What changed in this filing

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Item 1. Financial Statements

2022-11-09 compared with 2022-08-15 · 453 added, 293 removed, 825 unchanged (47% of the section changed)

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(in thousands, except share and per share data)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

ASSETS (unaudited)

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Prepaid expenses and other current assets 65,877 56,063

Current assets associated with discontinued operations 88,670 83,096

Total current assets 435,970 402,289

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Intangible assets, net 78,580 88,318

Goodwill 24,547 25,243

Defined benefit pension asset 5,402 2,902

Deferred income taxes 54 792

Other assets, net 7,051 9,060

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Current portion of operating lease obligations 13,328 15,412

Income taxes payable 1,549 —

Other accrued liabilities 116,477 111,736

Current liabilities associated with discontinued operations 19,375 16,396

Total current liabilities 692,064 188,267

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Common stock, par value $ 0.30 per share, 60,000,000 shares authorized;

43,223,879 and 31,214,714 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

43,223,879 and 31,214,714 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 445,839 444,824

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Accumulated other comprehensive loss ( 38,884 ) ( 26,732 )

Total equity 549 51,867

Total (deficit) equity ( 28,730 ) 51,867

Total liabilities and equity $ 713,689 $ 706,544

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Restructuring and other related charges, net — 457 16 2,317

Goodwill impairment charge — 55,837 — 55,837

Operating loss ( 1,729 ) ( 72,228 ) ( 34,929 ) ( 107,972 )

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Other income (expense) 3,227 ( 904 ) 9,664 ( 1,790 )

Loss before income taxes ( 19,784 ) ( 16,636 ) ( 51,890 ) ( 51,282 )

Loss from continuing operations before income taxes ( 25,155 ) ( 83,045 ) ( 88,973 ) ( 138,526 )

Provision for income taxes ( 1,465 ) ( 7,401 ) ( 4,182 ) ( 8,420 )

Net loss from continuing operations $ ( 26,620 ) $ ( 90,446 ) $ ( 93,155 ) $ ( 146,946 )

Discontinued operations:

Net income (loss) from discontinued operations, net of income tax 3,747 ( 736 ) 16,268 3,980

Net loss $ ( 22,873 ) $ ( 91,182 ) $ ( 76,887 ) $ ( 142,966 )

Loss per common share:

Basic and diluted $ ( 0.50 ) $ ( 0.57 ) $ ( 1.34 ) $ ( 1.68 )

Basic and diluted net loss per common share:

Loss from continuing operations ( 0.62 ) ( 2.92 ) ( 2.25 ) ( 4.75 )

Income (loss) from discontinued operations 0.09 ( 0.02 ) 0.39 0.13

Total $ ( 0.53 ) $ ( 2.94 ) $ ( 1.86 ) $ ( 4.62 )

Weighted-average number of shares outstanding:

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Foreign currency translation adjustment ( 7,035 ) ( 3,084 ) ( 12,152 ) ( 2,210 )

Other comprehensive income (loss), before tax ( 5,463 ) 657 ( 5,117 ) 874

Tax provision attributable to other comprehensive income (loss) — ( 257 ) — ( 155 )

Other comprehensive income (loss), net of tax ( 5,463 ) 400 ( 5,117 ) 719

Other comprehensive loss, before tax ( 7,035 ) ( 3,084 ) ( 12,152 ) ( 2,210 )

Tax provision attributable to other comprehensive loss — 691 — 536

Other comprehensive loss, net of tax ( 7,035 ) ( 2,393 ) ( 12,152 ) ( 1,674 )

Total comprehensive loss $ ( 29,908 ) $ ( 93,575 ) $ ( 89,039 ) $ ( 144,640 )

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Adjustments for prior periods from adopting ASU 2020-06 — — ( 5,651 ) 3,824 — ( 1,827 )

Issuance of common stock 11,905 3,572 6,196 — — 9,768

Net loss — — — ( 32,462 ) — ( 32,462 )

Issuance of common stock 11,905 3,572 6,196 — — 9,768

Foreign currency translation adjustment, net of tax — — — — 346 346

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Balance at June 30, 2022 43,224 $ 12,962 $ 445,210 $ ( 425,774 ) $ ( 31,849 ) $ 549

Net Loss — $ — $ — $ ( 22,873 ) $ — $ ( 22,873 )

Foreign currency translation adjustment, net of tax — — — — ( 7,035 ) ( 7,035 )

Non-cash compensation — — 629 — — 629

Balance at September 30, 2022 43,224 $ 12,962 $ 445,839 $ ( 448,647 ) $ ( 38,884 ) $ ( 28,730 )

Balance at December 31, 2020 30,874 $ 9,257 $ 422,589 $ ( 189,565 ) $ ( 27,678 ) $ 214,603

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Balance at June 30, 2021 30,979 $ 9,289 $ 426,924 $ ( 241,349 ) $ ( 26,959 ) $ 167,905

Net loss — $ — $ — $ ( 91,182 ) $ — $ ( 91,182 )

Foreign currency translation adjustment, net of tax — — — — ( 2,393 ) ( 2,393 )

Non-cash compensation — — 1,108 — — 1,108

Net settlement of vested stock awards 1 — ( 1 ) — — ( 1 )

Balance at September 30, 2021 30,980 $ 9,289 $ 428,031 $ ( 332,531 ) $ ( 29,352 ) $ 75,437

See accompanying notes to unaudited condensed consolidated financial statements.

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(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows (used in) provided by operating activities:

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(Gain) loss on asset disposals ( 4,296 ) 17

Non-cash compensation (credits) costs ( 59 ) 4,468

Goodwill impairment charges — 55,837

Non-cash compensation costs 571 5,576

Other, net ( 3,469 ) ( 3,629 )

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Net cash used in operating activities ( 46,365 ) ( 35,861 )

Cash flows (used in) provided by investing activities:

Cash flows used in investing activities:

Capital expenditures ( 21,002 ) ( 12,376 )

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Cash and cash equivalents at end of period $ 67,028 $ 16,972

_________________

1 Condensed consolidated statements of cash flows include discontinued operations.

September 30, 2022 September 30, 2021

Cash and cash equivalents from continuing operations $ 56,387 $ 12,009

Cash and cash equivalents from discontinued operations 10,641 4,963

Total $ 67,028 $ 16,972

See accompanying notes to unaudited condensed consolidated financial statements.

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Description of Business.

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

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

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

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

We conduct operations in three segments:

Prior to the sale of our Quest Integrity segment (“Quest Integrity”) as discussed below, we conducted operations in three segments:

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

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

We currently conduct operations in two segments.

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

inspection to assess condition;

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

On November 1, 2022, we completed the sale of all of the issued and outstanding equity interests of our wholly-owned subsidiary, TQ Acquisition Inc., a Texas corporation (“TQ Acquisition”), to Baker Hughes Holdings LLC (“Baker Hughes”) for an aggregate purchase price of approximately $ 279 million, reflecting certain estimated post-closing adjustments (the “Quest Integrity Transaction”), pursuant to that certain Equity Purchase Agreement by and among us and Baker Hughes, dated as of August 14, 2022 (the “Sale Agreement”).

TQ Acquisition and its subsidiaries constituted Quest Integrity, which provided integrity and reliability management solutions for the process, pipeline and power sectors.

In connection with the Quest Integrity Transaction, the credit support in the form of guarantees and liens on assets, as applicable, of TQ Acquisition and its subsidiaries in respect of our existing debt arrangements were released.

We used approximately $ 238 million of the net proceeds from the Quest Integrity Transaction to pay down $ 225.0 million term debt and certain fees associated with that repayment and related accrued interest, with the remainder reserved for general corporate purposes, thereby reducing our future debt service obligations and leverage, and improving our liquidity.

As of September 30, 2022, the criteria for reporting Quest Integrity as a discontinued operation were met and, as such, all periods presented in this Form 10-Q have been recast to present Quest Integrity as a discontinued operation.

Unless otherwise specified, the financial information and discussion in this Form 10-Q are based on our continuing operations (IHT and MS segments) and exclude any results of our discontinued operations (Quest Integrity).

Refer to Note 2 - Discontinued Operations for additional details.

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.

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

IHT also provides advanced digital imaging including remote digital video imaging and laser scanning services.

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

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and valve management solutions.

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

Prior to its sale, Quest Integrity provided integrity and reliability management solutions for the process, pipeline and power sectors.

These solutions encompass two broadly-defined disciplines:

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

As referenced previously, Quest Integrity is now reported as discontinued operations.

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

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

As of December 31, 2021 we had $ 14.1 million of deferred employer payroll taxes outstanding and we paid $ 7.0 million of the deferred payroll taxes in January 2022, the

remaining balance at June 30, 2022 of $ 7.1 million is due at the end of 2022.

As of December 31, 2021 we had $ 14.1 million of deferred employer payroll taxes 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, and includes a $ 0.5 million balance due by discontinued operations.

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 no reduction to either our operating expenses or our selling, general and administrative expenses during the three months ended June 30, 2022, compared to $ 1.8 million and $ 0.3 million, respectively, during three months ended June 30, 2021.

We recognized a reduction of $ 0.6 million and $ 0.1 million to our operating expenses and our selling, general and administrative expenses, respectively, during the six months ended June 30, 2022, and $ 3.8 million and $ 0.7 million, respectively during the six months ended June 30, 2021.

As these other governments review compliance with their relief programs, we may be required to return a portion of these funds.

During the three months ended September 30, 2022, we did not receive any related government subsidies.

During the three months ended September 30, 2021, we recognized a $ 1.8 million and $ 0.3 million reduction to our operating expenses and selling, general and administrative expenses, respectively.

We recognized a reduction of $ 0.6 million and $ 0.1 million to our operating expenses and our selling, general and administrative expenses, respectively, related to these programs during the nine months ended September 30, 2022, and $ 5.6 million and $ 1.0 million, respectively, during the nine months ended September 30, 2021 related to these programs.

Inflation rates and currency exchange rates continue to have an effect on worldwide economies and, consequently, on the way the Company operates.

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For further information regarding the risks we face relating to inflation, see “Risk Factors - We may experience inflationary pressures in our operating costs and cost overruns on our projects” in our Annual Report on Form 10-K for the year ended December 31, 2021.

For further information regarding the risks we face relating to inflation, see "Risk Factors - We may experience inflationary pressures in our operating costs and cost overruns on our projects" in our Annual Report on Form 10-K for the year ended December 31, 2021.

Ukraine Conflict.

The Company does not have employees or operations in Russia or Ukraine.

Sanctions and other trade controls imposed by the United States and other governments in response to Russia’s military operations in Ukraine could impact our supply chain in future periods.

Sanctions and other trade controls imposed by the United States (U.S.) and other governments in response to Russia’s military operations in Ukraine could impact our supply chain in future periods.

While it is difficult to estimate the impact of current or future sanctions on the Company’s business and financial position, these sanctions could adversely impact the Company’s sales, cost of procuring raw materials, or distribution costs in future periods.

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These condensed consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (GAAP).

generally accepted accounting principles (GAAP) and the rules and regulations of the Securities and Exchange Commission.

In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results for such periods.

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Certain disclosures have been condensed or omitted from the interim financial statements included in this report.

These financial statements should be read in conjunction with the condensed consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission.

These financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission.

Consolidation.

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Our liquidity may be affected by improvements and declines in commodity prices, our segments’ operational performance, and our ability to access capital and credit markets.

We evaluated the Company’s liquidity within one year after the date of issuance of these unaudited condensed consolidated financial statements to determine if there is substantial doubt about the Company’s ability to continue as a going concern.

We evaluated our liquidity within one year after the date of issuance of these unaudited condensed consolidated financial statements to determine if there is substantial doubt about the Company’s ability to continue as a going concern.

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

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

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

The cash flow projections were based on known or planned cash requirements for operating and financing costs and include management’s best estimate regarding future customer activity levels, pricing for its services and for its supplies and other factors.

Actual results could vary significantly from those projections.

We do not believe, based on the Company’s forecast that current working capital, cash flow from operations, and capital expenditure financing is sufficient to fund the operations, maintain compliance with our debt covenants (as amended), and satisfy the Company’s obligations as they come due within one year after the date of issuance of these condensed consolidated financial statements.

Our 5.00 % Convertible Senior Notes are due on August 1, 2023 (the "Notes") and have a principal balance of $ 95.2 million.

We are exploring alternatives to reduce or refinance the Notes outstanding balance, including extending the maturity.

We do not believe, based on the Company’s forecast, that current working capital, cash flow from operations, and capital expenditure financing is sufficient to fund the operations, maintain compliance with our debt covenants (as amended), and satisfy the Company’s obligations, specifically with respect to the Notes described below, as they come due within one year after the date of issuance of these condensed consolidated financial statements.

Our 5.00 % Convertible Senior Notes are due on August 1, 2023 (the “Notes”) and had a principal balance of $ 97.4 million as of September 30, 2022, which was subsequently reduced to $ 41.2 million as a result of the exchange transactions described in Note 12 - Debt.

We are exploring alternatives to reduce or refinance the Notes outstanding balance, including extending their maturity as well as other alternatives.

However, there is no assurance that we will be able to execute a reduction, extension, or refinancing of the Notes or that the terms of any replacement financing would be as favorable as the terms of the Notes prior to the maturity date.

Under the terms of our amended financing arrangements that were entered into during 2022, the Maturity Reserve Trigger Date, as defined in the ABL Credit Agreement (as defined herein), and the Maturity Trigger Date as defined in the Term Loan Credit Agreement (as defined herein), collectively referred to as the “Trigger Date” is now May 18, 2023.

Therefore, the Notes balance must be paid down to $ 10.0 million by May 18, 2023, or the Company must have equivalent cash on hand to pay down the Notes to $ 10.0 million.

The failure to pay down the Notes by the Trigger Date would be an event of default under our Term Loan Credit Agreement (as defined herein), Subordinated Term Loan Credit Agreement, ABL Credit Facility, and Corre Delayed Draw Term Loan (as defined herein) since these instruments contain cross default provisions, resulting in these debt instruments becoming payable on demand.

Therefore, the Notes balance must be paid down to $ 10.0 million by June 17, 2023, or the Company must have equivalent cash on hand to pay down the balance of the Notes to $ 10.0 million.

The failure to pay down the Notes by the Trigger Date would be an event of default under our Term Loan Credit Agreement (as defined herein), Subordinated Term Loan Credit Agreement (as defined herein), ABL Credit Facility, and Corre Delayed Draw Term Loan (as defined herein) since these instruments contain cross default provisions, resulting in these debt instruments becoming payable on demand.

Refer to Note 12 - Debt for more information on the terms and maturity dates of our debt that may affect our future liquidity.

As of June 30, 2022, we are in compliance with our debt covenants.

However, without the consummation of a refinancing transaction or agreement to extend the Notes maturity date, there is a risk that the Company could be, among other things, unable to make principal payments on the Notes to satisfy the Trigger Date provision.

Failure to pay down the principal on the Notes to $ 10.0 million by May 18, 2023 will result in an event of default and the associated cross defaults noted above under the Company’s other debt instruments.

As a result of our current financial resources and no guarantee that we will be able to obtain an extension or amend the financial covenants contained therein, we intend to refinance the Notes.

Any such refinancing may include the issuance of additional notes, common or preferred stock or a combination thereof.

However, there is no assurance that we will be able to execute this refinancing or repayment prior to the Trigger Date, and as such, substantial doubt exists that we have the ability to continue as a going concern.

On October 4, 2022, we entered into Amendment No.

8 (“Amendment No.

8”) to the Subordinated Term Loan Credit Agreement (as defined below).

See Note 12 - Debt for additional details.

On November 1, 2022, we completed the Quest Integrity Transaction with Baker Hughes, as discussed above, for an aggregate purchase price of approximately $ 279 million, reflecting certain estimated post-closing adjustments, in accordance with the Sale Agreement.

We used the net proceeds from the sale of Quest Integrity to pay down $ 225.0 million term debt and

certain fees associated with that repayment and related accrued interest, with the remainder reserved for general corporate purposes, thereby reducing our future debt service obligations and leverage, and improving our liquidity.

On November 4, 2022, we entered into Amendment No.

9 (“Amendment No.9”) to the Term Loan Credit Agreement and Amendment No.

10 (“Amendment No.

10”) to the Subordinated Term Loan Credit Agreement.

See Note 12 - Debt for additional details.

As of September 30, 2022, we are in compliance with our debt covenants.

Failure to pay down the principal on the Notes to $ 10.0 million by June 17, 2023, or pay it off at the maturity date on August 1, 2023 will result in an event of default and the associated cross defaults noted above under the Company’s other debt instruments.

As a result of our current financial resources and no guarantee that we will be able to obtain an extension or amend the financial covenants, substantial doubt exists that we have the ability to continue as a going concern.

We are evaluating and will continue to explore strategic alternatives to a refinancing transaction or the reduction of the debt, including negotiating amendments to our credit facilities and the financial covenants contained therein, the sale of assets, or other alternative financing transactions.

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The unaudited condensed consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern .

On August 15, 2022, Team announced it has 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 of this transaction Team’s expects its liquidity and debt profile to be significantly improved, refer to Note 20 - Subsequent Events for additional details regarding this transaction.

Use of estimates.

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Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements.

Estimates and judgments are used in, among other things, (1) aspects of revenue recognition, (2) valuation of acquisition related tangible and intangible assets and assessments of all long-lived assets for possible impairment, (3) estimating various factors used to accrue liabilities for workers’ compensation, auto, medical, and general liability, (4) establishing an allowance for uncollectible accounts receivable, (5) estimating the useful lives of our assets, (6) assessing future tax exposure and the realization of tax assets, (7) selecting assumptions used in the measurement of costs and liabilities associated with defined benefit pension plans, (8)

assessments of fair value and (9) managing our foreign currency risk in foreign operations.

Our most significant accounting policies are described below.

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The fair value of our ABL Credit Facility and Term Loans is representative of the carrying value based upon the variable terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the debt.

The fair value of our Notes as of June 30, 2022 and December 31, 2021 is $ 95.2 million and $ 84.0 million, respectively, (inclusive of the fair value of the conversion option) and are a “Level 2” measurement, determined based on the observed trading price of these instruments.

The fair value of our Notes as of September 30, 2022 and December 31, 2021 is $ 97.4 million and $ 84.0 million, respectively, (inclusive of the fair value of the conversion option) and are a “Level 2” measurement, determined based on the observed trading price of

these instruments.

For additional information regarding our ABL Credit Facilities, Atlantic Park Term Loan, Subordinated Term Loan and Notes, see Note 12 - Debt .

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Goodwill and intangible assets.

We allocate the purchase price of acquired businesses to their identifiable tangible assets and liabilities, such as accounts receivable, inventory, property, plant and equipment, accounts payable and accrued liabilities.

We also allocate a portion of the purchase price to identifiable intangible assets, such as client relationships, non-compete agreements, trade names, technology, and licenses.

Allocations are based on estimated fair values of assets and liabilities.

We use all available information to estimate fair values including quoted market prices, the carrying value of acquired assets, and widely accepted valuation techniques such as discounted cash flows.

Certain estimates and judgments are required in the

application of the fair value techniques, including estimates of future cash flows, selling prices, replacement costs, economic lives, and the selection of a discount rate, as well as the use of “Level 3” measurements as defined in ASC 820.

Deferred taxes are recorded for any differences between the assigned values and tax bases of assets and liabilities.

Estimated deferred taxes are based on available information concerning the tax bases of assets acquired and liabilities assumed and loss carryforwards at the acquisition date, although such estimates may change in the future as additional information becomes known.

Any remaining excess of cost over allocated fair values is recorded as goodwill.

We typically engage third-party valuation experts to assist in determining the fair values for both the identifiable tangible and intangible assets.

The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, could materially impact our results of operations.

Goodwill and intangible assets acquired in a business combination determined to have an indefinite useful life are not amortized, but are instead tested for impairment, and assessed for potential triggering events, at least annually in accordance with the provisions of the ASC 350 Intangibles—Goodwill and Other (“ASC 350”).

Intangible assets with finite lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with ASC 360- 10 Impairment or Disposal of Long-Lived Assets (“ASC 360”).

There was no impairment recorded for long-lived assets as of June 30, 2022.

We assess goodwill for impairment at the reporting unit level, which we have determined to be the same as our operating segments.

As of June 30, 2022, the only Company segment with goodwill was Quest Integrity, which goodwill is related to historical acquisitions.

As of September 30, 2022 and December 31, 2021, there was no goodwill on the Company’s balance sheets related to continuing operations.

The only segment with goodwill was Quest Integrity, which is included in discontinued operations.

If the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

We test our goodwill for impairment annually on December 1 of each year and whenever we become aware of an event or a change in circumstances that would indicate the carrying value may be impaired.

There was no goodwill impairment recorded for the six-month period ended June 30, 2022.

There was no goodwill impairment recorded for the nine months ended September 30, 2022.

Goodwill impairment of $ 55.8 million was recorded for the three months and nine months ended September 30, 2021 in our continuing operations related to our MS operating segment.

Income taxes.

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In accordance with ASC 450 Contingencies (“ASC 450”), we record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

We review our loss contingencies on an ongoing basis to ensure that we have appropriate reserves

recorded on our balance sheet.

We review our loss contingencies on an ongoing basis to ensure that we have appropriate reserves recorded on our balance sheet.

These reserves are based on historical experience with claims incurred but not received, estimates and judgments made by management, applicable insurance coverage for litigation matters, and are adjusted as circumstances warrant.

For workers’ compensation, our self-insured retention is $ 1.0 million and our automobile liability self-insured retention is currently $ 2.0 million per occurrence.

For general liability claims, we have an effective self-insured retention of $ 6.0 million per occurrence.

For workers’ compensation, our self-insured retention is $ 1.0 million and our automobile liability deductible is $ 2.0 million per occurrence.

For general liability claims, we have a deductible of $ 1.0 million and a self-insured retention of $ 5.0 million per occurrence.

For medical claims, our self-insured retention is $ 0.4 million per individual claimant determined on an annual basis.

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Accordingly, the conversion spread is included in the denominator for the computation of diluted earnings per common share using the treasury stock method and the numerator is adjusted for any recorded gain or loss, net of tax, on the embedded derivative associated with the conversion feature.

For the three and six months ended June 30, 2022 and 2021, all outstanding share-based compensation awards were excluded from the calculation of diluted loss per share because their inclusion would be antidilutive due to the loss from continuing operations in those periods.

Also, for the three and six months ended June 30, 2022 and 2021, potential shares issuable upon the conversion of the Notes were excluded from the calculation of diluted earnings (loss) per share since the conversion price exceeded the average price of our common stock during the applicable periods.

For information regarding our Notes and our share-based compensation awards, refer to Note 11 - Debt and Note 14 - Employee Benefit Plans , respectively.

For the three and nine months ended September 30, 2022 and 2021, all outstanding share-based compensation awards were excluded from the calculation of diluted loss per share because their inclusion would be antidilutive due to the loss from continuing operations in those periods.

Also, for the three and nine months ended September 30, 2022 and 2021, potential shares issuable upon the conversion of the Notes were excluded from the calculation of diluted earnings (loss) per share since the conversion price exceeded the average price of our common stock during the applicable periods.

For information regarding our Notes and our share-based compensation awards, refer to Note 12 - Debt and Note 14 - Share-Based Compensation , respectively.

Non-cash investing and financing activities.

Non-cash investing and financing activities are excluded from the condensed consolidated statements of cash flows and are as follows (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Assets acquired under finance lease $ 752 $ 611 $ 852 $ 1,017

Also, we had $ 3.0 million and $ 1.5 million of accrued capital expenditures as of June 30, 2022 and June 30, 2021, respectively, which are excluded from the condensed consolidated statements of cash flows until paid.

Also, we had $ 1.4 million and $ 1.7 million of accrued capital expenditures as of September 30, 2022 and September 30, 2021, respectively, which are excluded from the condensed consolidated statements of cash flows until paid.

Foreign currency .

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We have historically executed a foreign currency hedging program to mitigate the foreign currency risk in countries where we have significant assets and liabilities denominated in currencies other than the functional currency.

There were no foreign currency swap contracts outstanding during the three and six months ended June 30, 2022.

Our hedging program ended in October 2021.

The impact from the foreign currency swap contracts was not material for the three and nine months ended September 30, 2021.

Defined benefit pension plans.

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Reclassifications.

Certain amounts in prior periods have been reclassified to conform to the current year presentation.

Certain amounts in prior periods have been reclassified to conform to the current year presentation, including the separate presentation and reporting of discontinued operations.

Such reclassifications did not have any effect on our financial condition or results of operations as previously reported.

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While we are currently determining whether we will elect the optional expedients, we do not expect our adoption of these ASUs to have a significant impact on our consolidated financial position, results of operations, and cash flows.

We do not expect our adoption of these ASUs to have a significant impact on our consolidated financial position, results of operations, and cash flows.

DISCONTINUED OPERATIONS

On November 1, 2022, we completed the Quest Integrity Transaction with Baker Hughes for an aggregate purchase price of approximately $ 279 million, reflecting certain estimated post-closing adjustments, in accordance with the Sale Agreement.

We used the net proceeds from the sale of Quest Integrity to pay down $ 225.0 million of term debt and certain fees associated with that repayment and related accrued interest, with the remainder reserved for general corporate purposes, thereby reducing our future debt service obligations and leverage, and improving our liquidity.

Quest Integrity previously represented a reportable segment.

Following the completion of the Quest Integrity Transaction, we now operate in two segments, IHT and MS.

Refer to Note 1 – Summary of Significant Accounting Policies and Practices for additional details regarding the Quest Integrity Transaction.

Our condensed consolidated balance sheets and condensed consolidated statements of operations report discontinued operations separate from continuing operations.

Our condensed consolidated statements of comprehensive loss, statements of equity and statements of cash flows combine continuing and discontinued operations.

A summary of financial information related to our discontinued operations is presented in the tables below.

The table below represents the reconciliation of the major line items consisting of pretax income from discontinued operations to the after-tax income from discontinued operations (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Major classes of line items constituting income (loss) from discontinued operations

Revenues $ 29,441 $ 19,531 $ 88,704 $ 59,858

Operating expenses ( 12,052 ) ( 10,720 ) ( 39,508 ) ( 32,878 )

Selling, general and administrative expenses ( 8,832 ) ( 7,109 ) ( 26,422 ) ( 19,531 )

Restructuring and other related charges, net — — — ( 297 )

Interest expense, net ( 78 ) ( 61 ) ( 108 ) ( 204 )

Other expense ( 2,675 ) ( 856 ) ( 4,934 ) ( 1,964 )

Income before income taxes from discontinued operations 5,804 785 17,732 4,984

Provision for income taxes ( 2,057 ) ( 1,521 ) ( 1,464 ) ( 1,004 )

Net income (loss) from discontinued operations $ 3,747 $ ( 736 ) $ 16,268 $ 3,980

The table below represents the reconciliation of the major classes of assets and liabilities of the discontinued operations to amounts presented separately in the condensed consolidated balance sheets (in thousands):

September 30, 2022 December 31, 2021

Carrying amount of major classes of assets included as part of discontinued operations

Cash and cash equivalents $ 10,641 $ 10,122

Accounts receivable, net 25,640 20,499

Prepaid expenses and other current assets 8,077 3,805

Property, plant and equipment, net 17,131 15,879

Goodwill and intangible assets, net 25,311 26,823

Other classes of assets that are not major 1,870 5,968

Total assets associated with discontinued operations $ 88,670 $ 83,096

Carrying amounts of major classes of liabilities included as part of discontinued operations

Accounts payable $ 1,923 $ 2,125

Other accrued liabilities 13,162 9,363

Operating lease obligations 1,812 2,368

Other classes of liabilities that are not major 2,478 2,540

Total liabilities associated with discontinued operations $ 19,375 $ 16,396

The assets and liabilities in discontinued operations are measured at the lower of their carrying value and fair value less cost to sell.

During the three months and nine months ended September 30, 2022, it was not necessary to write-down any assets or liabilities attributable to the disposal group in discontinued operations to fair value, less costs to sell.

Quest Integrity had $ 0.02 million and $ 0.3 million of accrued capital expenditures as of September 30, 2022 and September 30, 2021, respectively, which are excluded from the condensed consolidated statements of cash flows until paid.

The following table presents the depreciation and amortization and capital expenditures of Quest Integrity (in thousands):

Nine Months Ended September 30,

Cash flows provided by operating activities of discontinued operations:

Depreciation and amortization $ 1,143 $ 2,016

Cash flows provided by investing activities of discontinued operations:

Capital expenditures $ 3,703 $ 2,365

In accordance with ASC Topic 606, Revenue from Contracts with Customers , (“ASC 606”) we follow a five-step process to recognize revenue:

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Certain contracts may contain a combination of fixed and variable elements.

We act as a principal and have performance obligations to provide the service itself or oversee the services provided by any subcontractors.

We may act as a principal and have performance obligations to provide the service itself or oversee the services provided by any subcontractors.

Revenue is measured based on consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties, such as taxes assessed by governmental authorities.

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Billings under certain fixed-price contracts may be based upon the achievement of specified milestones, while some arrangements may require advance customer payment.

Our contracts do not include significant financing components since the contracts typically span less than one year.

Our contracts do not include significant financing components since the contracts typically span

less than one year.

Contracts generally include an assurance type warranty clause to guarantee that the services comply with agreed specifications.

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Geographic area:

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

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021

(unaudited) (unaudited)

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MS 76,135 31,892 108,027 63,885 32,518 96,403

Quest Integrity 18,634 11,091 29,725 16,480 7,764 24,244

Total $ 184,144 $ 34,195 $ 218,339 $ 162,697 $ 35,182 $ 197,879

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

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021

(unaudited) (unaudited)

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MS 217,749 91,135 308,884 189,234 91,732 280,966

Quest Integrity 33,324 25,939 59,263 25,535 14,792 40,327

Total $ 530,677 $ 98,240 $ 628,917 $ 492,105 $ 98,938 $ 591,043

Operating segment and service type:

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total

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MS — 106,776 125 1,126 108,027

Quest Integrity 29,725 — — — 29,725

Total $ 87,267 $ 106,795 $ 16,482 $ 7,795 $ 218,339

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total

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MS — 95,560 71 772 96,403

Quest Integrity 24,244 — — — 24,244

Total $ 80,553 $ 95,616 $ 11,999 $ 9,711 $ 197,879

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total

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MS — 305,277 238 3,369 308,884

Quest Integrity 59,263 — — — 59,263

Total $ 255,419 $ 305,435 $ 46,221 $ 21,842 $ 628,917

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total

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MS — 278,685 768 1,513 280,966

Quest Integrity 40,327 — — — 40,327

Total $ 244,374 $ 279,029 $ 43,418 $ 24,222 $ 591,043

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Contract assets and contract liabilities are generally classified as current.

The following table provides information about trade accounts receivable, contract assets and contract liabilities as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021 Change

The following table provides information about trade accounts receivable, contract assets and contract liabilities as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021 Change

Trade accounts receivable, net 1

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$ 2,071 $ 313 $ 1,758

Trade accounts receivable, contract assets and contract liabilities - discontinued operations 4

$ 30,000 $ 22,366 $ 7,634

_________________

1 Includes billed and unbilled amounts, net of allowance for credit losses.

See Note 4 - Receivables for details.

2 Included in the “Prepaid expenses and other current assets” line on the condensed consolidated balance sheets.

3 Included in the “Other accrued liabilities” line of the condensed consolidated balance sheets.

The $ 0.5 million decrease in our contract assets from December 31, 2021 to June 30, 2022 is due to less fixed price contracts in progress at June 30, 2022 as compared to December 31, 2021.

Contract liabilities increased by $ 1.0 million as of June 30, 2022.

2 Portion of continued operations is included in the “Prepaid expenses and other current assets” line on the condensed consolidated balance sheets.

3 Portion of continued operations is included in the “Other accrued liabilities” line of the condensed consolidated balance sheets.

4 The total of trade accounts receivable, contract assets, contract liabilities and net accounts receivable of discontinued operations, which is included in the respective lines above.

The $ 0.7 million increase in our contract assets from December 31, 2021 to September 30, 2022 is due to more fixed price contracts in progress at September 30, 2022 as compared to December 31, 2021.

Contract liabilities increased by $ 1.8 million as of September 30, 2022.

The increase is associated with contracts under which customers have paid all or a portion of the consideration in advance of the work being performed.

Due to the short-term nature of our contracts, contract liability balances as of the end of any period are generally recognized as revenue in the following quarter.

Accordingly, essentially all of the contract liability balance at December 31, 2021 was recognized as revenue by the six months ended June 30, 2022.

Accordingly, essentially all of the contract liability balance at December 31, 2021 was recognized as revenue by the nine months ended September 30, 2022.

Contract costs.

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Costs to fulfill a contract recognized as assets primarily consist of labor and materials costs and generally relate to engineering and set-up costs incurred prior to the satisfaction of performance obligations.

Assets recognized for costs to fulfill a contract are included in the “Prepaid expenses and other current assets” line of the condensed consolidated balance sheets and were not material as of June 30, 2022 and December 31, 2021.

Such assets are recognized as expenses as we transfer the related goods or services to the customer.

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Remaining performance obligations.

As of June 30, 2022 and 2021, there were no material amounts of remaining performance obligations that are required to be disclosed.

As of September 30, 2022 and December 31, 2021, there were no material amounts of remaining performance obligations that are required to be disclosed.

As permitted by ASC 606, we have elected not to disclose information about remaining performance obligations where (i) the performance obligation is part of a contract that has an original expected duration of one year or less or (ii) when we recognize revenue from the satisfaction of the performance obligation in accordance with the right-to-invoice practical expedient.

A summary of accounts receivable as of June 30, 2022 and December 31, 2021 is as follows (in thousands):

June 30, 2022 December 31, 2021

A summary of accounts receivable as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

September 30, 2022 December 31, 2021

Trade accounts receivable $ 171,908 $ 161,751

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Total 213,684 188,772

Accounts receivable, net - discontinued operations ( 25,640 ) ( 20,499 )

Accounts receivable, net - continuing operations $ 188,044 $ 168,273

ASC 326, Credit Losses , applies to financial assets measured at amortized cost, including trade and unbilled accounts receivable, and requires immediate recognition of lifetime expected credit losses.

Significant factors that affect the expected collectability of our receivables include macroeconomic trends and forecasts in the oil and gas, refining, power, and petrochemical markets and changes in our results of operations and forecasts.

For unbilled receivables, we consider them as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate.

For unbilled receivables, we consider them as

short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate.

We have identified the following factors that primarily impact the collectability of our receivables and therefore determine the pools utilized to calculate expected credit losses:

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We believe that the historical loss information we have compiled is a reasonable basis on which to determine expected credit losses for trade receivables because the composition of the trade receivables is consistent with that used in developing the historical credit-loss percentages as typically our customers and payment terms do not change significantly.

Generally, a longer outstanding receivable equates to a higher percentage of the outstanding balance as current expected credit losses.

We update the historical loss information for current conditions and reasonable and supportable forecasts that affect the expected collectability of the trade receivable using a loss-rate approach.

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The following table shows a rollforward of the allowance for credit losses (in thousands):

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Balance at beginning of period $ 8,912 $ 9,918

Provision for expected credit losses 30 2,193

Expected credit loss adjustment 1

( 442 ) 2,193

Write-offs ( 2,414 ) ( 3,143 )

1 unchanged sentence

Balance at end of period 5,866 8,912

A summary of inventory as of June 30, 2022 and December 31, 2021 is as follows (in thousands):

June 30, 2022 December 31, 2021

Allowance for credit losses - discontinued operations ( 1,061 ) ( 1,069 )

Allowance for credit losses - continuing operations $ 4,805 $ 7,843

_________________

1 Includes $ 0.7 million and $ 0.5 million of recoveries on allowance for credit losses, for the nine months ended September 30, 2022 and twelve months ended December 31, 2021, respectively.

A summary of inventory as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

September 30, 2022 December 31, 2021

Raw materials $ 8,811 $ 7,641

2 unchanged sentences

Total 36,992 35,754

Total inventory - discontinued operations — ( 379 )

Total inventory - continuing operations $ 36,992 $ 35,375

PREPAID AND OTHER CURRENT ASSETS

A summary of prepaid and other current assets as of June 30, 2022 and December 31, 2021 is as follows (in thousands):

June 30, 2022 December 31, 2021

A summary of prepaid and other current assets as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

September 30, 2022 December 31, 2021

Insurance receivable $ 39,000 $ 39,000

2 unchanged sentences

Total 73,954 59,868

Prepaid and other current assets - discontinued operations ( 8,077 ) ( 3,805 )

Prepaid and other current assets - continuing operations $ 65,877 $ 56,063

The insurance receivable relates to the receivable from our third-party insurance providers for a legal claim that is recorded in other accrued liabilities, refer to Note 10 - Other Accrued Liabilities .

These receivables will be covered by our third-party insurance providers for a litigation matter that has been settled, or are pending settlements where the deductibles have been satisfied.

These receivables are covered by our third-party insurance providers for any litigation matter that has been settled, or pending settlements where the deductibles have been satisfied.

The prepaid expenses primarily relate to prepaid insurance and other expenses that have been paid in advance of the coverage period.

The other current assets primarily include items such as contract assets, receivables from third parties, and other accounts receivables.

As of June 30, 2022 the other current assets also includes the deferred financing cost amounting to $ 6.6 million due to all long term debts now classified as current (see Note 11 - Debt for additional details), and a portion of the MS segment’s land, building and leasehold improvement assets held for sale with a net book value of $ 0.9 million with anticipated sale closing prior to December 31, 2022.

Historically these assets were presented in the other assets, net, and property, plant and equipment section respectively of the balance sheet, and comparative periods were not adjusted.

The other current assets primarily include items such as contract assets, receivables from third parties, and other non-trade related accounts receivables.

As of September 30, 2022 the other current assets include deferred financing cost amounting to $ 4.8 million due to all long-term debt now being classified as current.

Historically these assets were presented in “other assets, net”, and comparative periods were not adjusted.

Other current assets also include 1970 Group Inc.

(“1970 Group”) deferred financing fees amounting to $ 2.9 million in connection with that certain Substitute Insurance Reimbursement Facility Agreement dated as of September 29, 2022 (the “Substitute Insurance Reimbursement Facility Agreement”), by and between us and 1970 Group (see Note 12 - Debt for additional details).

PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment as of June 30, 2022 and December 31, 2021 is as follows (in thousands):

June 30, 2022 December 31, 2021

A summary of property, plant and equipment as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

September 30, 2022 December 31, 2021

Land $ 4,523 $ 5,743

9 unchanged sentences

Property, plant and equipment, net 155,628 161,359

Included in the table above are assets under finance leases of $ 6.2 million and $ 6.7 million, and accumulated amortization of $ 1.8 million and $ 1.6 million as of June 30, 2022 and December 31, 2021, respectively.

Depreciation expense for the three months ended June 30, 2022 and 2021 was $ 6.2 million and $ 6.8 million, respectively.

Depreciation expense for the six months ended June 30, 2022 and 2021 was $ 12.8 million and $ 14.3 million, respectively.

Property, plant and equipment, net - discontinued operations ( 17,131 ) ( 15,879 )

Property, plant and equipment, net - continuing operations $ 138,497 $ 145,480

Included in the table above are assets under finance leases of $ 7.0 million and $ 6.7 million, and accumulated amortization of $ 2.1 million and $ 1.6 million as of September 30, 2022 and December 31, 2021, respectively.

Depreciation expense for the three months ended September 30, 2022 and 2021 was $ 5.5 million and $ 6.7 million, respectively.

Depreciation expense for the nine months ended September 30, 2022 and 2021 was $ 18.3 million and $ 21.0 million, respectively.

Assets sold and disposed of for the nine months ended September 30, 2022 and twelve months ended December 31, 2021 had a cost basis of $ 10.1 million and $ 2.8 million, respectively.

The cost basis of $ 10.1 million for the nine months ended September 30, 2022 consisted of $ 5.8 million in machinery and equipment, $ 2.1 million in buildings, $ 1.3 million in land, $ 0.8 million in leasehold improvements and $ 0.1 million in other assets.

The cost basis of $ 2.8 million for the twelve months ended December 31, 2021 consisted of $ 2.5 million in machinery and equipment, $ 0.2 million in vehicles and $ 0.1 million in other assets.

INTANGIBLE ASSETS

A summary of intangible assets as of June 30, 2022 and December 31, 2021 is as follows (in thousands):

June 30, 2022 December 31, 2021

A summary of intangible assets as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

September 30, 2022 December 31, 2021

Amount Accumulated

8 unchanged sentences

Total $ 212,819 $ ( 132,865 ) $ 79,954 $ 214,095 $ ( 124,197 ) $ 89,898

Amortization expense of intangible assets for the three months ended June 30, 2022 and June 30, 2021 was $ 3.4 million and $ 3.6 million, respectively.

Amortization expense of intangible assets for the six months ended June 30, 2022 and June 30, 2021 was $ 6.8 million and $ 7.0 million, respectively.

Intangible assets - discontinued operations ( 19,468 ) 18,094 ( 1,374 ) ( 20,186 ) 18,606 ( 1,580 )

Intangible assets - continuing operations $ 193,351 $ ( 114,771 ) $ 78,580 $ 193,909 $ ( 105,591 ) $ 88,318

Amortization expense of intangible assets for the three months ended September 30, 2022 and September 30, 2021 was $ 3.4 million and $ 3.4 million, respectively.

Amortization expense of intangible assets for the nine months ended September 30, 2022 and September 30, 2021 was $ 10.2 million and $ 10.5 million, respectively.

Amortization expense for intangible assets is forecast to be approximately $ 13.1 million per year from 2022 through 2025.

The weighted-average amortization period for intangible assets subject to amortization was 13.7 years as of June 30, 2022 and December 31, 2021.

The following table presents a rollforward of goodwill for the six months ended June 30, 2022 as follows (in thousands):

IHT MS Quest Integrity Consolidated

Goodwill, Gross Accumulated Impairment Goodwill, Net Goodwill, Gross Accumulated Impairment Goodwill, Net Goodwill, Gross Accumulated Impairment Goodwill, Net Goodwill, Gross Accumulated Impairment Goodwill, Net

Balance at December 31, 2021 $ 212,928 $ ( 212,928 ) $ — $ 109,938 $ ( 109,938 ) $ — $ 34,038 $ ( 8,795 ) $ 25,243 $ 356,904 $ ( 331,661 ) $ 25,243

FX Adjustments — — — — — — ( 696 ) — ( 696 ) ( 696 ) — ( 696 )

Balance at June 30, 2022 $ 212,928 $ ( 212,928 ) $ — $ 109,938 $ ( 109,938 ) $ — $ 33,342 $ ( 8,795 ) $ 24,547 $ 356,208 $ ( 331,661 ) $ 24,547

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

The weighted-average amortization period for intangible assets subject to amortization was 13.7 years as of September 30, 2022 and December 31, 2021.

We did not have any goodwill balance in our IHT or MS segments as of September 30, 2022 or December 31, 2021.

See Note 1 - Summary of Significant Accounting Policies and Practices and Note 2 - Discontinued Operations for additional details as the remaining goodwill existed at Quest Integrity.

OTHER ACCRUED LIABILITIES

A summary of other accrued liabilities as of June 30, 2022 and December 31, 2021 is as follows (in thousands):

June 30, 2022 December 31, 2021

A summary of other accrued liabilities as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

September 30, 2022 December 31, 2021

Legal and professional accruals $ 47,475 $ 46,762

6 unchanged sentences

Total $ 129,639 $ 121,099

Other accrued liabilities - discontinued operations ( 13,162 ) ( 9,363 )

Other accrued liabilities - continuing operations $ 116,477 $ 111,736

Legal and professional accruals include accruals for legal and professional fees as well as accrued legal claims, refer to Note 17 - Commitments and Contingencies .

Certain legal claims are covered by insurance and the related insurance receivable

for these claims is recorded in prepaid expenses and other current assets, refer to Note 5 - Prepaid and Other Current Assets .

Certain legal claims are covered by insurance and the related insurance receivable for these claims is recorded in prepaid expenses and other current assets, refer to Note 6 - Prepaid and Other Current Assets .

Payroll and other compensation expenses include all payroll related accruals including, among others, accrued vacation, severance, and bonuses.

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Accrued interest relates to the interest accrued on our long-term debt.

Other accrued liabilities includes items such as contract liabilities and other accrued expenses.

We recorded an income tax provision of $ 1.8 million and $ 2.1 million for the three and six months ended June 30, 2022 compared to a provision of $ 0.9 million and $ 0.5 million for the three and six months ended June 30, 2021.

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.

For the six months ended June 30, 2022, our effective tax rate, inclusive of discrete items, was a provision of 4.1 %, compared to a provision of 1.0 % for the six months ended June 30, 2021.

Our effective tax rate differed from the statutory tax rate due to an increase in the valuation allowance in certain foreign jurisdictions.

Other accrued liabilities include items such as contract liabilities and other accrued expenses.

We recorded an income tax provision of $ 1.5 million and $ 4.2 million for the three and nine months ended September 30, 2022 compared to a provision of $ 7.4 million and $ 8.4 million for the three and nine months ended September 30, 2021.

The effective tax rate, inclusive of discrete items, was a provision of 5.8 % for the three months ended September 30, 2022, compared to a provision of 8.9 % for the three months ended September 30, 2021.

For the nine months ended September 30, 2022, our effective tax rate, inclusive of discrete items, was a provision of 4.7 %, compared to a provision of 6.1 % for the nine months ended September 30, 2021.

The effective tax rate differed from the statutory tax rate due to an increase in the valuation allowance in certain jurisdictions.

The effective tax rate in the prior year was also impacted by the tax benefits recognized related to the CARES Act.

The lack of going concern basis applicable for our second quarter financial statements generally requires a valuation allowance for all deferred tax assets that are not realizable through the reversal of existing timing differences or taxable income in carryback years.

While several subsidiaries have historically been profitable and for which future income was a material factor in assessing the realizability of their deferred tax assets, the substantial doubt about the Company’s ability to continue as a going concern basis casts doubt on our ability to generate future income.

The substantial doubt about the Company’s ability to continue as a going concern basis casts doubt on our ability to estimate and generate future income.

The lack of going concern basis applicable for our third quarter financial statements generally requires a valuation allowance for all deferred tax assets that are not realizable through the reversal of existing timing differences or taxable income in carryback years.

While several subsidiaries have historically been profitable and for which future income was a material factor in assessing the realizability of their deferred tax assets, the substantial doubt about the Company’s ability to continue on a going concern basis casts doubt on our ability to generate future income.

As a result, the Company included a charge of $ 0.8 million in income tax expense for the valuation allowance required to offset the remaining net deferred tax assets.

1 unchanged sentence

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

For the period ended June 30, 2022 debt with original maturities greater than one year are classified as current due to the Trigger Date provision.

For the period ended September 30, 2022, debt with original maturities greater than one year are classified as current due to the Trigger Date provision.

This provision did not impact classification of debt for the period ended December 31, 2021.

1 unchanged sentence

Team’s current and long-term debt obligations consisted of the following (in thousands):

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

ABL Facilities $ 129,816 $ 62,000

11 unchanged sentences

See Convertible Debt section below for additional information.

On August 15, 2022, Team announced it has 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 of this transaction Team’s expects its liquidity and debt profile to be significantly improved, refer to Note 20 - Subsequent Events for additional details regarding this transaction.

2 Excludes finance lease obligations associated with discontinued operations.

ABL Facilities

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 “Corre Delayed Draw Term Loans”) to be provided by Corre Partners Management, LLC and certain of its affiliates (“Corre”) (collectively, the “ABL Credit Facility”).

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 “Corre Delayed Draw Term Loans”) provided by Corre Partners Management, LLC and certain of its affiliates (“Corre”) (collectively, the “ABL Credit Facility”).

The proceeds of the loans under the ABL Credit Facility were used to, among other things, pay off the amounts owed under that certain 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.

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

The interest rate at June 30, 2022 was 5.71 % for Eclipse and 11.06 % for the Corre Delayed Draw Term Loans.

The interest rate at September 30, 2022 was 7.21 % for Eclipse and 12.56 % for the Corre Delayed Draw Term Loans.

Direct and incremental costs associated with the issuance of the ABL Credit Facility were approximately $ 8.3 million and were capitalized as deferred financing costs.

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

Unamortized deferred financing cost amounted to $ 6.6 million and $ 2.9 million at June 30, 2022 and December 31, 2021, respectively.

Unamortized deferred financing cost amounted to $ 4.8 million and $ 2.9 million at September 30, 2022 and December 31, 2021, respectively.

Additionally, the amortization period for deferred financing costs and debt discounts and issuance cost was updated to reflect the revised maturity date associated with the Trigger date provision and the related reclassification of debt as current.

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

At June 30, 2022, Team had $ 103.1 million outstanding under the Revolving Credit Loans and $ 25.0 million outstanding under the Corre Delayed Draw Term Loans.

As of June 30, 2022, subject to the applicable sublimit and other terms and conditions, the remaining $ 4.5 million of available commitments under the ABL Credit Facility was available for loans or for issuance of new letters of credit.

At September 30, 2022, Team had $ 94.8 million outstanding under the Revolving Credit Loans and $ 35.0 million outstanding under the Corre Delayed Draw Term Loans.

As of September 30, 2022, subject to the applicable sublimit and other terms and conditions, the remaining $ 1.9 million of available commitments under the ABL Credit Facility was available for loans or for issuance of new letters of credit.

There were $ 8.9 million outstanding in letters of credit, which is off-balance sheet.

Amendments in 2022:

On May 6, 2022, we entered into the ABL Credit Agreement Amendment No.

1 which, among other things, modified the Maturity Reserve Trigger Date (as defined in the ABL Credit Agreement and Note 1 - Summary of Significant Accounting Policies and Practices ) 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 rather than 120 days.

Under the terms of our amended financing arrangements the “Trigger Date” is now May 18, 2023, by which date, the Notes balance must be paid down to $ 10.0 million, or the Company must have equivalent cash on hand to pay down the Notes to $ 10.0 million.

1 which, among other things, modified the Maturity Reserve Trigger Date (as defined in the ABL Credit Agreement and Note 1 - Summary of Significant Accounting Policies and Practices ) 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 Notes was 75 days prior to their maturity date rather than 120 days or May 18, 2023, by which date, the Notes balance must be paid down to $ 10.0 million, or the Company must have equivalent cash on hand to pay down the Notes to $ 10.0 million.

In connection with the Quest Integrity Transaction, on November 1, 2022, we, the guarantors party thereto, the lender parties thereto and Eclipse, as agent, entered into Amendment No.

2 to the ABL Credit Agreement (“ABL Credit Agreement Amendment No.

2”) which, among other things, (i) modified 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 Notes is 45 days prior to the maturity date of the Notes rather than 75 days, or June 17, 2023, and (ii) made certain modifications to negative covenants and mandatory prepayment provisions.

Atlantic Park Term Loan

On December 18, 2020, we entered into certain Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with Atlantic Park Strategic Capital Fund, L.P., as agent (“APSC”), as lender (the “Term Loan Credit Agreement”), pursuant to which we borrowed a $ 250.0 million term loan (the “Term Loan”).

On December 18, 2020, we entered into a certain Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with Atlantic Park Strategic Capital Fund, L.P., as agent (“APSC”), as lender (the “Term Loan Credit Agreement”), pursuant to which we borrowed a $ 250.0 million term loan (the “Term Loan” or the “Atlantic Park Term Loan”).

The Term Loan was issued with a 3 % original issuance discount, such that total proceeds received were $ 242.5 million.

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 under certain conditions, increase the Term Loan by an amount not to exceed $ 100.0 million.

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

The effective interest rate on the Term Loan at June 30, 2022 and December 31, 2021 was 23.85 % and 20.90 %, respectively.

The increase in the effective interest rate of 2.95 % for the six months ended June 30, 2022 is due to the acceleration of the debt issuance costs triggered by the reclassification of the long term debt to current.

The unamortized balances of debt discounts, warrant discount and debt issuance cost amounted to $ 31.7 million and $ 35.8 million at June 30, 2022 and December 31, 2021, respectively.

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 effective interest rate on the Term Loan at September 30, 2022 and December 31, 2021 was 25.72 % and 20.90 %, respectively.

At September 30, 2022, the effective interest consisted of 10.24 % variable interest rate and an additional 15.48 % due to the acceleration of the debt issuance costs triggered by the substantial doubt about the ability of the Company to continue as a going concern.

At December 31, 2021, the effective interest consisted of 8.5 % variable interest rate and an additional 12.4 % due to the acceleration of the debt issuance costs triggered by lack of going concern at September 30, 2021.

The unamortized balances of debt discounts, warrant discount and debt issuance cost amounted to $ 23.4 million and $ 35.8 million at September 30, 2022 and December 31, 2021, respectively.

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

However, certain conditions could result in an earlier maturity, including if the Notes have an aggregate principal amount outstanding of $ 10.0 million or more on the Trigger Date, in which case the Term Loan will become due on the Trigger Date.

The debt is classified as current due to the Trigger Date noted above.

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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 required 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 would 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;

The Sixth Amendment, among other things, (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 required 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 would 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.

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

The Seventh Amendment, among other things and subject to the terms thereof, (i) modified 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 is increased from 7.00 to 1.00 to 12.00 to 1.00.

The Seventh Amendment, among other things, (i) modified 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) amended the financial covenants such that the maximum net leverage ratio to be tested for the fiscal quarter ending March 31, 2023 be increased from 7.00 to 1.00 to 12.00 to 1.00.

In connection with the Quest Integrity Transaction, on November 1, 2022, we, the guarantors party thereto, the lenders party thereto and APSC, as agent for the lenders and secured parties, entered into Amendment No.

8 to the Term Loan Credit Agreement (“Term Loan Amendment No.

8”) which, among other things, (i) modified mandatory prepayment requirements to allow us to retain up to $ 26.0 million of proceeds in connection with the Quest Integrity Transaction, subject to certain limitations, (ii) modified 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 45 days prior to the maturity date of the Notes rather than 75 days, or June 17, 2023, and (iii) made certain modifications to negative covenants and mandatory prepayment provisions.

On November 4, 2022, we entered into Amendment No.

9 to the Term Loan Credit Agreement.

Such amendment amended the financial covenant to provide relief from the maximum net leverage ratio covenant thereunder such that it is not tested until the fiscal quarter ending June 30, 2023 and for each fiscal quarter thereafter at 7.00 to 1.00.

Subordinated Term Loan

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”).

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

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 %.

Effective interest rate at June 30, 2022 and December 31, 2021 was 46.79 % and 19.73 %, respectively.

The increase in the effective interest rate of 27.06 % for the six months ended June 30, 2022 is due to the acceleration of the debt issuance costs triggered by the reclassification of the long term debt to current.

The unamortized debt issuance cost amounted to $ 11.6 million and $ 13.9 million at June 30, 2022 and December 31, 2021, respectively.

The stated interest rate on the Subordinated Term Loan is 12 % which is payable in the form of paid-in-kind interest (“PIK Interest”).

Effective interest rate at September 30, 2022 and December 31, 2021 was 46.79 % and 19.73 %, respectively.

At September 30, 2022, the effective interest consisted of 12 % stated interest and and additional 34.79 % due to the acceleration of the debt issuance costs triggered by the substantial doubt about the ability of the Company to continue as a going concern.

At December 31, 2021, the effective interest consisted of 12 % stated interest and an additional 7.73 % due to the acceleration of the debt issuance costs triggered by lack of going concern at September 30, 2021.

The unamortized debt issuance cost amounted to $ 9.0 million and $ 13.9 million at September 30, 2022 and December 31, 2021, respectively.

Amendments in 2022.

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

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, that, among other things, provided for an additional commitment of $ 10.0 million in subordinated delayed draw term loans to be available for borrowing by the Company until October 31, 2022 (as amended by Amendment No.

7 as described further below).

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6 to the Subordinated Term Loan Credit Agreement (the “Corre Amendment 6”) with the lenders from time to time party thereto (including Corre), and Cantor Fitzgerald Securities, as agent.

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

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

On June 28, 2022, we entered into Amendment No.

7 to the Subordinated Term Loan Credit Agreement with the lenders from time to time party thereto (including Corre), and Cantor Fitzgerald Securities, as agent, that, among other things, extended availability date for additional commitment of $ 10.0 million in subordinated delayed draw term loans from July 1, 2022 to October 31, 2022.

On December 18, 2020, in connection with the execution of the Term Loan, we issued to APSC warrants to purchase up to 3,582,949 shares of our common stock, which was initially exercisable at the holder’s option at any time, in whole or in part, until June 14, 2028, at an exercise price of $ 7.75 per share (the “Existing Warrant”).

In connection with execution of the Subordinated Term Loan Credit Agreement and Third Amendment, on November 9, 2021, we entered into an Amended and Restated Common Stock Purchase Warrant (the “A&R Warrant”) with APSC Holdco II, L.P.

2021, providing for the purchase of an aggregate of 1,417,051 shares of our common stock) and to reduce the exercise price to $ 1.50 per share.

As of June 30, 2022 no warrants have been exercised.

7 to the Subordinated Term Loan Credit Agreement with the lenders from time to time party thereto (including Corre), and Cantor Fitzgerald Securities, as agent, that, among other things, extended the availability date for the additional commitment of $ 10.0 million in subordinated delayed draw term loans from July 1, 2022 to October 31, 2022.

On October 4, 2022, we entered into Amendment No.

8 to the certain Subordinated Term Loan Credit Agreement,with the lenders from time to time party thereto and Cantor Fitzgerald Securities, as agent pursuant to which, among other things, we increased the total principal amount outstanding under the Subordinated Term Loan Credit Agreement to approximately $ 112.7 million to give effect to the exchange described below.

In addition, Amendment No.

8 extended the availability date for the additional commitment under the Subordinated Term Loan Credit Agreement of $ 10.0 million in subordinated delayed draw term loans from October 31, 2022 to December 31, 2022.

See Convertible Notes below for impact of the amendment to the Notes outstanding.

On November 1, 2022, we, as borrower, the guarantors party thereto, the lenders from time to time party thereto and Cantor Fitzgerald Securities, as agent entered into Amendment No.

9 (the “Subordinated Term Loan Amendment No.

9”) to the Subordinated Term Loan Credit Agreement.

Subordinated Term Loan Amendment No.9, among other things, (i) modified the mandatory prepayment requirements to allow us to retain up to $ 26.0 million of proceeds in connection with the Quest Integrity Transaction, subject to certain limitations and (ii) made certain modifications to negative covenants and mandatory prepayment provisions.

On November 4, 2022, we entered into Amendment No.10 to the Subordinated Term Loan Credit Agreement.

On December 18, 2020, in connection with the execution of the Term Loan Credit Agreement, we issued to APSC warrants to purchase up to 3,582,949 shares of our common stock, which was initially exercisable at the holder’s option at any time, in whole or in part, until June 14, 2028, at an exercise price of $ 7.75 per share (the “Existing Warrant”).

In connection with execution of the Subordinated Term Loan Credit Agreement and Third Amendment, on November 9, 2021, we entered

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

(“APSC Holdco”) pursuant to which the Existing Warrant was amended and restated to provide for the purchase of up to 4,082,949 shares of our common stock (which includes 500,000 of the shares of common stock issuable pursuant to warrants issued to APSC on November 8, 2021, providing for the purchase of an aggregate of 1,417,051 shares of our common stock) and to reduce the exercise price to $ 1.50 per share.

As of September 30, 2022 no warrants have been exercised.

Subscription Agreement

In connection with the transactions contemplated by the ABL Credit Agreement, Corre Partners Management, LLC and certain of its affiliates (collectively, “Corre”), agreed to provide the Company with incremental financing (the “Incremental Financing”), totaling approximately $ 55.0 million, consisting of (i) $ 35.0 million Delayed Draw Term Loans under the ABL Credit Facility as discussed above;

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

(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;

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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 the Company issued and sold the PIPE Shares to the Corre Holders on February 11, 2022.

Pursuant to and subject to the terms and conditions of the Subscription Agreement, our Board of Directors (the “Board”) is required to create a vacancy for one qualified nominee of the Corre Holders to the Board, who shall be designated by the Corre Holders and qualify as an independent director (a “Board Nominee”), and the Board is required to appoint such initial Board Nominee as a Class II director within seven business days of the date of the Subscription Agreement.

Pursuant to and subject to the terms and conditions of the Subscription Agreement, our Board of Directors (the “Board”) was required to create a vacancy for one qualified nominee of the Corre Holders to the Board, who shall be designated by the Corre Holders and qualify as an independent director (a “Board Nominee”), and the Board is required to appoint such initial Board Nominee as a Class II director within seven business days of the date of the Subscription Agreement.

This nominee has been appointed to the Board and this condition will remain active as long as the Subscription Agreements remains outstanding.

Amendments in 2022.

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 $ 52.0 million in aggregate principal amount of the Notes (such modified Notes, the “PIK Securities”).

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

In December 2020, we retired $ 136.9 million par value of our Notes, and as of June 30, 2022, the principal amount outstanding was $ 95.2 million.

As of June 30, 2022 and December 31, 2021, the Notes were recorded in our condensed consolidated balance sheets as follows (in thousands):

June 30, 2022 December 31, 2021

Convertible Notes

In December 2020, we retired $ 136.9 million par value of our Notes, and as of September 30, 2022, the principal amount outstanding was $ 97.4 million.

As of September 30, 2022 and December 31, 2021, the Notes were recorded in our condensed consolidated balance sheets as follows (in thousands):

September 30, 2022 December 31, 2021

Liability component:

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The following table sets forth interest expense information related to the Notes (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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Coupon interest 1

$ 1,624 $ 1,164 $ 4,801 $ 3,492

Amortization of debt discount and issuance costs 785 791 2,105 2,326

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Effective interest rate 10.28 % 9.12 % 10.28 % 9.12 %

_____________

1 Coupon interest for three and nine months ended September 30, 2022 includes PIK Interest of $ 1.1 million and $ 3.3 million, respectivel y.

There was no PIK Interest included in the three and nine months ended September 30, 2021 coupon interest.

Amendments in 2022.

The Supplemental Indenture amends the Indenture to, among other things, allow for interest payable on the PIK Securities on February 1, 2022 to be PIK Interest 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.

On October 4, 2022, we entered into an exchange agreement (the “Exchange Agreement”) by and among us and certain holders (collectively, the “Exchanging Holders”) of the Notes.

The Exchanging Holders held Notes that paid interest, at our option, at a rate of 5.00 % per annum entirely in cash or at a rate of 8.00 % per annum in PIK Interest.

Pursuant to the Exchange Agreement, we agreed to exchange approximately $ 57.0 million of aggregate principal amount, plus accrued and unpaid PIK Interest, of Notes beneficially owned by the Exchanging Holders for an equivalent increased principal amount of term loans (the “New Term Loans”) under the Subordinated Term Loan Credit Agreement.

We entered into the Corre/AP Term Sheet (as defined in the Subordinated Term Loan Credit Agreement) on November 9, 2021 pursuant to which each of the Exchanging Holders had the right to exchange the Notes into New Term Loans and each Exchanging Holder exercised such right.

Following the closing of the Exchange Agreement and Amendment No.

8, we have approximately $ 41.2 million in aggregate principal amount of Notes outstanding, which pay interest at a rate of 5.00 % per annum entirely in cash.

ASU 2020-06 Adoption.

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Accumulated deficit $ ( 375,584 ) $ 3,824 $ ( 371,760 )

The impact of adoption on our consolidated statements of operations for the six months ended June 30, 2022 was primarily to decrease net interest expense by $ 0.6 million.

This had the effect of decreasing our basic and diluted net loss per share of common stock attributable to common stockholders for the six months ended June 30, 2022 by $ 0.01 .

The impact of adoption on our consolidated statements of operations for the nine months ended September 30, 2022 was primarily to decreased net interest expense by $ 0.8 million.

This had the effect of decreasing our basic and diluted net loss per share of common stock attributable to common stockholders for the nine months ended September 30, 2022 by $ 0.01 .

The change in methodology by requiring the use of the if-converted method to determine the denominator used in the calculation of diluted net income per share of common stock attributable to common stockholders did not have an impact on the diluted EPS as the shares of common stock issuable upon conversion were not included in the denominator because of the antidilutive effect.

1970 Group Substitute Insurance Reimbursement Facility

On September 29, 2022, we entered into the Substitute Insurance Reimbursement Facility Agreement with 1970 Group.

Under this agreement, 1970 Group is able to extend credit to us in the form of a substitute reimbursement facility (the “Substitute Reimbursement Facility”) to provide up to approximately $ 21.4 million of letters of credit on our behalf in support of our workers’ compensation, commercial automotive and general liability insurance carriers for workers’ compensation, commercial automotive and/or general liability policies (the “Insurance Policies”).

Under the Substitute Insurance Reimbursement Facility Agreement, 1970 Group arranged for the issuance of letters of credit from financial institutions approved by the National Association of Insurance Commissioners.

Such letters of credit arranged by the 1970 Group permit the return of certain existing letters of credit for our account that are outstanding for the purpose of supporting the Insurance Policies and that are required to be collateralized, thereby providing us increased liquidity in the amount of approximately $ 21.3 million.

Under the Substitute Insurance Reimbursement Facility Agreement, we will be required to reimburse the 1970 Group for any draws made under the letters of credit within five business days of notice of any such draw.

The Substitute Insurance Reimbursement Facility Agreement will terminate upon the earlier of (i) the expiration or termination of our Insurance Policies or (ii) September 29, 2023.

This arrangement replaces our existing letters of credit.

It allowed us to release $ 16.3 million out of a total of $ 25.7 million of restricted cash previously held as collateral for the replaced letters of credit as well as reduced the outstanding letters of credit under the ABL Credit Facility by $ 5.0 million thereby improving our liquidity.

According to the provisions of ASC 470 – Debt, the arrangement is a Substitute Reimbursement Facility limited to the amounts drawn under the letters of credit.

Therefore, until we use or draw on the Substitute Reimbursement Facility, the letter of credit is treated as an off-balance sheet credit arrangement.

The fees in the amount of $ 2.9 million paid by us are deferred and amortized over the term of the arrangement.

As of September 30, 2022, unamortized balance in the amount of $ 2.9 million is included in other current assets.

Deferred Financing Costs, Debt and Warrant Discounts and Debt Issuance Cost

As referenced above, all debt with original maturities greater than one year are classified as current as of June 30, 2022 due to the Trigger Date provisions.

As of June 30, 2022 and December 31, 2021, capitalized deferred financing costs, inclusive of debt issuance costs and discounts, net of accumulated amortization, related to Team’s outstanding debt were $ 53.0 million and $ 58.0 million.

Due to the Trigger Date provisions, the amortization period for deferred financing costs, debt and warrant discounts and debt issuance costs was updated to reflect the accelerated maturity dates.

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

As referenced above, all debt with original maturities greater than one year are classified as current as of September 30, 2022 due to the Trigger Date provisions.

As of September 30, 2022 and December 31, 2021, capitalized deferred financing costs, inclusive of debt issuance costs and discounts, net of accumulated amortization, related to Team’s outstanding debt were $ 39.4 million and $ 58.0 million, respectively.

Due to the Trigger Date provisions, the amortization period for deferred financing costs, debt and warrant discounts and debt issuance costs was updated to reflect the potential accelerated maturity dates.

This resulted in additional amortization charges of $ 10.6 million and $ 15.2 million during the three and nine months ended September 30, 2022, respectively.

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

At June 30, 2022, we had $ 41.1 million of unrestricted cash and cash equivalents and $ 26.3 million of restricted cash held as collateral for letters of credit and commercial card programs.

International cash balance at June 30, 2022 was $ 21.8 million, and approximately $ 1.5 million of cash is located in countries where currency restrictions exist.

We had approximately $ 24.5 million in additional borrowing capacity, consisting of $ 4.5 million of 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.

At September 30, 2022, we had $ 30.7 million of unrestricted cash and cash equivalents and $ 25.7 million of restricted cash held as collateral for letters of credit and commercial card programs.

International cash balances at September 30, 2022 were $ 12.9 million , and approximately $ 1.6 million of cash is located in countries where currency restrictions exist.

We had approximately $ 11.9 million in additional borrowing capacity, consisting of $ 1.9 million of availability under the ABL Credit Facility and $ 10.0 million available under the Subordinated Term Loan.

Internationally, we have letters of credit outstanding in the amount of $ 0.3 million.

Additionally, we have $ 1.6 million in Surety bonds outstanding and an additional $ 0.9 million in miscellaneous cash deposits securing leases or other required obligations.

Our cash and cash equivalents at December 31, 2021 totaled $ 55.2 million, of which $ 4.1 million was restricted for interest due on the Atlantic Park Term Loan.

Additionally, $ 14.2 million of the $ 55.2 million of cash and cash equivalents was in foreign accounts, primarily in Europe, Canada and Australia including $ 2.4 million of cash located in countries where currency restrictions exist.

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

Refer to Note 20 - Subsequent Events for draw activity occurring subsequent to the period ended June 30, 2022.

On November 1, 2022, the Company completed the sale of its Quest Integrity business to Baker Hughes for cash proceeds of approximately $ 279 million, reflecting certain estimated post-closing adjustments.

The net proceeds to the Company (after payment of transaction related expenses and certain other fees) were approximately $ 270 million.

The Company used approximately $ 238 million of the proceeds to pay down term debt and to pay certain fees associated with that repayment and related accrued interest, with the remainder reserved for general corporate purposes.

As of November 4, 2022, we had consolidated cash and cash equivalents of $ 76.0 million, of which $ 6.8 million was restricted mainly as collateral for outstanding letters of credit and approximately $ 13.7 million of undrawn availability under its various credit facilities, resulting in total liquidity of $ 82.9 million.

We adopted ASC 842, Leases, effective January 1, 2019 and elected the modified retrospective transition method.

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The components of lease expense are as follows (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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Total lease cost 7,472 8,526 23,781 25,869

Lease cost - discontinued operations $ 126 $ ( 472 ) $ ( 785 ) $ ( 1,169 )

Lease cost - continuing operations $ 7,598 $ 8,054 $ 22,996 $ 24,700

Other information related to leases are as follows (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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Finance leases 752 611 852 1,017

Amounts recognized in the condensed consolidated balance sheet are as follows (in thousands):

June 30, 2022 December 31, 2021

Amounts recognized in the condensed consolidated balance sheets are as follows (in thousands):

September 30, 2022 December 31, 2021

Operating Leases:

Operating lease right-of-use assets $ 52,925 $ 60,700

Current portion of operating lease obligations 14,389 16,176

Operating lease obligations (non-current) 43,090 49,221

Operating lease right-of-use assets, continuing operations $ 48,189 $ 58,495

Operating lease right-of-use assets, discontinued operations 1,872 2,205

Current portion of operating lease obligations, continuing operations 13,328 15,412

Current portion of operating lease obligations, discontinued operations 812 764

Operating lease obligations (non-current), continuing operations 39,144 47,617

Operating lease obligations (non-current), discontinued operations 1,000 1,604

Finance Leases:

Property, plant and equipment, net $ 4,412 $ 5,123

Current portion of long-term finance lease obligations 655 669

Long-term finance lease obligations 4,656 4,980

Finance lease right-of-use assets, continuing operations $ 4,909 $ 5,114

Finance lease right-of-use assets, discontinued operations 6 9

Current portion of finance lease obligations, continuing operations 898 667

Current portion of finance lease obligations, discontinued operations 2 2

Long-term finance lease obligations, continuing operations 4,810 4,973

Long-term finance lease obligations, discontinued operations 4 7

Weighted average remaining lease term:

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Finance leases 7.0 % 6.4 %

As of June 30, 2022, we have no material additional operating and finance leases that have not yet commenced.

As of June 30, 2022, future minimum lease payments under non-cancellable leases (including short-term leases) are as follows (in thousands):

As of September 30, 2022, we have no material additional operating and finance leases that have not yet commenced.

As of September 30, 2022, future minimum lease payments under non-cancellable leases (including short-term leases) are as follows (in thousands):

Operating Leases Finance Leases

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SHARE-BASED COMPENSATION

We have adopted stock incentive plans and other arrangements pursuant to which the Board may grant stock options, restricted stock, stock units, stock appreciation rights, common stock or performance awards to officers, directors and key employees.

At June 30, 2022, there were approximately 1.2 million restricted stock units, performance awards and stock options outstanding to officers, directors and key employees.

At September 30, 2022, there were approximately 1.2 million restricted stock units, performance awards and stock options outstanding to officers, directors and key employees.

The exercise price, terms and other conditions applicable to each form of share-based compensation under our plans are generally determined by the Compensation Committee of the Board at the time of grant and may vary.

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Shares issued in connection with our share-based compensation are issued out of authorized but unissued common stock.

Compensation expense related to share-based compensation totaled $ 0.6 million and $ 2.1 million for the three months ended June 30, 2022 and 2021, respectively.

Compensation expense related to share-based compensation totaled a credit of $ 0.1 million and an expense of $ 4.4 million for the six months ended June 30, 2022 and 2021, respectively.

The Company incurred a credit in the period related to unvested share-based compensation associated with executive departures which exceeded the total costs expensed for the six month period ended June 30, 2022.

Compensation expense related to share-based compensation totaled $ 0.6 million and $ 1.1 million for the three months ended September 30, 2022 and 2021, respectively.

Compensation expense related to share-based compensation totaled $ 0.6 million and $ 5.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Share-based compensation expense reflects an estimate of expected forfeitures.

At June 30, 2022, $ 2.9 million of unrecognized compensation expense related to share-based compensation is expected to be recognized over a remaining weighted-average period of 1.4 years.

At September 30, 2022, $ 2.2 million of unrecognized compensation expense related to share-based compensation is expected to be recognized over a remaining weighted-average period of 1.3 years.

Stock units are settled with common stock upon vesting unless it is not legally feasible to issue shares, in which case the value of the award is settled in cash.

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We also grant common stock to our directors, which typically vests immediately.

There were no stock awards granted to directors during the three and six months ended June 30, 2022.

Compensation expense related to stock units and director stock grants totaled $ 1.2 million and $ 3.3 million for the six months ended June 30, 2022 and 2021.

Transactions involving our stock units and director stock grants for the six months ended June 30, 2022 are summarized below:

Six Months Ended

June 30, 2022

There were no stock awards granted to directors during the three and nine months ended September 30, 2022.

Compensation expense related to stock units and director stock grants totaled $ 1.8 million and $ 3.6 million for the nine months ended September 30, 2022 and 2021.

Transactions involving our stock units and director stock grants for the nine months ended September 30, 2022 are summarized below:

Nine Months Ended

September 30, 2022

Units Weighted

12 unchanged sentences

LTPSU awards granted in 2019 (the “2019 Awards”), in 2020 (the “2020 Awards”) and in 2021 (the “2021 Awards”) are subject to a two-year performance period and a concurrent two-year service period.

There were no LTPSU awards granted during the three and six months ended June 30, 2022.

There were no LTPSU awards granted during the three and nine months ended September 30, 2022.

For the LTPSU awards, the performance goal is separated into two independent performance factors based on (i) relative shareholder return (“RTSR”) as measured against a designated peer group and (ii) results of operations over the two-year performance period, with possible payouts ranging from 0 % to 200 % of the target awards for each of the two performance factors.

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Compensation expense for awards with market conditions is recognized on a straight-line basis over the longer of (i) the minimum required service period and (ii) the service period derived from the Monte Carlo simulation, separately for each vesting tranche.

For performance units subject to market conditions, because the expected outcome is incorporated into the grant date fair value through the Monte Carlo simulation, compensation expense is not subsequently adjusted for changes in the expected or actual performance outcome.

For performance units subject to market conditions, because the expected outcome is incorporated into the grant date fair value through the Monte

Carlo simulation, compensation expense is not subsequently adjusted for changes in the expected or actual performance outcome.

For performance units not subject to market conditions, we determine the fair value of each performance unit based on the market price of our common stock on the date of grant.

For these awards, we recognize compensation expense over the vesting term on a straight-line basis based upon the performance target that is probable of being met, subject to adjustment for changes in the expected or actual performance outcome.

Compensation expense related to performance awards totaled a credit of $ 1.3 million and expense of $ 1.1 million for the six months ended June 30, 2022 and 2021, respectively.

Transactions involving our performance awards during the six months ended June 30, 2022 are summarized below:

Six Months Ended

June 30, 2022

Compensation expense related to performance awards totaled a credit of $ 1.2 million and expense of $ 1.9 million for the nine months ended September 30, 2022 and 2021, respectively.

Transactions involving our performance awards during the nine months ended September 30, 2022 are summarized below:

Nine Months Ended

September 30, 2022

Performance Units Subject to Market Conditions Performance Units Not Subject to Market Conditions

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We determine the fair value of each stock option at the grant date using a Black-Scholes model and recognize the resulting expense of our stock option awards over the period during which an employee is required to provide services in exchange for the awards, usually the vesting period.

There was no compensation expense related to stock options for the periods ended June 30, 2022 or December 31, 2021.

There was no compensation expense related to stock options for the periods ended September 30, 2022 or December 31, 2021.

Our options typically vest in equal annual installments over a four-year service period.

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Stock options generally have a ten-year term.

No stock options were granted during the six month periods ended June 30, 2022 or June 30, 2021, and no options were exercised, a total of 7,210 options cancelled during the period consisting of 434 forfeited, and 6,776 expired during the six month period ended June 30, 2022.

Approximately 10 thousand options were exercisable at June 30, 2022 had a weighted-average remaining contractual life of 1.1 years, and exercise price of $ 35.59 .

No stock options were granted during the nine month periods ended September 30, 2022 or September 30, 2021, and no options were exercised, a total of 7,210 options cancelled during the period consisting of 434 forfeited, and 6,776 expired during the nine month period ended September 30, 2022.

Approximately 10,000 options were exercisable at September 30, 2022 with a weighted-average remaining contractual life of 0.8 years, and a weighted-average exercise price of $ 35.59 .

EMPLOYEE BENEFIT PLANS

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Net periodic pension credit includes the following components (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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2.1 % overall, 4.6 % for equities and 1.4 % for debt securities.

We expect to contribute $ 3.7 million to the U.K.

Plan for 2022, of which $ 1.9 million has been contributed through June 30, 2022.

expect to contribute $ 3.9 million to the U.K.

Plan for 2022, of which $ 2.7 million has been contributed through September 30, 2022.

ACCUMULATED OTHER COMPREHENSIVE LOSS

A summary of changes in accumulated other comprehensive loss included within shareholders’ equity is as follows (in thousands):

Six Months Ended

June 30, 2022 Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2022 Nine Months Ended

September 30, 2021

(unaudited) (unaudited)

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The following table represents the related tax effects allocated to each component of other comprehensive income (loss) (in thousands):

Six Months Ended

June 30, 2022 Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2022 Nine Months Ended

September 30, 2021

(unaudited) (unaudited)

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If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements.

If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated,

then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

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All of the claims pleaded in the Esqueda action were also pleaded in the Thai action.

Each of the plaintiffs assert claims for alleged wage and hour violations under the California Labor Code (for alleged unpaid wages, failure to provide meal and rest breaks, and derivative related claims).

Each of the plaintiffs

assert claims for alleged wage and hour violations under the California Labor Code (for alleged unpaid wages, failure to provide meal and rest breaks, and derivative related claims).

The Thai action also asserts a putative class claim for violation of the Fair Credit Reporting Act.

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All class action settlements of this nature are subject to approval of the court, which can take several months after the final settlement agreement is executed by the parties.

The parties anticipate court approval of the settlement agreement in the fourth quarter of 2022 or first quarter of 2023.

The parties anticipate court approval of the settlement agreement in the first quarter of 2023.

Notice of Potential Environmental Violation - On April 20, 2021, Team Industrial Services, Inc.

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Environmental Protection Agency (“EPA”) alleging noncompliance with various waste determination, reporting, training, and planning obligations under the Resource Conservation and Recovery Act at seven of our facilities located in Texas and Louisiana.

The allegations largely relate to spent film developing solutions generated through our mobile radiographic inspection services and that the claims relate to the characterization and quantities of those wastes and related notices, reporting, training, and planning.

The allegations largely relate to spent film developing solutions generated through our mobile radiographic inspection services and the claims relate to the characterization and quantities of those wastes and related notices, reporting, training, and planning.

On February 9, 2022, TEAM and the EPA agreed to settle all the claims related to this matter and the formal settlement agreement was finalized in April 2022 with our agreement to pay penalties totaling $ 0.2 million.

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On June 1, 2021, the jury rendered a verdict against Team for $ 222.0 million in compensatory damages.

We believe that the jury verdict is not supported by the facts of the case or applicable law, is the result of significant trial error, and there are strong grounds for appeal.

We intend to vigorously challenge the judgment through the appeal processes.

On January 25, 2022, the trial court signed a final judgment in favor of the plaintiff and against Team Industrial Services, Inc.

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A notice of appeal was filed on April 25, 2022, and this case is currently pending in the Court of Appeals for the First District of Texas, in Houston.

We believe that the jury verdict is not supported by the facts of the case or applicable law, is the result of significant trial error, and there are strong grounds for appeal.

We will seek to overturn the verdict in post-trial motions before the District Court and, if necessary, to appeal to the Court of Appeals for the State of Texas.

We intend to vigorously challenge the judgment through all appropriate post-trial motions and appeal processes.

As a result, we believe that the likelihood that the amount of the judgment will be affirmed is not probable.

We believe the likelihood that the amount of the judgment will be affirmed is not probable.

We have taken into consideration the events that have occurred after the reporting period and before the financial statements were issued.

We currently estimate a range of possible outcomes between $ 13.0 million and approximately $ 51.0 million, and we have

accrued a liability as of June 30, 2022.

which is the amount we believe is the most likely estimate for a probable loss on this matter.

We currently estimate a range of possible outcomes between $ 13.0 million and approximately $ 51.0 million, and we have accrued a liability as of September 30, 2022, which is the amount we believe is the most likely estimate for a probable loss on this matter.

We have also recorded a related receivable from our third-party insurance providers in other current assets with the corresponding liability of the same amount in other accrued liabilities.

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This claim is covered by our general liability and excess insurance policies which are occurrence based and subject to an aggregate $ 3.0 million self-insured retention and deductible.

Accordingly, for all matters discussed above, we have accrued in the aggregate approximately $ 44.0 million as of June 30, 2022, of which approximately $ 5.0 million is not covered by our various insurance policies.

Accordingly, for all matters discussed above, we have accrued in the aggregate approximately $ 44.0 million as of September 30, 2022, of which approximately $ 5.0 million is not covered by our various insurance policies.

In addition to legal matters discussed above, we are subject to various lawsuits, claims and proceedings encountered in the normal conduct of business (“Other Proceedings”).

Management believes that based on its current knowledge and after consultation with legal counsel that the Other Proceedings, individually or in the aggregate, will not have a material effect on our consolidated financial statements.

Management believes that based on its current knowledge and after

consultation with legal counsel that the Other Proceedings, individually or in the aggregate, will not have a material effect on our consolidated financial statements.

SEGMENT AND GEOGRAPHIC DISCLOSURES

ASC 280, Segment Reporting , requires we disclose certain information about our operating segments.

Operating segments are defined as “components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.” We conduct operations in three segments:

IHT, MS and Quest Integrity.

Segment data for our three operating segments are as follows (in thousands):

On November 1, 2022, we completed the Quest Integrity Transaction.

Refer to Note 2 - Discontinued Operations for additional details.

ASC 280, Segment Reporting , requires us to disclose certain information about our operating segments.

Historically Quest Integrity was a separate segment, but Quest Integrity is now part of discontinued operations, as referenced above.

Segment data for our two operating segments are as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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MS 108,027 96,403 308,884 280,966

Quest Integrity 29,725 24,244 59,263 40,327

Total $ 251,265 $ 238,873 $ 469,841 $ 433,491

Continuing operations total $ 218,339 $ 197,879 $ 628,917 $ 591,043

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(unaudited) (unaudited) (unaudited) (unaudited)

Operating loss:

Operating income (loss):

IHT $ 7,390 $ 3,065 $ 13,038 $ 10,824

MS 7,655 ( 53,242 ) 15,152 ( 50,799 )

Quest Integrity 8,014 5,702 14,218 5,450

Corporate and shared support services ( 16,774 ) ( 22,051 ) ( 63,119 ) ( 67,997 )

Total $ ( 2,780 ) $ ( 5,994 ) $ ( 18,983 ) $ ( 30,294 )

Continuing operations total $ ( 1,729 ) $ ( 72,228 ) $ ( 34,929 ) $ ( 107,972 )

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

3 unchanged sentences

MS 1,427 741 3,861 3,260

Quest Integrity 1,333 974 2,342 1,380

Corporate and shared support services 274 293 331 714

Total $ 6,299 $ 5,094 $ 12,930 $ 9,491

Continuing operations total $ 4,258 $ 2,488 $ 14,846 $ 10,599

_____________

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

3 unchanged sentences

MS 4,704 4,950 14,222 15,432

Quest Integrity 569 710 1,146 1,422

Corporate and shared support services 1,261 1,418 3,855 4,080

Total $ 9,578 $ 10,347 $ 19,609 $ 21,306

Continuing operations total $ 8,987 $ 9,516 $ 27,449 $ 29,400

Separate measures of our assets by operating segment are not produced or utilized by management to evaluate segment performance.

A geographic breakdown of our revenues and our total long-lived assets for the three and six months ended June 30, 2022 and 2021 is as follows (unaudited, in thousands):

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

Long-lived Assets 2

United States $ 171,665 $ 258,559 $ 162,465 $ 282,706

Canada 36,193 9,198 34,152 9,309

Europe 26,554 20,920 29,264 24,755

Other foreign countries 16,853 10,649 12,992 12,440

Total $ 251,265 $ 299,326 $ 238,873 $ 329,210

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

Long-lived Assets 2

A geographic breakdown of our revenues for the three and nine months ended September 30, 2022 and 2021 is as follows (unaudited, in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(unaudited) (unaudited) (unaudited) (unaudited)

Total Revenues 1

United States $ 173,890 $ 143,636 $ 497,236 $ 447,932

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Total $ 247,780 $ 217,410 $ 717,621 $ 650,901

Discontinued operations revenue ( 29,441 ) ( 19,531 ) ( 88,704 ) ( 59,858 )

Total continuing operations revenue $ 218,339 $ 197,879 $ 628,917 $ 591,043

______________

1 Revenues attributable to individual countries/geographic areas are based on the country of domicile of the legal entity that performs the work.

2 Excludes goodwill, intangible assets not being amortized that are to be held and used, financial instruments and deferred tax assets.

SEVERANCE AND OTHER CHARGES

For the six months ended June 30, 2022, we incurred severance charges of $ 2.4 million, which represents costs incurred in 2022 as a result of ongoing cost reduction efforts.

In January 2021, we announced a new strategic organizational structure to better position ourselves for recovery post pandemic, continue sector diversification, and enhance client value (the “Operating Group Reorganization”).

In connection with the Operating Group Reorganization, we announced certain executive leadership changes and the appointment of experienced new talent to our leadership team.

For the twelve months ended December 31, 2021, we incurred severance charges of $ 2.9 million as a result of the Operating Group Reorganization.

For the nine months ended September 30, 2022, we incurred severance charges of $ 3.0 million, which represents costs incurred in 2022 as a result of ongoing cost reduction efforts.

A rollforward of our accrued severance liability associated with our ongoing cost reduction efforts is presented below (in thousands):

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

Balance, beginning of period $ 712

4 unchanged sentences

Alvarez & Marsal provided certain consulting services to the Company in connection with our former Interim Chief Financial Officer position and other corporate support costs.

Effective June 12, 2022 the Interim Chief Financial Officer position ended as the Company named a permanent Chief Financial Officer prior to end of the period ended June 30, 2022.

The Company paid $ 8.0 million in fees to Alvarez & Marsal for the year ended December 31, 2021, and $ 6.0 million for the year to date period ended June 30, 2022.

Effective June 12, 2022 the Interim Chief Financial Officer position ended as the Company named a permanent Chief Financial Officer.

The Company paid $ 8.0 million in consulting fees to Alvarez & Marsal for the year ended December 31, 2021, and $ 6.4 million for the year to date period ended September 30, 2022.

In connection with the Company’s debt transactions, the Company engaged in transactions with Corre and Atlantic Park to provide funding as described in Note 12 - Debt .

SUBSEQUENT EVENTS

During July 2022, our Board approved management’s recommendation to place Quest Integrity up for sale.

Accordingly Quest Integrity will be treated as held for sale in reporting periods subsequent to June 30, 2022.

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.

The sale is subject to ordinary closing conditions, regulatory approvals, and other adjustments, and is expected to close in the fourth quarter of 2022.

The Company expects the net proceeds from the Quest Integrity Sale to 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.

The consummation of the Quest Integrity Sale will allow the Company to focus on improving its core IHT and MS businesses.

Quest Integrity represented approximately 15 % of the Company’s consolidated total assets as of June 30, 2022 and approximately 13 % of the Company’s consolidated revenue for the six months ended June 30, 2022.

During July 2022, the Company drew down $ 10.0 million in cash proceeds from the Corre Delayed Draw Term Loan for general corporate purposes.

On October 4, 2022, we entered into the Exchange Agreement to exchange approximately $ 57.0 million of aggregate principal amount, plus accrued and unpaid PIK Interest, of Notes owned by the Exchanging Holders for an equivalent increased principal amount of term loans.

The principal balance of the convertible debt after the exchange is $ 41.2 million.

Refer to Note 12 - Deb t for additional information.

On November 1, 2022, we entered into ABL Credit Agreement Amendment No.2, Term Loan Amendment No.8 and Subordinated Term Loan Amendment No.

Refer to Note 12 - Deb t for additional information.

On November 1, 2022, we entered into the Board Rights Agreement (the “Board Rights Agreement”) with APSC (in such capacity, the “Investor Representative”), pursuant to which the Investor Representative, acting on behalf of itself and its affiliates that beneficially own our common stock (such affiliates, together with the Investor Representative, the “Investors”), may, subject to common stock ownership thresholds and other terms provided in the Board Rights Agreement, designate an individual to serve as a non-voting observer at all meetings of the Board and nominate an individual designated by the Investor Representative to serve on the Board (the “Investor Director”).

The right to nominate the Investor Director is subject to certain qualification requirements and the discretion of our Corporate Governance and Nominating Committee under limited circumstances.

The Investor’s rights under the Board Rights Agreement are a continuation of existing rights under the Term Loan Credit Agreement and that certain commitment letter (the “Commitment Letter”), dated as of November 9, 2021, by and among us, Corre Partners Management, LLC and APSC in the event obligations under the Term Loan Credit Agreement cease to be outstanding.

The Investors are not permitted to designate, in the aggregate, more than one non-voting board observer and more than one Investor Director under the Board Rights Agreement, the Term Loan Credit Agreement and the Commitment Letter, provided that the Board Rights Agreement does not otherwise limit or impair any rights under the Commitment Letter and the Term Loan Credit Agreement.

In the event of the resignation, death or removal (for cause or otherwise) of the Investor Director from the Board, the Investor Representative, acting on behalf of the Investors, will have the right, but not the obligation, to designate a successor Investor Director to the Board to fill the resulting vacancy on the Board (and any applicable committee thereof), subject to certain qualification requirements specified in the Board Rights Agreement.

On November 1, 2022, we completed the sale of all of the issued and outstanding equity interests of our wholly-owned subsidiary, TQ Acquisition, to Baker Hughes for an aggregate purchase price of approximately $ 279 million, reflecting certain estimated post-closing adjustments.

Refer to Note 1 - Summary of Significant Accounting Policies for additional information.

On November 2, 2022, we received notice by the NYSE that we were no longer in compliance with the continued listing standard set forth in Section 802.01C of the NYSE Listed Company Manual because the average closing price of our common stock was less than $1.00 per share over a consecutive 30 trading-day period.

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

Refer to the section entitled “We may not be able to meet the NYSE’s continued listing requirements and rules, and 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” in Part II, Item 1A of this Quarterly Report on Form 10-Q for additional information.

On November 4, 2022, we entered into Amendment No.

9 to the Term Loan Credit Agreement and Amendment No.

10 to the Subordinated Term Loan Credit Agreement.

See Note 12 - Debt for additional details.

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 1. Financial Statements