing capacity under the ABL Facility.

Borrowing availability under the ABL Facility is based on a percentage of the value of accounts receivable and inventory, subject to eligibility criteria and customary reserves which may be modified in the agent’s permitted discretion.

The ABL Facility also provides for the issuance of letters of credit, which further reduce the borrowing capacity thereunder.

were $24.4 million in letters of credit outstanding under the credit facility.

The ABL Facility also contains a financial covenant which requires the Company to maintain a minimum Fixed Charge Coverage Ratio (“FCCR”) of 1.0:1.0 upon the occurrence of an event of default or any date upon which excess availability is less than the greater of (a) 10% of the line cap and (b) $15.0 million, all of which we were in compliance with at September 30, 2021.

In the event that our excess availability is less than the greater of $18.75 million and 12.5% of the line cap for five consecutive business days, then the Company is in a cash dominion period where the agent may have control of all funds deposited in certain blocked accounts.

In the event excess availability is below $15.0 million then certain covenant requirements must be maintained including the requirement to maintain compliance with a FCCR of at least 1.00:1.00.

As of September 30, 2021, if an accelerated triggering event had occurred, the Company would not be able to be in compliance with the FCCR requirement.

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

A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that we failed to meet our obligations under the letter of credit.

If this were to occur, we would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit.

We were contingently liable for outstanding stand-by letters of credit totaling $24.4 million at September 30, 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.

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 “Citi Credit Agreement”) led by Citibank, N.A.

(“Citibank”), as agent, which provided for available borrowings up to $150.0 million (the “Citi ABL Facility”).

The Citi ABL Facility was expected to mature and all outstanding amounts were to become due and payable on December 18, 2024.

The Citi ABL Facility included a $50.0 million sublimit for letters of credit issuance and $35.0 million sublimit for swingline borrowings.

Additionally, subject to certain conditions, including obtaining additional commitments, the Citi ABL Facility could have been increased by an amount not to exceed $50.0 million.

On December 8, 2021, the Company entered into Amendment No.

2 (the “Citi ABL Amendment No.

2”) to the Citi Credit Agreement.

Citi ABL Amendment No.

2, among other things, (i) revised the applicable margin to 4.25% for LIBOR rate advances, (ii) provided that at all times beginning on the effective date of the Citi 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) established an interest reserve account for certain payments due under the Term Loan Credit Agreement, (iv) provided 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) provided for weekly variance testing to be delivered to Citibank, (vi) required the Company to have used all of the proceeds borrowed under the Subordinated Term Loan Credit Agreement prior to borrowing under the Citi Credit Agreement, and (vii) increased 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).

Our obligations under the Citi ABL Facility were guaranteed by certain of our direct and indirect subsidiaries, as set forth in the Citi ABL Facility agreement.

The Citi ABL Facility was secured on a first priority basis by, among other things, our accounts receivable, deposit accounts, securities accounts and inventory, including those of our direct and indirect subsidiary guarantors, and on a second priority basis by substantially all other assets of our direct and indirect subsidiary guarantors.

Borrowing availability under the Citi ABL Facility were based on a percentage of the value of accounts receivable and inventory, reduced for certain reserves.

Borrowings under the Citi ABL Facility bore 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’s prime rate, and (iii) the one-month LIBOR rate plus 1.00%.

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

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

Interest was 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 Citi ABL Facility agreement.

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

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

The ABL Credit Facility matures and all outstanding amounts become due and payable on February 11, 2025.

At March 31, 2022, we had $32.9 million of cash on hand, of which, about $2.3 million of cash is located in countries where currency restrictions exist.

We had approximately $8.8 million of available borrowing capacity under the ABL Credit Facility.

Direct and incremental costs associated with the issuance of the ABL Credit Facility were approximately $8.1 million and were capitalized as debt issuance costs.

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

On May 6, 2022, we entered into Amendment No.

1 (the “ABL Credit Agreement Amendment No.

1”) to the ABL Credit Agreement.

The ABL Credit Agreement Amendment No.

1, among other things, modifies the Maturity Reserve Trigger Date (as defined in the ABL Credit Agreement) such that the date on which a reserve must, subject to certain conditions, be put into place with respect to the outstanding principal amount of the 5.00% Convertible Senior Notes due 2023 (the “Notes”) is 75 days prior to their maturity date, instead of 120 days prior to their maturity date.

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 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, 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.

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.

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 (the “Term Loan Credit Agreement”), 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 (“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.

The Term Loan matures, and all outstanding amounts become due and payable on December 18, 2026, subject to certain conditions.

The Term Loan is secured by substantially all of our 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 effective interest rate on the Term Loan at September 30, 2021 was 11.95%.

The Term Loan contains prepayment provisions, events of default and covenants, all of which we were in compliance with at September 30, 2021.

The Term Loan matures, and all outstanding amounts become due and payable on December 18, 2026.

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 Maturity Trigger Date, in which case the Term Loan will terminate on the Maturity Trigger Date.

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 Credit 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 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 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.

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 to the Credit Agreement, among other things, (i) defers an October 19, 2021 interest payment until October 29, 2021;

(ii) requires 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) provides the Lenders with additional information rights;

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

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 with the Lenders and the agent.

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

(ii) contains certain milestones;

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

(iv) obligates 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) provides that the Company will not permit a covenant trigger event under the ABL Facility to occur.

On November 9, 2021, as part of the Recent Financing Transactions, we entered into Third Amendment to the Term Loan Credit Agreement.

The Third Amendment to the Term Loan Credit Agreement, among other things, (i) waives certain covenants until September 30, 2022 and modifies covenants thereafter to provide us with additional flexibility and (ii) requires us to seek shareholder approval (or an exception therefrom) to issue additional warrants to APSC, providing for the purchase of an aggregate of 1,417,051 shares of our common stock, and to amend the Warrants currently held by APSC, to provide for, an exercise price of $1.50 per share.

Convertible Notes

On July 31, 2017, we issued $230.0 million principal amount of 5.00% Convertible Senior Notes due 2023 (the “Notes”) in a private offering to qualified institutional buyers (as defined in the Securities Act of 1933) pursuant to Rule 144A under the

Securities Act.

In December 2020, we retired $136.9 million par value of the Notes, and as of March 31, 2021, the principal amount outstanding was $93.1 million.

The Notes bear interest at a rate of 5.0% per year, payable semiannually in arrears on February 1 and August 1 of each year.

The Notes will mature on August 1, 2023 unless repurchased, redeemed or converted in accordance with their terms prior to such date.

The Notes will be convertible at an initial conversion rate of 46.0829 shares of our common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $21.70 per share.

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 Citi 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 Citi ABL Facility to occur.

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 Maturity Trigger Date from $50.0 million to $10.0 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) permitted the entry into the ABL Credit Agreement, (ii) permitted certain interest payments due under the Term Loan Credit Agreement to be paid in kind, (iii) permitted certain asset sales and requires certain related mandatory prepayments, subject to an applicable prepayment premium, and (iv) amended 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;

On May 6, 2022, we entered into Amendment No.

7 (the “Seventh Amendment”) to the Term Loan Credit Agreement.

Subordinated Term Loan Credit Agreement .

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 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.

The business purpose of each of Corre Amendment 1, Corre Amendment 2, and Corre Amendment 3 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) $35.0 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;

On May 6, 2022, we entered into Amendment No.

6 (the “Corre Amendment No.

6”) 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 No.6, among other things, amends the financial covenants, such that the maximum net leverage ratio to be tested for the fiscal quarter ending March 31, 2023 will be increased from 7.00 to 1.00 to 12.00 to 1.00.

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 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.

A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that we failed to meet our obligations under the letter of credit.

If this were to occur, we would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit.

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.

letters of credit reduced amounts available under our ABL Credit 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.

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.

Convertible Senior Notes.

On July 31, 2017, we issued $230.0 million principal amount of senior unsecured 5.00% Convertible Senior Notes due 2023 in a private offering to qualified institutional buyers (as defined in the Securities Act) pursuant to Rule 144A under the Securities Act.

As discussed above, in December 2020, we retired $136.9 million par value of the Notes, and as of March 31, 2022, the principal amount outstanding was $95.2 million.

The Notes bear interest at a rate of 5.0% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2018.

The Notes mature on August 1, 2023 unless repurchased, redeemed or converted in accordance with their terms prior to such date.

The Notes are convertible at an initial conversion rate of 46.0829 shares of our common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $21.70 per share, which represents a conversion premium of 40% to the last reported sale price of $15.50 per share on the NYSE on July 25, 2017, the date the pricing of the Notes was completed.

The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the indenture governing the Notes.

5 unchanged sentences

On or after May 1, 2023 until the close of business on the business day immediately preceding the maturity date, holders may, at their option, convert their Notes at any time, regardless of the foregoing circumstances.

As a result of the redemption and extinguishment of the Notes in December 2020, the Notes are convertible into 4,291,705 shares of common stock.

The Notes will be convertible into, subject to various conditions, cash or shares of our common stock or a combination of cash and shares of our common stock, in each case, at our election.

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, increase the conversion rate for the Notes so surrendered for conversion.

We have the option to redeem all or any portion of the Notes on or after August 5, 2021, if certain conditions (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 we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide 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 a result of the redemption and extinguishment of the Notes discussed above, the Notes are convertible into 4,291,705 shares of common stock.

The Notes will be convertible into, subject to various conditions, cash or shares of our common stock or a combination of cash and shares of common stock, in each case, at our election.

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.

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.

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 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 September 30, 2021 totaled $17.0 million, of which $16.4 million was in foreign accounts, primarily in Europe, Brazil, the United Kingdom and Australia.

Cash flows are summarized in the table below (in thousands):

Nine Months Ended September 30,

unaudited unaudited

Net cash provided by (used in):

Operating activities $ (35,861) $ 20,165

Investing activities (12,222) (17,552)

Financing activities 41,743 4,662

Effects of exchange rates on cash and cash equivalents (1,274) 161

Net change in cash and cash equivalents $ (7,614) $ 7,436

Our cash and cash equivalents at March 31, 2022 totaled $53.7 million, of which $20.8 million was pledged as cash collateral for letters of credit and other obligations.

Additionally, $17.0 million of the $53.7 million of cash and cash equivalents was in foreign accounts, primarily in the Europe, Canada and Australia including $2.3 million of cash located in countries where currency restrictions exist.

Cash flows attributable to our operating activities.

For the nine months ended September 30, 2021, net cash used in operating activities was $35.9 million.

For the three months ended March 31, 2022, net cash used in operating activities was $50.0 million.

Our net cash used in operating activities generally reflects the cash effects of transactions and other events used in the determination of net loss, which totaled $32.5 million.

Overall, the decline in cash generated from operations, in addition to the net loss for the period, were driven by adjustments to depreciation and amortization of $10.0 million, changes in working capital of $33.7 million, non-cash compensation cost $0.6 million, amortization of debt issuance costs and debt discount of $8.4 million, gain on disposal of assets of $2.3 million and deferred income taxes of $0.8 million primarily due to net tax refunds, resulted in negative operating cash flow.

For the three months ended March 31, 2021, net cash provided by operating activities was $17.2 million.

Our net cash used in operating activities generally reflects the cash effects of transactions and other events used in the determination of net loss, which totaled $34.3 million for the period.

Overall, the decline in cash generated from operations was driven primarily by funding our working capital needs associated with an increase in accounts receivables and costs partially offset by inflation, increased activity levels and associated higher costs.

Partially offsetting the net loss for the period were adjustments of $37.8 million for depreciation and amortization, $5.6 million in non-cash compensation cost, and goodwill impairment of $55.8 million.

For the nine months ended September 30, 2020, net cash provided by operating activities was $20.2 million.

Positive operating cash flow was primarily attributable to adjustments out of $222.3 million in net losses from goodwill impairment of $191.8 million, depreciation and amortization of $34.7 million, non-cash compensation costs of $4.1 million and amortization of deferred loan costs and debt discount of $6.5 million and a decrease in working capital of $8.1 million, which was primarily due to decreases in accounts receivable and other accrued liabilities.

Overall, the decline in cash generated from operations was driven primarily by the impacts of inclement weather and COVID-19 on our operations which generated reduced revenue and receipts during the period.

Partially offsetting the net loss for the period were adjustments of $13.0 million for depreciation and amortization, $2.3 million in non-cash compensation cost and $2.5 million in positive cash flows derived from changes in operating assets and liabilities.

Cash flows attributable to our investing activities.

As a response to the ongoing effects of COVID, in order to preserve liquidity, we are limiting capital spending to critical client projects that offer the highest rate of return.

Capital expenditures can vary depending upon specific client needs or organization needs that may arise unexpectedly.

For the nine months ended September 30, 2021, net cash used in investing activities was $12.2 million, primarily for capital expenditures.

For the nine months ended September 30, 2020, net cash used in investing activities was $17.6 million, consisting primarily of $16.7 million for capital expenditures and an acquisition of $1.0 million within our Quest Integrity segment.

For the three months ended March 31, 2022, net cash used in investing activities was $4.0 million, consisting primarily $7.1 million of capital expenditures which were partially offset by $3.0 million of asset sales.

For the three months ended March 31, 2021, net cash used in investing activities was $3.4 million, primarily for capital expenditures.

Cash flows attributable to our financing activities.

For the nine months ended September 30, 2021, net cash provided by financing activities was $41.7 million consisting primarily of net borrowings under our ABL Facility of $45.1 million partially offset by $2.3 million in payments of debt issuance costs.

For the nine months ended September 30, 2020, net cash provided by financing activities was $4.7 million consisting primarily of net borrowings under the revolving portion of our Credit Facility of $10.8 million partially offset by the term loan payment of our former credit facility of $3.8 million as well as $1.8 million of debt issuance costs.

For the three months ended March 31, 2022, net cash provided by financing activities was $42.0 million consisting primarily of net borrowings under our ABL Credit Facility of $42.7 million partially offset by $10.3 million in payments of debt issuance costs, and issuance of common stock amounting to $9.8 million under the PIPE Shares.

On February 11, 2022 we completed a capital structure refinancing, including a new $165.0 million credit facility, consisting of $130.0 million revolving facility and $35.0 million delayed draw term loan, plus $10.0 million of incremental unsecured funding, and an additional $10.0 million equity investment.

For the three months ended March 31, 2021, net cash provided by financing activities was $16.8 million consisting primarily of net borrowings under our ABL Credit Facility $19.0 million partially offset by $2.0 million in payments of debt issuance costs.

Effect of exchange rate changes on cash and cash equivalents.

For the nine months ended September 30, 2021 and 2020, the effect of exchange rate changes on cash was a positive impact of $1.3 million and a negative impact of $0.2 million, respectively.

For the three months ended March 31, 2022 and 2021, the effect of foreign exchange rate changes on cash was a negligible impact and a negative impact of $1.5 million, respectively.

The impact of exchange rates on cash and cash equivalents is primarily attributable to fluctuations in U.S.

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

Critical Accounting Policies and Estimates

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

Critical Accounting Policies

A discussion of our critical accounting policies is included in the 2021 Form 10-K.

There were no material changes to our critical accounting policies during the nine months ended September 30, 2021.

Except for the item referenced below, there were no material changes to our critical accounting policies during the three months ended March 31, 2022.

ASU 2020-06 Adoption.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

The ASU simplifies the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments.

On January 1, 2022, we adopted the ASU using the modified retrospective method.

We recognized a cumulative effect of initially applying the ASU as an adjustment to the January 1, 2022 opening balance of accumulated deficit.

The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

Refer to Note 11.

Long-Term Debt for additional details.

New Accounting Principles

For information about newly adopted accounting principles as well as information about new accounting principles pending adoption, see Note 1 to the condensed consolidated financial statements included in this report.

For information about newly adopted accounting principles as well as information about new accounting principles pending adoption, see Note 1 to the condensed consolidated financial statements.

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-Q

Item 2. Management’s Discussion and Analysis