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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-11 · 284 added, 355 removed, 222 unchanged (74% of the section changed)

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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, 2021 (“our Annual Report on Form 10-K”).

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this report, and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 (“our Annual Report on Form 10-K”) and other documents previously filed with the SEC.

In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those described in more detail under the heading “Risk Factors” included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K.

See also “Cautionary Statement Regarding Forward-Looking Statements” below.

Cautionary Note Regarding Forward-Looking Statements.

This report contains “forward-looking statements” that are accompanied by meaningful cautionary statements so as to obtain the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995.

Without limitation, you can generally identify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “will,” “could,” “should,” “may” and similar expressions.

We based our forward-looking statements on our reasonable beliefs and assumptions, and our current expectations, estimates and projections about ourselves and our industry.

In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate.

We caution that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict.

New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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.

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

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements other than statements of historical or current fact included in this report are forward-looking statements.

Forward-looking statements include statements containing words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “will,” “could,” “should,” “may” and similar expressions.

We base our forward-looking statements on beliefs and assumptions that we believe to be reasonable, and our current expectations, estimates and projections about ourselves and our industry.

However, all forward-looking statements are subject to risks and uncertainties, many of which are out of our control, that may cause actual results to differ materially from those that are expected and, therefore, you should not unduly rely on such statements.

The forward-looking statements included herein are made only as of the date hereof.

We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.

There are a number of risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by these forward-looking statements.

Such risks include those disclosed under the heading "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the United States Securities and Exchange Commission, as well as, 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;

• 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 or other public health crises, the ongoing conflict in Ukraine, and future economic uncertainties, particularly in industries in which we are heavily dependent;

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

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

• 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;

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

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

• if we cannot regain compliance with the NYSE’s continued listing requirements and rules, the NYSE may delist our

common stock, which could negatively affect our company, the price of our common stock and our shareholders’ ability to sell our common stock and may lead to potential events of default on existing debt instruments.

• 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;

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

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

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

inspection to assess condition;

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and mechanical services to repair, rerate or replace based upon the client’s election.

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.

In addition, we are capable of scaling 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 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 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.

IHT provides conventional and advanced non-destructive testing (“NDT”) services primarily for the process, pipeline and power sectors, and 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.

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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:

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”).

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“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.

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.

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 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.

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.

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

However, the global economy, including the financial and credit markets, has recently experienced significant volatility and disruptions, including increases in inflation rates, rising interest rates, disruption to global supply chains, declines in economic growth, and uncertainty about economic stability.

The severity and duration of the impact of these conditions on our business cannot be predicted.

See Item 1A, “Risk Factors” for additional information.

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.

During 2022 the Company executed a number of amendments to its debt instruments, including amendments to our ABL Credit Facility, Subordinated Term Loan Credit Agreement, and the Term Loan Credit Agreement.

Refer to Note 11 - Debt to the unaudited condensed consolidated financial statements for additional details related to these amendments.

Listing Notices from NYSE.

The Company’s share price and total market capitalization have fallen below NYSE listing standard thresholds and therefore the Company received the following notices of non-compliance from the NYSE .

• On June 17, 2022, we were notified from the NYSE that the Company was no longer in compliance with the NYSE continued listing standards set forth in Section 802.01B of the NYSE's Listed Company Manual due to the fact that the Company's average global market capitalization over a consecutive 30 trading-day period was less than $50.0 million and, at the same time, its shareholders' equity was less than $50.0 million.

The notice has no immediate impact on the listing of the Company’s common stock, which will continue to trade on the NYSE during the applicable cure period, and does not result in a default under the Company's material debt or other agreements.

• On July 13, 2022, the Company was notified by the NYSE that it was not in compliance with the continued listing standards set forth in Rule 802.01C of the NYSE Listed Company Manual requiring listed companies to maintain an average closing share price of at least $1.00 over a consecutive 30 trading-day period.

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

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

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

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

The notice has no immediate impact on the listing of the Common Stock, which will continue to be listed and traded on the NYSE during this period, subject to the Company’s compliance with the other continued listing requirements of the NYSE.

Our common stock will continue to trade on the NYSE under the symbol “TISI” but will have an added designation of “.BC” to indicate the status of our common stock as “below compliance.” If the Company fails to regain compliance with Section 802.01C of the NYSE Listed Company Manual by the end of the cure period, our common stock will be subject to the NYSE’s suspension and delisting procedures.

• As required by the NYSE, the Company notified the NYSE of its intent to cure the deficiency and restore its compliance with the NYSE continued listing standards.

In accordance with applicable NYSE procedures on August 1, 2022 the Company submitted a plan advising the NYSE of the definitive actions the Company has taken and is taking, that would bring it into compliance with the minimum global market capitalization and minimum average closing share price listing standards within 18 months of receipt of the written notice.

The NYSE will review the plan and, within 45 days of its receipt, determine whether the Company has made a reasonable demonstration of an ability to conform to the relevant standards in the 18-month period.

If the NYSE accepts the plan, the Company’s common stock will continue to be listed and traded on the NYSE during the 18-month period, subject to the Company’s compliance with other NYSE continued

listing standards and continued periodic review by the NYSE of the Company’s progress with respect to its plan.

The Company can provide no assurances that the NYSE will accept its plan or that it will be able to satisfy any of the steps outlined in the plan submitted to the NYSE and maintain the listing of its shares on the NYSE.

Current Quarter Financial Results and Significant Operational Trends and Events

Key consolidated financial results for the three and six months ended June 30, 2022 included:

• Revenues for the three months ended June 30, 2022 increased 5.2%, or $12.4 million, to $251.3 million as compared to consolidated revenues of $238.9 million for the three months ended June 30, 2021;

• Revenues for the six months ended June 30, 2022 increased 8.4%, or $36.4 million, to $469.8 million as compared to consolidated revenues of $433.5 million for the six months ended June 30, 2021;

• Operating loss for the three months ended June 30, 2022 improved 53.6%, or $3.2 million, to a loss of $2.8 million as compared to a loss of $6.0 million for the three months ended June 30, 2021;

• Operating loss for the six months ended June 30, 2022 improved 37.3%, or $11.3 million, to a loss of $19.0 million as compared to a loss of $30.3 million for the six months ended June 30, 2021;

• Net loss for the three months ended June 30, 2022 increased by 23.2%, or $4.1 million, to a loss of $21.6 million as compared to a loss of $17.5 million for the three months ended June 30, 2021;

• Net loss for the six months ended June 30, 2022 increased by 4.3%, or $2.2 million, to a loss of $54.0 million as compared to a loss of $51.8 million for the six months ended June 30, 2021;

• Basic earnings per share for the three months ended June 30, 2022 improved 11.7%, or $0.07, to negative $0.50 as compared to negative $0.57 for the three months ended June 30, 2021;

• Consolidated Adjusted EBITDA (a non-GAAP financial measure) for the three months ended June 30, 2022 improved 56.6%, or $5.2 million, to $14.3 million, as compared to $9.1 million for the three months ended June 30, 2021;and

• Net cash used by operating activities for the three months ended June 30, 2022 improved by 80.8%, or $14.2 million to $3.4 million, as compared to net cash used in operating activities of $17.6 million for the three months ended June 30, 2021.

For a reconciliation of EBITDA and adjusted EBITDA to net income attributable to common stock, the most comparable GAAP financial measure, see Non-GAAP Financial Measures below.

Results of Operations

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

The following is a comparison of our results of operations for the three months ended June 30, 2022 compared to June 30, 2021.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The following table sets forth the components of revenue and operating loss from our operations for the three month period ended June 30, 2022 and 2021 (in thousands):

Three Months Ended June 30, Increase

2022 2021 $ %

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Operating income (loss):

IHT $ 134 $ 364 $ (230) NM

IHT $ 5,514 $ 7,395 $ (1,881) (25.4) %

MS 6,984 2,328 4,656 NM

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

Quest Integrity 8,014 5,702 2,312 40.6 %

Corporate and shared support services (23,292) (21,419) (1,873) 8.7 %

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Loss before income taxes $ (19,784) $ (16,636) $ (3,148) (18.9) %

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

Provision for income taxes (1,768) (857) (911) NM

Net loss $ (21,552) $ (17,493) $ (4,059) (23.2) %

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.

Total revenues increased $12.4 million or 5.2% from the prior year quarter primarily driven by increases in MS revenue and Quest Integrity revenue, partially offset by decreases in IHT revenue.

Revenues were impacted from foreign exchange negatively by $5.0 million and positively by $8.5 million during the three month period ended June 30, 2022 and 2021.

IHT revenues decreased by $3.3 million, MS revenue increased by $10.2 million and Quest Integrity revenue increased by $5.5 million.

IHT segment’s second quarter revenue decreased 2.8% compared to the prior year quarter, primarily driven by completion of a significant Canadian customer contract during the second quarter in the prior year.

The MS segment delivered second quarter revenue growth of 10.5% over the prior year quarter, primarily from increases in the Canada and US markets, and valve business, partially offset by decreases in international due to non-repeating project work in the UK and continued weakness in Europe offsetting growth in Latin America and the Middle East.

The 22.6% increase in revenue for Quest Integrity was due to increased demand in core and growth markets across most geographies and $1.3 million in 2021 deferred projects executed in Q2 2022.

Operating income (loss).

Overall operating loss was $2.8 million in the current year quarter compared to operating loss of $6.0 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.

The overall decrease in operating loss is primarily attributable to MS which experienced an increase in operating income of $4.7 million due to $1.5 million increase in Canada, $2.1 million increase in the valve business, and realized efficiency gains in equipment centers, manufacturing, and engineering, partially offset by lower operating income in the US and international areas.

Quest Integrity operating income increased $2.3 million due to increased utilization and a favorable project mix.

IHT experienced a decrease of $1.9 million in operating income due to a Canadian customer contract completed in the current period, and the lack of COVID-19 related subsidies in the 2022 period that were received in 2021.

Corporate operating loss increased due to higher professional fees related to debt restructuring partially offset by headcount reductions.

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):

For the three months ended June 30, 2022, operating loss includes net expenses totaling $6.9 million that we do not believe are indicative of our core operating activities, the prior year quarter included $2.6 million of such items, as detailed by segment in the table below (in thousands):

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

IHT MS Quest Integrity Corporate and shared support services Total

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Professional fees and other 1

5 unchanged sentences

Total $ 25 $ 54 $ 12 $ 6,822 $ 6,913

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Professional fees and other 1

6 unchanged sentences

_________________

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.

1 For the three months ended June 30, 2022, includes $3.2 million related to costs associated with the debt financing and $1.5 million of corporate support costs.

For the three months ended June 30, 2021, includes $0.7 million of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

2 For the three months ended June 30, 2022, primarily relates to legal matters.

For June 30, 2021, primarily relates to accrued legal matters and other legal fees.

3 For the three months ended June 30, 2022, $1.0 million primarily related to customary severance costs associated with staff reductions.

For the three months ended June 30, 2021, includes $0.3 million related to the Operating Group Reorganization.

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

Three Months Ended

March 31, Increase

Three Months Ended June 30, Increase

2022 2021 $ %

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

IHT $ 150 $ 839 $ (689) NM

IHT $ 5,539 $ 7,405 $ (1,866) (25.2) %

MS 7,038 2,544 4,494 NM

Quest Integrity 8,026 5,744 2,282 39.7 %

Corporate and shared support services (16,470) (19,064) 2,594 13.6 %

Total operating income (loss), excluding non-core expenses $ 4,134 $ (3,371) $ 7,505 NM

Excluding the impact of these identified non-core items in both periods, operating income improved by $7.5 million, consisting of lower operating income at IHT of $1.9 million, higher operating income at MS and Quest Integrity of $4.5 million and $2.3 million, respectively, and a decrease in corporate and shared support services expenses of $2.6 million.

The lower operating income in IHT is due to a Canadian customer contract completed in the current period, and inflationary cost pressures associated with the ramp up in activity.

Interest expense, net.

Interest expense increased $8.9 million, or 92.5% compared to the prior year quarter, primarily due to the increased outstanding debt amount, attributable to the debt financing executed in the quarter ended March 31, 2022 and increased amortization of deferred financing costs, debt and warrant discounts and debt issuance costs.

Due to the various maturity trigger events, the amortization period for deferred financing costs, debt and warrant discounts and debt issuance costs was shortened to reflect the accelerated maturity dates.

This resulted in an additional $4.6 million in amortization charges during the three months ended June 30, 2022.

Refer to Note 1 - Summary of Significant Accounting Policies and Practices for additional liquidity and going concern discussion.

Other income (expense), net.

Other income (expense), net increased $2.5 million from the prior year quarter expense of $1.0 million to a gain of $1.5 million primarily due to insurance proceeds of $0.9 million in cash from natural disaster coverage, received in June 2022, gain on disposal of assets of $1.2 million, and a pension gain of $0.2 million, partially offset by higher foreign currency transaction losses realized in the prior year period.

The provision for income tax was $1.8 million on the pre-tax loss from continuing operations of $19.8 million in the current year quarter, compared to a $0.9 million income tax provision on a pre-tax loss of $16.6 million in the prior year quarter.

The effective tax rate, inclusive of discrete items, was a provision of 9.0% for the three months ended June 30, 2022, compared to a provision of 5.1% for the three months ended June 30, 2021.

The effective tax rate change from the prior year quarter compared to the current year quarter is due an increase in the valuation allowance.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The following is a comparison of our results of operations for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

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

Six Months Ended June 30, Increase

2022 2021 $ %

(unaudited) (unaudited)

Revenues by business segment:

IHT $ 209,721 $ 208,601 $ 1,120 0.5 %

MS 200,857 184,563 16,294 8.8 %

Quest Integrity 59,263 40,327 18,936 47.0 %

Total revenues $ 469,841 $ 433,491 $ 36,350 8.4 %

Operating income (loss):

IHT $ 5,648 $ 7,759 $ (2,111) (27.2) %

MS 7,497 2,443 5,054 NM

Quest Integrity 14,218 5,450 8,768 NM

Corporate and shared support services (46,346) (45,946) (400) (0.9) %

Total operating loss $ (18,983) $ (30,294) $ 11,311 37.3 %

Interest expense, net (37,085) (18,994) (18,091) (95.2) %

Other income (expense), net 4,178 (1,994) 6,172 NM

Loss before income taxes $ (51,890) $ (51,282) $ (608) (1.2) %

Provision for income taxes (2,124) (502) (1,622) NM

Net loss $ (54,014) $ (51,784) $ (2,230) (4.3) %

Total revenues increased $36.4 million or 8.4% from the prior year period, with all segments seeing increases compared to prior year period.

IHT revenues increased by $1.1 million, MS revenue increased by $16.3 million and Quest Integrity revenue increased by $18.9 million.

Revenues were impacted from foreign exchange negatively by $6.6 million and positively by $11.9 million during the six month period ended June 30, 2022 and 2021.

IHT segment’s year to date 0.5% increase in revenue, compared to the prior year period was primarily driven by increases in US business partially offset by decreases in Canada and international.

The MS segment 8.8% increase in revenue compared to the prior year period, primarily from increases of $8.0 million in Canada, $4.2 million in the US, and $3.2 million in the valve business.

The 47.0% increase in revenue for Quest Integrity was due to a pronounced recovery of the downstream and pipeline energy markets, continued success in adjacent growth markets and execution of approximately $7.0 million of deferred projects from 2021.

Operating loss.

Overall operating loss was $19.0 million in the current year period compared to an operating loss of $30.3 million in the prior year period.

The overall decrease in operating loss is attributable to MS experiencing a $5.1 million increase in operating income due to strength in the valve business of $2.0 million, a $1.4 million increase in Canada business and improvements in machinery, engineering and equipment centers.

Quest Integrity realized a $8.8 million improvement in operating income due to increased customer sales volume, utilization and a favorable project mix.

IHT experienced a decrease in operating income due to declines in aerospace and Canada business, partially offset by a $1.2 million improvement in the US.

Corporate operating income was similar to the prior period due to cost reductions, partially offset by higher professional fees in 2022.

For the six months ended June 30, 2022, operating loss includes net expenses totaling $14.1 million that we do not believe are indicative of our core operating activities as they relate to one time or non-reoccurring items, while the prior year period included $8.3 million of such items, as detailed by segment in the table below (in thousands):

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

IHT MS Quest Integrity Corporate and shared support services Total

Six Months Ended June 30, 2022

Professional fees and other 1

$ — $ — $ — $ 10,036 $ 10,036

Legal costs 2

— — — 1,728 1,728

Severance charges, net 3

41 54 12 2,263 2,370

Total $ 41 $ 54 $ 12 $ 14,027 $ 14,134

Six Months Ended June 30, 2021

Professional fees and other 1

$ — $ — $ — $ 1,834 $ 1,834

Legal costs 2

— — — 4,109 4,109

Severance charges, net 3

485 355 251 1,257 2,348

Total $ 485 $ 355 $ 251 $ 7,200 $ 8,291

_________________

1 For the six months ended June 30, 2022, includes $7.9 million related to costs associated with the debt financing and $2.1 million of corporate support costs.

For the six months ended June 30, 2021, includes $1.5 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).

2 For the six months ended June 30, 2022, primarily relates to accrued legal matters.

For the six months ended June 30, 2021, primarily relates to accrued legal matters and other legal fees.

3 For the six months ended June 30, 2022, includes $1.3 million related to customary severance costs associated with executive departures and $1.1 million associated with severance across multiple corporate departments.

For the six months ended June 30, 2021, includes $2.2 million associated with 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):

Six Months Ended June 30, Increase

2022 2021 $ %

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

IHT $ 5,689 $ 8,244 $ (2,555) (31.0) %

MS 7,551 2,798 4,753 NM

Quest Integrity 14,230 5,701 8,529 NM

Corporate and shared support services (32,319) (38,746) 6,427 16.6 %

Total operating loss, excluding non-core expenses $ (4,849) $ (22,003) $ 17,154 78.0 %

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.

Excluding the impact of these identified non-core items in both periods, operating loss decreased by $17.2 million, consisting of lower operating income in IHT of $2.6 million, offset by increases in operating income from MS, Quest Integrity, and corporate and shared support services of $4.8 million, $8.5 million, and $6.4 million, respectively.

The higher operating income in Quest Integrity reflects recovery of the downstream and pipeline energy markets.

The operating income increase in MS was largely attributable to ramp up in activity from customers in valve business and Canada.

The operating income increase from corporate and shared support services improved due to staff reductions and other cost efficiency projects.

Interest expense, net.

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.

Interest expense, net increased $18.1 million, or 95.2%, from the prior year period primarily due to higher outstanding debt, higher interest rate paid on paid-in-kind interest, and accelerated amortization of deferred financing costs, debt and warrant discounts and debt issuance costs.

This resulted in an additional $4.6 million in amortization charges during the six months ended June 30, 2022.

Refer to Note 1 - Summary of Significant Accounting Policies and Practices for additional liquidity and going concern discussion.

Additionally, due to the debt extinguishment of the Citi Credit Agreement on February 11, 2022, during the three months ended March 31, 2022, the Company recognized interest expense of $2.7 million of related deferred 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.

Other income (expense) improved $6.2 million from the prior year period primarily due to gains on the sale of equipment and inventory of $3.5 million, $0.9 million related to insurance proceeds from a natural disaster claim, and $0.4 million from pension gain, partially offset by higher foreign currency transaction losses realized in the prior year period.

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.

The provision for income tax was $2.1 million on the pre-tax loss from continuing operations of $51.9 million in the current year-to-date compared to income tax expense of $0.5 million on the pre-tax loss of $51.3 million in the in the prior year-to-date period.

The effective tax rate was a provision of 4.1% for the six months ended June 30, 2022, compared to a provision of 1.0% for the six months ended June 30, 2021.

The effective tax rate change from the prior year quarter compared to the current year quarter is due to an increase in the valuation allowance.

Non-GAAP Financial Measures and Reconciliations

We use supplemental non-GAAP financial measures which are derived from the consolidated financial information including adjusted net income (loss);

We use supplemental non-GAAP financial measures which are derived from the condensed consolidated financial information including adjusted net income (loss);

adjusted net income (loss) per diluted share, earnings before interest and taxes (“EBIT”);

2 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 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.

costs associated with 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 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.

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

Segment adjusted EBIT is equal to segment operating income (loss) excluding costs associated with 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.

14 unchanged sentences

(unaudited, in thousands except per share data)

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Adjusted Net Income (Loss):

1 unchanged sentence

Professional fees and other 1

4,693 688 10,036 1,834

Legal costs 2

1,200 1,634 1,728 4,109

Severance charges, net 3

1,020 301 2,370 2,348

Natural disaster insurance recovery (872) — (872) —

Tax impact of adjustments and other net tax items 4

(2) (40) (6) (63)

Adjusted net loss $ (15,513) $ (14,910) $ (40,758) $ (43,556)

6 unchanged sentences

Interest expense, net 18,480 9,598 37,085 18,994

Foreign currency (gain) loss 5

Pension credit 6

Professional fees and other 1

4,693 688 10,036 1,834

Legal costs 2

1,200 1,634 1,728 4,109

Severance charges, net 3

1,020 301 2,370 2,348

Foreign currency (gain) loss 5

754 1,218 569 2,341

Pension credit 6

(190) (174) (393) (347)

Natural disaster insurance recovery (872) — (872) —

Consolidated Adjusted EBIT 4,131 (3,371) (4,850) (22,003)

10 unchanged sentences

____________________________________

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.

1 For the three and six months ended June 30, 2022, includes $4.7 million and $10.0 million, respectively, related to costs associated with the debt financing and corporate support costs.

For the three and six months ended June 30, 2021, includes $0.7 million and $1.5 million, respectively, of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

2 For the three and six months ended June 30, 2022, primarily relates to accrued legal matters.

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

3 For the three months ended June 30, 2022 includes $1.0 million primarily related to customary severance costs associated with staff reductions.

For the six months ended June 30, 2022, includes $1.3 million related to customary severance costs associated with executive departures and $1.1 million associated with severance across multiple corporate departments.

For the three months and six months ended June 30, 2021, $0.3 million and $2.2 million, respectively, associated with the Operating Group Reorganization.

4 Represents the tax effect of the adjustments.

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

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

We have 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.

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

Prior to Q2 2021, we used an assumed marginal tax rate of 21%.

5 Represents foreign currency losses primarily due to strengthening USD against EUR, GBP, CAN and AUD.

6 Represents pension credits for the U.K.

4 unchanged sentences

(unaudited, in thousands)

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Segment Adjusted EBIT and Adjusted EBITDA:

6 unchanged sentences

Severance charges, net 1

54 216 54 355

Adjusted EBIT 7,038 2,544 7,551 2,798

10 unchanged sentences

Provision (benefit) for income taxes 1,768 857 2,124 502

Gain on equipment sale (1,203) — (3,463) —

Interest expense, net 18,480 9,598 37,085 18,994

Foreign currency (gain) losses 2

754 1,218 569 2,341

Pension credit 3

(190) (174) (393) (347)

Professional fees and other 4

4,693 688 10,036 1,834

Legal costs 5

1,200 1,634 1,728 4,109

Severance charges, net 1

929 33 2,263 1,257

Natural disaster insurance recovery (872) — (872) —

Adjusted EBIT (16,472) (19,064) (32,321) (38,746)

3 unchanged sentences

___________________

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.

1 For the three months ended June 30, 2022 includes $1.0 million primarily related to customary severance costs associated with staff reductions.

For the three months and six months ended June 30, 2021, $0.3 million and $2.2 million, respectively, associated with the Operating Group Reorganization.

2 Represents foreign currency losses primarily due to strengthening USD against EUR, GBP, CAN and AUD.

3 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.

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.

4 For the three and six months ended June 30, 2022, includes $4.7 million and $10.0 million, respectively, related to costs associated with the debt financing and corporate support costs.

For the three and six months ended June 30, 2021, includes $0.7 million and $1.5 million, respectively, of costs associated with the Operating Group Reorganization (exclusive of restructuring costs).

5 For the three and six months ended June 30, 2022, primarily relates to accrued legal matters.

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

Liquidity and Capital Resources

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.

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

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

Financing for our operations consists primarily of our ABL Credit Facility, Term Loan and our Subordinated Term Loan, and Notes (refer to Note - 11 Debt , for additional details).

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

We have suffered recurring operating losses related to unfavorable market conditions, including the impact of the COVID-19 pandemic and cost inflation related to supply chain disruptions.

In response to the above, we evaluated the Company’s current liquidity resources within one year after the date of issuance of these condensed consolidated financial statements and determined there is substantial doubt about the Company’s ability to continue as a going concern (as further described in Note 1 - Summary of Significant Accounting Policies and Practices ).

Management is evaluating strategic alternatives, including potential asset sales, to address our near-term liquidity needs;

and we have taken definitive actions to reduce costs, improve operations, profitability, and liquidity to position the Company for improved cash flow generation from operations.

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 (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 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.

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

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

(iii) provided the Lenders with additional information rights;

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

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

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

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

(ii) contained certain milestones;

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

The effects of the current economic environment, including the COVID-19 pandemic, ongoing conflict in Ukraine and related 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.

Holders may convert their Notes at their option prior to the close of business on the business day immediately preceding May 1, 2023, but only under the following circumstances:

• during any calendar quarter commencing after the calendar quarter ending on December 31, 2017 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

• during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on such trading day;

• if we call any or all of the Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date;

• upon the occurrence of specified corporate events described in the indenture governing the Notes.

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 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.

We had approximately $24.5 million in available borrowing capacity, consisting of $4.5 million available under the ABL Credit Facility, $10.0 million available under the incremental delayed draw term loan (the “Delayed Draw Term Loans”), and $10.0 million available under the Subordinated Term Loan.

Recently Announced Asset Sale.

On August 15, 2022, Team announced it executed a definitive purchase and sale agreement with Baker Hughes to sell Quest Integrity for $280.0 million, before customary post-closing adjustments.

Post-closing, Team expects the net proceeds from the Quest Integrity Sale will be used to pay down debt and for general corporate purposes, thereby reducing the Company’s future debt service obligations and leverage and improving its liquidity and capital resources.

Refer to Note 20 – Subsequent Events for additional details regarding this transaction.

Cash and cash equivalents .

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.

Our cash and cash equivalents at June 30, 2022 totaled $67.4 million, consisting of $41.1 million of unrestricted cash on hand and $26.3 million of restricted cash, pledged as cash collateral for letters of credit and other obligations.

Additionally, $21.8 million of the $67.4 million of cash and cash equivalents was in foreign accounts, primarily in the Europe, Canada and Australia, including $1.5 million of cash located in countries where currency restrictions exist.

The following table summarizes cash flows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Cash flows provided by (used in):

2022 2021 % Change 2022 2021 % Change

Operating activities $ (3,385) $ (17,616) 81 % $ (53,391) $ (34,799) (53) %

Investing activities (4,840) (5,787) 16 % (8,882) (9,171) 3 %

Financing activities 22,820 20,858 (9) % 64,786 37,666 (72) %

Net change in cash and cash equivalents $ 14,595 $ (2,545) NM $ 2,513 $ (6,304) NM

NM - Not meaningful

Cash flows attributable to our operating activities.

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

For the six months ended June 30, 2022, net cash used in operating activities was $53.4 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 $54.0 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.

The decline in cash generated from operations was driven by the net loss for the period, $38.0 million decline in working capital, a gain on disposal of assets of $3.5 million, deferred income taxes of $0.4 million, partially offset by amortization of debt issuance costs and debt discount and write off of deferred loan costs of $14.8 million, adjustments to depreciation and amortization of $19.6 million, and paid-in-kind interest of $10.0 million, resulted in negative operating cash flow.

For the six months ended June 30, 2021, net cash used by operating activities was $34.8 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 $51.8 million for the period.

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.

Partially offsetting the net loss for the period were adjustments of $25.5 million for depreciation and amortization and $4.5 million in non-cash compensation cost.

Cash flows attributable to our investing activities.

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.

For the six months ended June 30, 2022, net cash used in investing activities was $8.9 million, consisting primarily of $14.0 million of capital expenditures, partially offset by $5.1 million of cash proceeds from asset sales.

For the six months ended June 30, 2021, net cash used in investing activities was $9.2 million, primarily for capital expenditures.

Cash flows attributable to our financing activities.

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.

For the six months ended June 30, 2022, net cash provided by financing activities was $64.8 million consisting primarily of net borrowings under our ABL Credit Facility of $66.1 million and issuance of common stock amounting to $9.7 million cash proceeds from the Equity Issuance partially offset by $10.6 million in payments of debt issuance costs.

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

For the six months ended June 30, 2021, net cash provided by financing activities was $37.7 million consisting primarily of net borrowings under our Citi Credit Agreement of $40.3 million partially offset by $2.3 million in payments of debt issuance costs.

Effect of exchange rate changes on cash and cash equivalents.

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.

For the six months ended June 30, 2022 and 2021, the effect of foreign exchange rate changes on cash was a negative $0.4 million and a positive $0.1 million, respectively.

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

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.

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

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

Capital Resources.

We establish a capital budget at the beginning of each calendar year and review it during the course of the year.

Our capital budgets are based upon our estimate of internally generated sources of cash, as well as cash on hand and the available borrowing capacity under our ABL Credit Facilities.

We expect to finance our 2022 capital budget with cash flows from operations, cash on hand, proceeds from asset sales, and our credit facility.

Actual capital expenditure levels may vary significantly due to many factors, including industry conditions;

the prices and availability of goods and services;

and the extent to which non-strategic assets are sold.

We continuously monitor our liquidity needs, coordinate our capital expenditure program with our expected cash flows and projected debt-repayment schedule, and evaluate our available alternative sources of liquidity, including accessing debt and equity capital markets in light of current and expected economic conditions.

As discussed above, we will require additional financing to fund our operations for the next 12 months and beyond.

However, we believe that our liquidity position and ability to generate cash flows from our operations will be adequate to fund 2022 operations and continue to meet our other obligations.

See Note 1 - Summary of Significant Accounting Policies and Practices for further information.

Contractual Obligations.

We have various contractual obligations in the normal course of our operations.

For further information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" in our Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes to the contractual obligation disclosure since year-end 2021, see Note 11 - Debt for additional details regarding amendments to our debt agreements that were executed during the first quarter of 2022.

Critical Accounting Policies and Estimates

A discussion of our critical accounting policies and estimates is included in our Annual Report on Form 10-K.

Except for the item referenced below, there were no material changes to our critical accounting policies during the six months ended June 30, 2022.

ASU 2020-06 Adoption.

3 unchanged sentences

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.

The prior period condensed 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 - 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.

For information about newly adopted accounting principles as well as information about new accounting principles pending adoption, see Note 1 - Summary of Significant Accounting Policies and Practices 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