What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-15 · 186 added, 192 removed, 314 unchanged (55% of the section changed)

29 unchanged sentences

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

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

• we may incur liabilities and suffer negative financial or reputational impacts relating to occupational health and safety matters;

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

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

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

• acts of terrorism, war or political or civil unrest in the U.S.

or elsewhere, including the current events involving Russia and Ukraine, changes in laws and regulations, or the imposition of economic or trade sanctions affecting international commercial transactions.

General Description of Business

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, pursuant to the Sale Agreement.

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

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.

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:

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 involving:

We conduct operations in two segments:

Prior to the sale of Quest integrity, we operated Quest Integrity as our third segment.

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

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.

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.

IHT provides conventional and advanced 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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In January 2021, we announced a strategic reorganization (the “Operating Group Reorganization”).

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

three new operating groups:

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

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

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

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

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

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

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

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

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

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

The AID Group is also dedicated to optimize our research and development activities, including product and technology development.

Following the sale of our Quest Integrity segment, the remaining operations of our AID group are included in our IHT segment.

These changes had no effect on our reportable segments:

Significant Factors Impacting Results and Recent Developments

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

Our revenues, gross margins and other results of operations can be influenced by a variety of factors in any given period, including those described in Cautionary Note Regarding Forward-Looking Statements above and Part 1, Item 1A of our Annual Report on Form 10-K “Risk Factors” which includes items that have caused fluctuations in our results in the past and are expected to cause fluctuations in our results in the future.

Additional information with respect to certain factors are described below.

COVID-19 Pandemic and Market Conditions Update.

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

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

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

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

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

See Item 1A of our Annual Report on Form 10-K “Risk Factors” for additional information.

Recent Financing Transactions.

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

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

Refer to Note 12 - Debt to the unaudited condensed consolidated financial statements for additional details related to these amendments.

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

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

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

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

• As required by the NYSE, the Company notified the NYSE of its intent to cure the market capitalization and/or shareholders’ equity deficiency and restore its compliance with NYSE continued listing standards.

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

The NYSE accepted the plan and the Company’s common stock will

continue to be listed and traded on the NYSE during the 18-month period from June 17, 2022, subject to the Company’s compliance with other NYSE continued listing standards and continued periodic review by the NYSE of the Company’s progress with respect to its plan.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Current Quarter Financial Results and Significant Operational Trends and Events

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

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

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

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

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

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

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

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

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

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

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

However, on September 1, 2022, the Company was notified by the NYSE that it had regained compliance with the minimum share price requirement.

• On November 2, 2022, the Company was notified by the NYSE that it was not in compliance with the continued listing standards set forth in Rule 802.01C of the NYSE Listed Company Manual requiring listed companies to maintain an average closing share price of at least $1.00 over a consecutive 30 trading-day period.

Results of Operations

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

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

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

Three Months Ended June 30, Increase

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

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

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

Three Months Ended September 30, Increase

2022 2021 $ %

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MS 108,027 96,403 11,624 12.1 %

Quest Integrity 29,725 24,244 5,481 22.6 %

Total revenues $ 218,339 $ 197,879 $ 20,460 10.3 %

Operating income (loss):

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

IHT $ 7,390 $ 3,065 $ 4,325 NM

MS 7,655 (53,242) 60,897 NM

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

Corporate and shared support services (16,774) (22,051) 5,277 23.9 %

Total operating loss $ (1,729) $ (72,228) $ 70,499 97.6 %

Interest expense, net (18,480) (9,598) (8,882) 92.5 %

Interest expense, net (26,653) (9,913) (16,740) NM

Other income (expense), net 3,227 (904) 4,131 NM

Loss before income taxes $ (25,155) $ (83,045) $ 57,890 69.7 %

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

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

Provision for income taxes (1,465) (7,401) 5,936 80.2 %

Net loss from continuing operations $ (26,620) $ (90,446) $ 63,826 70.6 %

NM = Not meaningful

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

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

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

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

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

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

Total revenues increased $20.5 million or 10.3% from the prior year quarter driven by increases in both operating segments of MS and IHT.

Continuing operations revenues were impacted from foreign exchange negatively by $4.9 million and positively by $2.9 million during the three month period ended September 30, 2022 and 2021, respectively.

IHT revenues increased by $8.8 million or 8.7% and MS revenue increased by $11.6 million or 12.1%.

IHT segment’s revenue increased primarily due to higher turnaround, call out and nested activity in the United States and Canada compared to the prior year quarter.

MS revenues increased primarily due to higher activity in our U.S.

and Latin American operations related to leak

repair, hot tapping services, and the U.S.

valve business, partially offset by decreases in international revenue due to non-repeating project work in the United Kingdom.

Operating income (loss).

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

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

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

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

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

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

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

Overall operating loss was $1.7 million in the current year quarter compared to an operating loss of $72.2 million in the prior year quarter.

The overall decrease in operating loss is primarily attributable to our MS segment which experienced an increase in operating income of $60.9 million as compared to the prior year, primarily due to no impairments recorded for goodwill this quarter compared to a $55.8 million goodwill impairment that was recorded in the prior year quarter, a $0.8 million increase in the Canada business, a $0.5 million increase in the valve business, and realized efficiency gains in equipment centers, manufacturing, and engineering;

partially offset by lack of COVID-19 related subsidies in the current quarter compared to the prior year quarter.

IHT operating income increased by $4.3 million due to higher activity and revenue realization in the U.S.

business and savings in overhead costs, partially offset by the completion of a Canadian customer contract in the current period, and COVID-19 related subsidies received in 2021 period, which were not received in 2022.

Corporate operating loss decreased due to lower professional fees and legal costs in the current quarter compared to prior year quarter and lower overall costs due to the Company’s cost reduction efforts.

In spite of our cost reduction efforts, we continue to experience cost inflation in several areas across all segments, such as raw materials, transportation, and labor costs.

For the three months ended September 30, 2022 and 2021, operating loss includes net expenses totaling $2.8 million and $60.3 million, respectively, that we do not believe are indicative of our core operating activities, as detailed by segment in the table below (in thousands):

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

IHT MS Quest Integrity Corporate and shared support services Total

Three Months Ended June 30, 2022

IHT MS Corporate and shared support services Total

Three Months Ended September 30, 2022

Professional fees and other 1

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Total $ 150 $ 35 $ 2,567 $ 2,752

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Professional fees and other 1

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90 139 204 433

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

Total $ 90 $ 55,976 $ 4,213 $ 60,279

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

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

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

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

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

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

1 For the three months ended September 30, 2022, includes $0.5 million related to costs associated with the debt financing.

For the three months ended September 30, 2021, consists primarily of professional fees and other costs for assessment of corporate and support cost structures.

2 For the three months ended September 30, 2022, primarily relates accrued legal matters.

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

3 For the three months ended September 30, 2022, $0.7 million primarily related to customary severance costs associated with staff reductions.

For the three months ended September 30, 2021, primarily related to the Operating Group Reorganization.

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

Three Months Ended June 30, Increase

Three Months Ended September 30, Increase

2022 2021 $ %

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

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

IHT $ 7,540 $ 3,155 $ 4,385 NM

MS 7,690 2,734 4,956 NM

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

Corporate and shared support services (14,207) (17,838) 3,631 20.4 %

Total operating income (loss), excluding non-core expenses $ 1,023 $ (11,949) $ 12,972 NM

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

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

Excluding the impact of these identified non-core items in both periods, operating income increased by $13.0 million, consisting of higher operating income at IHT of $4.4 million, higher operating income at MS of $5.0 million, and a decrease in corporate and shared support services expenses of $3.6 million.

See Operating income (loss) above for primary reasons for the changes during the period.

Interest expense, net.

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

Interest expense increased by $16.7 million compared to the prior year quarter, primarily due to a $143.0 million increase in outstanding debt attributable to the debt financing executed during the quarter ended March 31, 2022 and accelerated amortization of deferred financing costs, debt and warrant discounts and debt issuance costs.

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

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

This resulted in an additional $10.6 million in amortization charges during the three months ended September 30, 2022.

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

Other income (expense), net.

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

Other income (expense), net improved $4.1 million from the prior year quarter expense of $0.9 million to a net gain of $3.2 million primarily due to foreign currency fluctuations and gain on disposal of assets in the current quarter.

The provision for income tax was $1.5 million on the pre-tax loss from continuing operations of $25.2 million in the current year quarter, compared to a $7.4 million income tax provision on a pre-tax loss of $83.0 million in the prior year quarter.

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

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

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

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

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

Six Months Ended June 30, Increase

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.

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

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

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

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

Nine Months Ended September 30, Increase

2022 2021 $ %

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MS 308,884 280,966 27,918 9.9 %

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

Total revenues $ 628,917 $ 591,043 $ 37,874 6.4 %

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MS 15,152 (50,799) 65,951 NM

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

Corporate and shared support services (63,119) (67,997) 4,878 7.2 %

Total operating loss $ (34,929) $ (107,972) $ 73,043 67.6 %

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

Interest expense, net (63,708) (28,764) (34,944) NM

Other income (expense), net 9,664 (1,790) 11,454 NM

Loss before income taxes $ (88,973) $ (138,526) $ 49,553 35.8 %

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

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

Provision for income taxes (4,182) (8,420) 4,238 50.3 %

Net loss from continuing operations $ (93,155) $ (146,946) $ 53,791 36.6 %

Total revenues increased $37.9 million or 6.4% from the prior year period, with all segments seeing increases compared to prior year period.

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

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

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

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

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

IHT revenues increased by $10.0 million and MS revenue increased by $27.9 million.

Continuing operations revenues were impacted from foreign exchange negatively by $8.5 million and positively by $13.4 million during the nine months period ended September 30, 2022 and 2021, respectively.

IHT segment year to date revenue increased 3.2%, compared to the prior year period, which was primarily driven by increases in U.S.

business activity partially offset by decreases in Canada and international locations.

MS segment revenue increased 9.9% compared to the prior year

period, due to increases in the U.S.

market activities, primarily from increases in leak repair and hot tap services as well as the domestic valve business.

Operating loss.

Overall operating loss was $34.9 million in the current year period compared to an operating loss of $108.0 million in the prior year period.

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

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

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

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

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

The overall improvement in operating loss is attributable to the 2021 period including a MS goodwill impairment charge of $55.8 million with no such charge in the 2022 period, improvement in the valve business of $2.5 million, a $2.3 million increase in Canadian business and cost improvements in machinery, engineering and equipment centers.

IHT experienced an increase in operating income due to an increase in U.S.

income offset by a decline in the Canadian business.

Corporate operating loss decreased due to cost reductions, lower non-cash compensation cost and lower legal expense, partially offset by higher professional fees in 2022.

For the nine months ended September 30, 2022 and 2021, operating loss includes net expenses totaling $16.9 million and $68.3 million, respectively, that we do not believe are indicative of our core operating activities as they relate to one time or non-reoccurring items, as detailed by segment in the table below (in thousands):

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

IHT MS Quest Integrity Corporate and shared support services Total

Six Months Ended June 30, 2022

IHT MS Corporate and shared support services Total

Nine Months Ended September 30, 2022

Professional fees and other 1

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Total $ 192 $ 89 $ 16,594 $ 16,875

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Professional fees and other 1

4 unchanged sentences

575 494 1,461 2,530

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

Total $ 575 $ 56,331 $ 11,413 $ 68,319

_________________

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

For the six months ended June 30, 2021, includes $1.5 million of costs associated with the Operating Group Reorganization (exclusive of restructuring costs) and $0.3 million of costs associated with the OneTEAM program (exclusive of restructuring costs).

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

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

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

For the six months ended June 30, 2021, includes $2.2 million associated with the Operating Group Reorganization and $0.2 million associated with other severances.

1 For the nine months ended September 30, 2022, includes $8.4 million related to costs associated with the debt financing and $2.1 million of corporate support costs.

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

2 For the nine months ended September 30, 2022, primarily relates to accrued legal matters.

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

3 For the nine months ended September 30, 2022, includes $1.3 million related to customary severance costs associated with executive departures and $1.7 million associated with severance across multiple corporate departments.

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

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

Six Months Ended June 30, Increase

Nine Months Ended September 30, Increase

2022 2021 $ %

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MS 15,241 5,532 9,709 NM

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

Corporate and shared support services (46,525) (56,584) 10,059 17.8 %

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NM = Not meaningful

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

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

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

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

Excluding the impact of these identified non-core items in both periods, operating loss decreased by $21.6 million, consisting of higher operating income in IHT of $1.8 million, and improvements in operating income from MS and corporate and shared support services of $9.7 million, and $10.1 million, respectively.

See Operating income (loss) above for primary reasons for the changes during the period.

Interest expense, net.

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

Interest expense, net increased $34.9 million from the prior year period primarily due to higher outstanding debt, higher interest rate paid on PIK Interest, and accelerated amortization of deferred financing costs, debt and

warrant discounts and debt issuance costs.

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

This resulted in an additional $15.2 million in amortization charges during the nine months ended September 30, 2022.

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

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

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

Other income (expense), net .

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

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

Dollar relative to the currencies to which we have exposure.

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

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

Other income (expense) improved net $11.5 million from the prior year period primarily due to foreign currency fluctuations, gains on disposal of assets, and insurance proceeds received from a natural disaster claim.

T he provision for income tax was $4.2 million on the pre-tax loss from continuing operations of $89.0 million in the current year-to-date compared to income tax expense o f $8.4 million o n the pre-tax loss of $138.5 million in the in the prior year-to-date period.

The effective tax rate was a provision of 4.7% for the nine months ended September 30, 2022, compared to a provision of 6.1% for the nine months ended September 30, 2021.

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

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

costs associated with our past integration and transformation program, costs associated with the Operating Group Reorganization, non-routine legal costs and settlements, restructuring charges, certain severance charges, goodwill impairment charges and certain other items that we believe are not indicative of core operating activities.

costs associated with our past integration and transformation program, costs associated with the Operating Group Reorganization, non-routine legal costs and settlements, restructuring charges, certain severance charges, goodwill and other impairment charges and certain other items that we believe are not indicative of core operating activities.

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

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

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

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

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

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

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

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

AND SUBSIDIARIES

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(unaudited, in thousands except per share data)

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

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

2022 2021 2022 2021

Adjusted Net Income (Loss):

Net loss $ (21,552) $ (17,493) $ (54,014) $ (51,784)

Adjusted Net Loss from continuing operations:

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

Professional fees and other 1

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Natural disaster insurance recovery — — (872) —

Goodwill impairment charges — 55,837 — 55,837

Tax impact of adjustments and other net tax items 4

(24) (305) (31) (368)

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

Adjusted net loss from continuing operations $ (23,892) $ (30,472) $ (77,183) $ (78,995)

Adjusted net loss per common share:

Basic and diluted $ (0.55) $ (0.98) $ (1.86) $ (2.55)

Consolidated Adjusted EBIT and Adjusted EBITDA:

Net loss $ (21,552) $ (17,493) (54,014) $ (51,784)

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

Consolidated Adjusted EBIT and Adjusted EBITDA from continuing operations:

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

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

Gain on equipment sale (786) — (4,269) —

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Natural disaster insurance recovery — — (872) —

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

Goodwill impairment charges 55,837 55,837

Consolidated Adjusted EBIT - continuing operations 1,022 (11,949) (18,057) (39,654)

Depreciation and amortization

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Non-cash share-based compensation costs 629 1,108 570 5,576

Consolidated Adjusted EBITDA $ 14,274 $ 9,114 $ 14,700 $ 3,771

Free Cash Flow:

Cash used in operating activities $ (3,385) $ (17,616) $ (53,391) $ (34,799)

Consolidated Adjusted EBITDA from continuing operations $ 10,638 $ (1,325) $ 9,963 $ (4,677)

Free Cash Flow from continuing operations:

Cash provided by (used in) operating activities $ 5,913 $ (2,628) $ (50,573) $ (38,808)

Capital expenditures (5,883) (791) (17,299) (11,391)

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____________________________________

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

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

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

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

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

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

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

1 For the three and nine months ended September 30, 2022, includes $0.5 million and $10.5 million, respectively, related to costs associated with the debt financing and corporate support costs.

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

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

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

3 For the three months ended September 30, 2022 includes $0.7 million primarily related to customary severance costs associated with staff reductions.

For the nine months ended September 30, 2022, includes $1.3 million related to customary severance costs associated with executive departures and $1.7 million associated with severance across multiple corporate departments.

For the three months and nine months ended September 30, 2021, $0.4 million and $2.5 million, respectively, associated with the Operating Group Reorganization and other continuing restructuring measures.

4 Represents the tax effect of the adjustments.

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

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

5 Represents foreign currency (gains) losses.

6 Represents pension credits for the U.K.

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(unaudited, 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

Segment Adjusted EBIT and Adjusted EBITDA:

Segment Adjusted EBIT and Adjusted EBITDA from continuing operations:

Operating income $ 7,390 $ 3,065 $ 13,038 $ 10,824

Severance charges, net 1

150 90 192 575

Adjusted EBIT 7,540 3,155 13,230 11,399

4 unchanged sentences

35 139 89 494

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

Depreciation and amortization 4,634 5,043 9,518 10,482

Adjusted EBITDA $ 11,672 $ 7,587 $ 17,069 $ 13,280

Quest Integrity

Operating income (loss) $ 8,014 $ 5,702 $ 14,218 $ 5,450

Severance charges, net 1

Goodwill impairment charges — 55,837 — 55,837

Adjusted EBIT 7,690 2,734 15,241 5,532

3 unchanged sentences

Net loss $ (41,665) $ (40,269) $ (121,345) $ (106,971)

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

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

Gain on equipment sale (786) — (4,269) —

16 unchanged sentences

___________________

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

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

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

1 For the three months ended September 30, 2022 includes $0.7 million primarily related to customary severance costs associated with staff reductions.

2 Represents foreign currency (gains) losses.

3 Represents pension credits for the U.K.

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

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

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

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

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

4 For the three and nine months ended September 30, 2022, includes $0.5 million and $10.5 million, respectively, related to costs associated with the debt financing and corporate support costs.

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

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

Liquidity and Capital Resources

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

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

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

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

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

Management is evaluating strategic alternatives, including potential asset sales, and potential transactions to reduce the principal amount or extend the maturity of the Notes, to address our near-term liquidity needs;

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

Our ability to maintain compliance with the financial covenants contained in the ABL Credit Facility, Term Loan Credit Agreement, and Subordinated Term Loan Credit Agreement is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties.

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

The effects of the current economic environment, including the COVID-19 pandemic, increasing interest rates, inflationary pressures, the ongoing conflict in Ukraine and related economic repercussions could have a significant adverse effect on our financial position and business condition, as well as our clients and suppliers.

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

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

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

Recently Announced Asset Sale.

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

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

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

Consolidated cash and cash equivalents were $56.4 million at September 30, 2022, of which $25.7 million was restricted mainly as collateral for outstanding letters of credit.

Additionally, we had approximately $20.5 million in undrawn availability under our various credit facilities at September 30, 2022.

Our gross debt and finance obligations were $511.2 million, of which $506.4 million was classified as current at September 30, 2022, compared to gross debt of $405.9 million at December 31, 2021.

Recently Announced Sale.

On November 1, 2022, we completed the sale of our Quest Integrity business for cash proceeds of approximately $279 million, reflecting certain estimated post-closing adjustments.

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

We 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.

Refer to Note 1 - Summary of Significant Accounting Policies and Note 2 - Discontinued Operations for additional details regarding this transaction.

Cash and cash equivalents .

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

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

Our cash and cash equivalents associated with continuing operations at September 30, 2022 and December 31, 2021 totaled $56.4 million and $55.2 million, respectively, consisting of $30.7 million of unrestricted cash on hand and $25.7 million of restricted cash, pledged as cash collateral for letters of credit and other obligations at September 30, 2022 and $51.1 million of unrestricted cash on hand and $4.1 million of restricted cash for interest due on Atlantic Park Term Loan at December 31, 2021.

Additionally, $12.9 million a nd $14.2 million o f the $56.4 million and $55.2 million, respectively, of cash and cash equivalents at September 31, 2022 and December 31, 2021 was in foreign accounts, primarily in the Europe, Canada and Australia, including $1.6 million a nd $2.4 millio n, respectively, of cash located in countries where currency restrictions exist.

The following table summarizes cash flows (in thousands):

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

Nine Months Ended September 30,

Cash flows provided by (used in):

2022 2021 % Change 2022 2021 % Change

2022 2021 % Change

Operating activities $ (46,365) $ (35,861) (29) %

1 unchanged sentence

Financing activities 63,288 41,743 (52) %

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

Net change in cash and cash equivalents $ 3,086 $ (6,340) NM

NM - Not meaningful

Cash flows attributable to our operating activities.

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

For the nine months ended September 30, 2022, net cash used in operating activities was $46.4 million.

Our net cash used in operating activities generally reflects the cash effects of transactions and other events used in the determination of net loss, which totaled $76.9 million .

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

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

The decline in cash generated from operations was driven by the net loss for the period, $35.3 million decline in working capital, a gain on disposal of assets of $4.3 million, deferred income taxes of $0.4 million, partially offset by amortization of debt issuance costs and debt discount and write off of deferred loan costs of $25.7 million, adjustments to depreciation and amortization of $28.6 million, and PIK Interest of $15.5 million, resulted in negative operating cash flow.

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

Our net cash used in operating activities generally reflects the cash effects of transactions and other events used in the determination of net loss, which totaled $143.0 million for the period.

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Cash flows attributable to our investing activities.

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

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

For the nine months ended September 30, 2022, net cash used in investing activities was $13.8 million, consisting primarily of capital expenditures, partially offset by $7.2 million of cash proceeds from asset sales.

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

Cash flows attributable to our financing activities.

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

For the nine months ended September 30, 2022, net cash provided by financing activities was $63.3 million consisting primarily of net borrowings under our ABL Credit Facility of $67.8 million and issuance of common stock amounting to $9.7 million cash proceeds from the Equity Issuance partially offset by $13.6 million in payments of debt issuance costs.

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

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

For the nine months ended September 30, 2021, net cash provided by financing activities was $41.7 million consisting primarily of net borrowings under our Citi Credit Agreement of $46.3 million partially offset by $2.3 million in payments of debt issuance costs.

Effect of exchange rate changes on cash and cash equivalents.

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

For the nine months ended September 30, 2022 and 2021, the effect of foreign exchange rate changes on cash was a negative $1.4 million and $1.3 million, respectively.

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

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

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

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

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

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

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

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

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

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There have been no material changes to the contractual obligation disclosure since year-end 2021, see Note 12 - Debt for additional details regarding amendments to our debt agreements that were executed during the first quarter of 2022.

Off-Balance Sheet Arrangements

From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations.

As of September 30, 2022, the material off-balance sheet arrangements and transactions that we have entered into include $8.9 million in outstanding letters of credit.

See Note 12 - Debt for additional details.

Critical Accounting Policies and Estimates

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

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

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

ASU 2020-06 Adoption.

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis