What changed in this filing

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Item 1. Financial Statements

2023-05-11 compared with 2022-11-09 · 374 added, 904 removed, 374 unchanged (77% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

ASSETS (unaudited)

6 unchanged sentences

Prepaid expenses and other current assets 62,702 65,679

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

Total current assets 311,608 347,553

Property, plant and equipment, net 134,520 138,099

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

Intangible assets, net 72,203 75,407

Operating lease right-of-use assets 47,609 48,462

Defined benefit pension asset 1,494 398

Other assets, net 7,383 6,351

Deferred tax asset 375 375

Total assets $ 575,192 $ 616,645

1 unchanged sentence

Current liabilities:

Accounts payable $ 34,921 $ 44,056

Current portion of long-term debt and finance lease obligations $ 284,102 $ 280,993

Current portion of operating lease obligations 14,609 13,823

Income taxes payable 1,549 —

Accounts payable 32,003 32,524

Other accrued liabilities 99,308 119,267

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

Income tax payable 2,749 2,257

Total current liabilities 432,771 448,864

1 unchanged sentence

Operating lease obligations 37,119 38,819

Deferred income taxes 3,784 3,812

Deferred tax liabilities 3,622 3,661

Other long-term liabilities 2,701 2,599

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Common stock, par value $ 0.30 per share, 12,000,000 shares authorized;

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

4,357,401 and 4,342,909 shares issued

Additional paid-in capital 457,463 457,133

1 unchanged sentence

Accumulated other comprehensive loss ( 38,242 ) ( 38,997 )

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

Total equity 94,138 117,760

Total liabilities and equity $ 575,192 $ 616,645

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Revenues $ 202,277 $ 189,036

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Restructuring and other related charges, net — 16

Goodwill impairment charge — 55,837 — 55,837

Operating loss ( 7,746 ) ( 22,407 )

Interest expense, net ( 16,741 ) ( 18,579 )

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

Other income, net 635 3,179

Loss from continuing operations before income taxes ( 23,852 ) ( 37,807 )

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Discontinued operations:

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

Net income from discontinued operations, net of income tax — 5,871

Net loss $ ( 24,711 ) $ ( 32,462 )

1 unchanged sentence

Loss from continuing operations ( 5.69 ) ( 10.17 )

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

Income from discontinued operations — 1.56

Total $ ( 5.69 ) $ ( 8.61 )

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net loss $ ( 24,711 ) $ ( 32,462 )

1 unchanged sentence

Foreign currency translation adjustment 778 346

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 )

Other comprehensive income, before tax 778 346

Tax provision attributable to other comprehensive income ( 23 ) —

Other comprehensive income, net of tax 755 346

Total comprehensive loss $ ( 23,956 ) $ ( 32,116 )

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Balance at December 31, 2022 4,343 $ 1,303 $ 457,133 $ ( 301,679 ) $ ( 38,997 ) $ 117,760

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

Net loss — — — ( 24,711 ) — ( 24,711 )

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

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

Non-cash compensation 2 — ( 624 ) — — ( 624 )

Net settlement of vested stock awards 14 4 ( 52 ) — — ( 48 )

Balance at March 31, 2022 43,122 $ 12,931 $ 444,747 $ ( 404,222 ) $ ( 26,386 ) $ 27,070

Net loss — $ — $ — $ ( 21,552 ) $ — $ ( 21,552 )

Issuance of Common Stock 102 31 ( 102 ) — — ( 71 )

Foreign currency translation adjustment, net of tax — — — — 755 755

Non-cash compensation — — 382 — — 382

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 March 31, 2023 4,357 $ 1,307 $ 457,463 $ ( 326,390 ) $ ( 38,242 ) $ 94,138

Balance at December 31, 2021 3,122 $ 936 $ 453,247 $ ( 375,584 ) $ ( 26,732 ) $ 51,867

Accounting pronouncement adjustment — — ( 5,651 ) 3,824 — ( 1,827 )

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

Issuance of common stock 1,190 357 9,411 — — 9,768

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

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Balance at March 31, 2022 4,312 $ 1,293 $ 456,385 $ ( 404,222 ) $ ( 26,386 ) $ 27,070

Net loss — $ — $ — $ ( 17,493 ) $ — $ ( 17,493 )

Foreign currency translation adjustment, net of tax — — — — 400 400

Non-cash compensation — — 2,138 — — 2,138

Net settlement of vested stock awards 86 26 ( 26 ) — — —

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)

Nine Months Ended September 30,

Cash flows (used in) provided by operating activities:

Three Months Ended

Cash flows from operating activities:

Net loss $ ( 24,711 ) $ ( 32,462 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization 9,546 10,031

Write-off of deferred financing costs 2,748 —

Amortization of deferred financing costs, debt issuance costs, and debt warrant discounts 25,666 6,388

Write-off of deferred loan costs — 2,748

Amortization of debt issuance costs and debt discounts 8,486 4,936

Paid-in-kind interest 3,485 6,462

Allowance for credit losses ( 362 ) 1,985

Foreign currency losses 571 4,274

Allowance for credit (gains) losses ( 201 ) 67

Foreign currency gains ( 177 ) ( 185 )

Deferred income taxes ( 37 ) ( 799 )

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

Goodwill impairment charges — 55,837

Non-cash compensation costs 571 5,576

Gain on asset disposal ( 260 ) ( 2,306 )

Non-cash compensation costs (credits) 382 ( 624 )

Other, net ( 947 ) ( 1,216 )

7 unchanged sentences

Net cash used in operating activities ( 17,763 ) ( 50,006 )

Cash flows used in investing activities:

Cash flows from investing activities:

Capital expenditures ( 2,692 ) ( 7,068 )

1 unchanged sentence

Net cash used in investing activities ( 2,360 ) ( 4,042 )

Cash flows (used in) provided by financing activities:

Borrowings under ABL Credit Facility (Eclipse) 106,531 —

Payments under ABL Credit Facility (Eclipse) ( 11,715 ) —

Borrowings under Corre Delayed Draw Term Loans (ABL Credit Facility (Corre)) 35,000 —

Borrowings under ABL Facility (Citibank), net — 46,300

Borrowings under ABL Facility (Citibank), gross 10,300 124,700

Payments under ABL Facility (Citibank), gross ( 72,300 ) ( 125,900 )

Cash flows from financing activities:

Borrowings under 2020 ABL Facility, gross — 10,300

Payments under 2020 ABL Facility, gross — ( 72,300 )

Borrowings under 2022 ABL Credit Facility, gross 6,622 104,924

Payments under 2022 ABL Credit Facility, gross ( 12,623 ) ( 235 )

Payments for debt issuance costs — ( 10,345 )

Issuance of common stock 9,696 —

Taxes paid related to net share settlement of share-based awards — ( 102 )

Issuance of common stock, net of issuance costs — 9,767

Other ( 235 ) ( 145 )

Net cash provided by financing activities 63,288 41,743

Effect of exchange rate changes on cash and cash equivalents ( 1,373 ) ( 1,274 )

Net increase (decrease) in cash and cash equivalents 1,713 ( 7,614 )

Net cash (used in) provided by financing activities ( 6,236 ) 41,966

Effect of exchange rate changes on cash 153 465

Net decrease in cash and cash equivalents ( 26,206 ) ( 11,617 )

Cash and cash equivalents at beginning of period 58,075 65,315

1 unchanged sentence

_________________

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

1 Condensed consolidated statements of cash flows for the three months ended March 31, 2022 includes discontinued operations.

See accompanying notes to unaudited condensed consolidated financial statements.

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FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business.

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 are a global leading provider of specialty industrial services offering clients access to a full suite of conventional, specialized, and proprietary mechanical, heat-treating, and inspection services.

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.

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.

We currently conduct operations in two segments.

We conduct operations in two segments:

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

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

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

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

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

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

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

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.

IHT provides conventional and advanced non-destructive testing services primarily for the process, pipeline and power sectors, and pipeline integrity management services, and field heat treating services, 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 and laser scanning services.

IHT also provides advanced digital imaging including remote digital video imaging.

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.

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:

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

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

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:

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

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

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

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

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• Aerospace and Defense.

Ongoing Effects of COVID-19.

The COVID-19 pandemic has impacted our workforce and operations, as well as the operations of our clients, suppliers and contractors.

We continue to be affected by the direct and indirect impact of the pandemic and global economic conditions on operating expenses, staffing and supply chain management.

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 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.

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.

The Company continues to monitor these situations and take appropriate actions.

In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases.

We are carefully monitoring impacts from inflation, supply chain challenges and slowing economic conditions.

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 (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.

Basis for presentation.

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

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.

The results of operations for any interim period are not necessarily indicative of results for the full year.

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 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.

The condensed consolidated financial statements include the accounts of our subsidiaries where we have control over operating and financial policies.

All material intercompany accounts and transactions have been eliminated in consolidation.

Related Party Transactions.

A related party transaction is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including the incurrence or issuance of any indebtedness or the guarantee of indebtedness) in which (1) the Company or any of its subsidiaries is a participant, and (2) any Related Party (as defined below) has or will have a direct or indirect material interest.

A Related Party is any person who is, or, at any time since the beginning of the Company’s last fiscal year, was (1) an executive officer, director or nominee for election as a director of the Company or any of its subsidiaries, (2) a person with greater than five percent (5%) beneficial interest in the Company, (3) an immediate family member of any of the individuals or entities identified in (1) or (2) of this paragraph, and (4) any firm, corporation or other entity in which any of the foregoing individuals or entities is employed or is a general partner or principal or in a similar position or in which such person or entity has a five percent (5%) or greater beneficial interest.

Immediate family members includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone residing in such person’s home, other than a tenant or employee.

Reverse Stock Split.

On December 21, 2022, we completed a reverse stock split of our outstanding common stock at a ratio of one-for-ten.

The Reverse Stock Split effected a proportionate reduction in our authorized shares of common stock from 120,000,000 shares to 12,000,000 shares and reduced the number of shares of common stock outstanding from approximately 43,429,089 shares to approximately 4,342,909 shares.

We have made proportionate adjustments to the number of common shares issuable upon exercise or conversion of our outstanding warrants, equity awards and convertible securities, as well as the applicable exercise prices and weighted average fair value of the equity awards.

No fractional shares were issued in connection with the Reverse Stock Split.

Liquidity and Going Concern.

These condensed consolidated financial statements have been prepared in accordance with GAAP and assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the issue date of these unaudited condensed consolidated financial statements.

Our ability to continue as a going concern is dependent on many factors, including among other things, our ability to comply with the covenants in our debt agreements, our ability to cure any defaults that occur under our debt agreements, or forbearances with respect to any such defaults, and our ability to pay, retire, amend, replace or refinance our indebtedness as defaults occur or as interest and principal payments come due.

Our ability to continue as a going concern is dependent on many

factors, including among other things, our ability to comply with the covenants in our debt agreements, our ability to cure any defaults that occur under our debt agreements, or forbearances with respect to any such defaults, and our ability to pay, retire, amend, replace or refinance our indebtedness as defaults occur or as interest and principal payments come due.

Liquidity risk is the risk that we will be unable to meet our financial obligations as they become due.

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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, 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 do not believe, based on the Company’s forecast, that current working capital, cash flow from operations, expected availability under our existing credit agreements 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 Notes (as defined below) are due on August 1, 2023 and had a principal balance of $ 41.2 million as of March 31, 2023 .

Under the terms of our amended financing arrangements that were entered into during 2022, the Maturity Reserve Trigger Date (as defined in the 2022 ABL Credit Agreement), and the Maturity Trigger Date (as defined in the Term Loan Credit Agreement) and collectively referred to as the “Trigger Date”, is June 17, 2023, see Note 11 - Debt for additional information.

The Trigger Date requires that the Notes balance be reduced to less than $ 10.0 million by June 17, 2023.

As of March 31, 2023, we are in compliance with our debt covenants.

However, without the execution of a refinancing transaction, an agreement to extend the Notes maturity date, and/or amendments to our existing debt agreements, 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 or will be unable to pay off the Notes when they become due on August 1, 2023.

The failure to pay down the Notes to less than $ 10.0 million by the Trigger Date will result in an acceleration of the Term Loan Credit Agreement and failure to pay would result in an event of default and associated cross defaults under the Company’s other debt instruments.

Refer to Note 11 - Debt for more information on the terms, cross default provisions and maturity dates of our debt that may affect our future liquidity.

As a result of our current liquidity condition and the potential inability to negotiate an extension or amend the financial covenants, substantial doubt about the Company’s ability to continue as a going concern is raised.

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” was May 18, 2023, which has subsequently been amended to June 17, 2023, see to Note 12 - Debt for additional information.

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.

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.

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, or will be unable to pay off convertible debt when it becomes due on August 1, 2023.

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.

While our lenders agreed on an extension and amended the financial covenants in prior periods, there can be no assurance that our lenders will provide additional extensions, waivers or amendments in the event of future non-compliance with our debt covenants or other possible events of default.

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 .

Use of estimates.

Our accounting policies conform to GAAP.

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect our reported financial position and results of operations.

We review significant estimates and judgments affecting our condensed consolidated financial statements on a recurring basis and record the effect of any necessary adjustments prior to their publication.

Estimates and judgments are based on information available at the time such estimates and judgments are made.

Adjustments made with respect to the use of these estimates and judgments often relate to information not previously available.

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.

Fair value of financial instruments .

As defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 Fair Value Measurements and Disclosur e (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.

These inputs can be readily observable, market corroborated, or generally unobservable.

We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available.

Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

The use of unobservable inputs is intended to allow for fair value determinations in situations in which there is little, if any, market activity for the asset or liability at the measurement date.

We are able to classify fair value balances based on the observability of those inputs.

ASC 820 establishes a fair value hierarchy such that “Level 1” measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, “Level 2” measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets, and “Level 3” measurements include inputs that are unobservable and of a highly subjective measure.

Our financial instruments consist primarily of cash, cash equivalents, accounts receivable, accounts payable and debt obligations.

The carrying amount of cash, cash equivalents, trade accounts receivable and trade accounts payable are representative of their respective fair values due to the short-term maturity of these instruments.

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 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 .

Cash and cash equivalents .

Cash and cash equivalents consist of all deposits and funds invested in highly liquid short-term investments with original maturities of three months or less.

Except for certain inventories that are valued based on weighted-average cost, we use the first-in, first-out method to value our inventory.

Inventory includes material, labor, and certain fixed overhead costs.

Inventory is stated at the lower of cost and net realizable value.

Inventory quantities on hand are reviewed periodically and carrying cost is reduced to net realizable value for inventories for which their cost exceeds their utility.

The cost of inventories consumed or products sold are included in operating expenses.

Property, plant and equipment.

Property, plant and equipment are stated at cost less accumulated depreciation and amortization.

Leasehold improvements are amortized over the shorter of their respective useful life or the lease term.

Depreciation and amortization of assets are computed by the straight-line method over the following estimated useful lives of the assets:

Classification Useful Life

Buildings 20 - 40 years

Enterprise Resource Planning (“ERP”) System 15 years

Leasehold improvements 2 - 15 years

Machinery and equipment 2 - 12 years

Furniture and fixtures 2 - 10 years

Computers and computer software 2 - 5 years

Automobiles 2 - 5 years

Goodwill and intangible assets.

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”).

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

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 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.

We follow the guidance of ASC 740 Income Taxes (“ASC 740”), which requires that we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences.

As part of the process of preparing our condensed consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.

This process involves estimating our actual current tax payable or receivable and related tax expense or benefit together with assessing temporary differences resulting from differing treatment of certain items, such as depreciation, for tax and accounting purposes.

These differences can result in deferred tax assets and liabilities, which are included within our consolidated balance sheets.

In accordance with ASC 740, we are required to assess the likelihood that our deferred tax assets will be realized and, to the extent we believe it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized, we must establish a valuation allowance.

We consider all available evidence to determine whether, based on the weight of the evidence, a valuation allowance is needed.

Evidence used includes the reversal of existing taxable temporary differences, taxable income in prior carryback years if carryback is permitted by tax law, information about our current financial position and our results of operations for the current and preceding years, as well as all currently available information about future years, including our anticipated future performance and tax planning strategies.

We regularly assess whether it is more likely than not that we will realize the deferred tax assets in the jurisdictions in which we operate.

Management believes future sources of taxable income, reversing temporary differences and other tax planning strategies will be sufficient to realize the deferred tax assets for which no valuation allowance has been established.

Our valuation allowance primarily relates to net operating loss carryforwards.

While we have considered these factors in assessing the need for additional valuation allowance, there can be no assurance that additional valuation allowance would not need to be established in the future if information about future years change.

Any changes in valuation allowance would impact our income tax provision and net income (loss) in the period in which such a determination is made.

Significant judgment is required in assessing the timing and amounts of deductible and taxable items for tax purposes.

In accordance with ASC 740-10, we establish reserves for uncertain tax positions when, despite our belief that our tax return positions are supportable, we believe that it is not more likely than not that the position will be sustained upon challenge.

When facts and circumstances change, we adjust these reserves through our provision for income taxes.

To the extent interest and penalties may be assessed by taxing authorities on any related underpayment of income tax, such amounts have been accrued and are classified as a component of income tax expense (benefit) in our consolidated statements of operations.

Workers’ compensation, auto, medical and general liability accruals.

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.

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 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.

For environmental liability claims, our self-insured retention is $ 1.0 million per occurrence.

We maintain insurance for claims that exceed such self-retention limits.

The insurance is subject to terms, conditions, limitations, and exclusions that may not fully compensate us for all losses.

Our estimates and judgments could change based on new information, changes in laws or regulations, changes in management’s plans or intentions, or the outcome of legal proceedings, settlements, or other factors.

If different estimates and judgments were applied with respect to these matters, it is likely that reserves would be recorded for different amounts.

Allowance for credit losses.

In the ordinary course of business, a portion of our accounts receivable are not collected due to billing disputes, customer bankruptcies, dissatisfaction with the services we performed and other various reasons.

We establish an allowance to account for those accounts receivable that we estimate will eventually be deemed uncollectible.

The allowance for credit losses is based on a combination of our historical experience and management’s review of long outstanding accounts receivable.

Concentration of credit risk.

No single customer accounts for more than 10% of consolidated revenues.

Earnings (loss) per share.

Basic earnings (loss) per share is computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations or net income (loss) by the weighted-average number of shares of common stock outstanding during the year.

Diluted earnings (loss) per share is computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations or net income (loss) by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, (2) the dilutive effect of the assumed exercise of share-based compensation using the treasury stock method and (3) the dilutive effect of the assumed conversion of our Notes under the if converted method.

Our current intent is to settle the principal amount of our Notes in cash upon maturity.

If the conversion value exceeds the principal amount, we may elect to deliver shares of our common stock with respect to the remainder of our conversion obligation in excess of the aggregate principal amount (the “conversion spread”).

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 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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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

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 .

For subsidiaries whose functional currency is not the U.S.

Dollar, assets and liabilities are translated at period ending rates of exchange and revenues and expenses are translated at period average exchange rates.

Translation adjustments for the asset and liability accounts are included as a separate component of accumulated other comprehensive loss in stockholders’ equity.

Foreign currency transaction gains and losses are included in our statements of operations.

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.

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.

Pension benefit costs and liabilities are dependent on assumptions used in calculating such amounts.

The primary assumptions include factors such as discount rates, expected investment return on plan assets, mortality rates and retirement rates.

The discount rates, expected investment return on plan assets, mortality rates and retirement rates are determined based on reference to yields, and are reviewed annually and considered for adjustment to reflect current market conditions.

The expected return on plan assets is derived from detailed periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks (standard deviations) and correlations of returns among the asset classes that comprise the plans’ asset mix.

While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return.

Mortality and retirement rates are based on actual and anticipated plan experience.

In accordance with GAAP, actual results that differ from the assumptions are accumulated and are subject to amortization over future periods and, therefore, generally affect recognized expense in future periods.

While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the pension obligation and future expense.

Further, there can be 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.

As such, substantial doubt exists about our ability to continue as a going concern.

The 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.

Basis for presentation.

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

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

The results of operations for any interim period are not necessarily indicative of results for the full year.

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

These condensed consolidated 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, 2022 as filed with the Securities and Exchange Commission.

Consolidation.

The condensed consolidated financial statements include the accounts of our subsidiaries where we have control over operating and financial policies.

All material intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications.

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

Newly Adopted Accounting Standards

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for convertible instruments by eliminating certain separation models and will generally be reported as a single liability at its amortized cost.

In addition, ASU 2020-06 eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method.

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

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

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

Refer to Note 12 - Debt for impact on the adoption of this ASU as of January 1, 2022.

Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

The guidance in ASU 2020-04 and ASU 2021-01, Reference Rate Reform (Topic 848):

Scope , which was issued in January 2021, provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another rate that is expected to be discontinued.

The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022.

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.

Significant Accounting Policies.

Our significant accounting policies are disclosed in Note 1 - Summary of Significant Accounting Policies and Practices in our Annual Report on Form 10-K for the year ended December 31, 2022.

On an ongoing basis, we evaluate the estimates and assumptions, including among other things, those related to long-lived assets.

Since the date of our 2022 Annual Report, there have been no material changes to our significant accounting policies.

Discontinued operations.

On November 1, 2022, we completed the sale of Quest Integrity.

The criteria for reporting Quest Integrity as a discontinued operation were met as of completion of the Quest Integrity sale transaction and, as such, the prior year amounts presented in this Form 10-Q has been recast to present Quest Integrity as a discontinued operation.

Refer to Note 2 - Discontinued Operations for additional details.

DISCONTINUED OPERATIONS

On November 1, 2022, we completed the Quest Integrity Transaction with Baker Hughes for an aggregate purchase price of approximately $ 279.0 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.

We used approximately $ 238.0 million of the net proceeds from the sale of Quest Integrity to pay down $ 225.0 million of our term loan debt, and to pay 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.

Refer to Note 1 – Description of Business and Basis of Presentation for additional details regarding our operating segments, IHT and MS.

Our condensed consolidated statements of operations for three months ended March 31, 2022 report discontinued operations separate from continuing operations.

Our condensed consolidated statements of comprehensive loss, statements of shareholders’ equity and statements of cash flows for the three months ended March 31, 2022 combine continuing and discontinued operations.

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

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

March 31, 2022 (unaudited)

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

2 unchanged sentences

Selling, general and administrative expenses ( 7,766 )

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

Interest expense, net ( 26 )

Other expense ( 477 )

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.

Income from discontinued operations before income taxes 5,701

Benefit from income taxes 170

Net income from discontinued operations $ 5,871

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

Nine Months Ended September 30,

Three Months Ended March 31, 2022

Cash flows provided by operating activities of discontinued operations:

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Capital expenditures $ 931

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

1) identify the contract with the customer, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations, and 5) recognize revenue when the performance obligations are satisfied.

Most of our contracts with customers are short-term in nature and billed on a time and materials basis, while certain other contracts are at a fixed price.

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

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.

Generally, in contracts where the amount of consideration is variable, the amount is determinable each period based on our right to invoice (as discussed further below) the customer for services performed to date.

As most of our contracts contain only one performance obligation, the allocation of a contract transaction price to multiple performance obligations is generally not applicable.

Customers are generally billed as we satisfy our performance obligations and payment terms typically range from 30 to 90 days from the invoice date.

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.

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

The warranty period typically is twelve months or less from the date of service.

Revenue is recognized as (or when) the performance obligations are satisfied by transferring control over a service or product to the customer.

Revenue recognition guidance prescribes two recognition methods (over time or point in time).

Most of our performance obligations qualify for recognition over time because we typically perform our services on customer facilities or assets and customers receive the benefits of our services as we perform.

Where a performance obligation is satisfied over time, the related revenue is also recognized over time using the method deemed most appropriate to reflect the measure of progress and transfer of control.

For our time and materials contracts, we are generally able to elect the right-to-invoice practical expedient, which permits us to recognize revenue in the amount to which we have a right to invoice the customer if that amount corresponds directly with the value to the customer of our performance completed to date.

For our fixed price contracts, we typically recognize revenue using the cost-to-cost method, which measures the extent of progress towards completion based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

Under this method, revenue is recognized proportionately as costs are incurred.

For contracts where control is transferred at a point in time, revenue is recognized at the time control of the asset is transferred to the customer, which is typically upon delivery and acceptance by the customer.

Quest Integrity had $ 0.3 million of accrued capital expenditures as of March 31, 2022, which were excluded from the condensed consolidated statement of cash flows for the three months ended March 31, 2022.

Disaggregation of revenue.

Essentially all of our revenues are associated with contracts with customers.

A disaggregation of our revenue from contracts with customers by geographic region, by reportable operating segment and by service type is presented below (in thousands):

Geographic area:

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

(unaudited) (unaudited)

United States and Canada Other Countries Total United States and Canada Other Countries Total

Three Months Ended March 31, 2023

United States and Canada Other Countries Total

IHT $ 98,531 $ 3,298 $ 101,829

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Total $ 170,562 $ 31,715 $ 202,277

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

(unaudited) (unaudited)

United States and Canada Other Countries Total United States and Canada Other Countries Total

Three Months Ended March 31, 2022

United States and Canada Other Countries Total

IHT $ 93,376 $ 2,219 95,595

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Operating segment and service type:

Three Months Ended September 30, 2022

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

IHT $ 87,267 $ 19 $ 16,357 $ 6,669 $ 110,312

MS — 106,776 125 1,126 108,027

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

Three Months Ended September 30, 2021

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

IHT $ 80,553 $ 56 $ 11,928 $ 8,939 $ 101,476

MS — 95,560 71 772 96,403

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

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

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

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Total $ 81,606 $ 99,841 $ 14,006 $ 6,824 $ 202,277

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

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

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Contract balances .

The timing of revenue recognition, billings and cash collections results in trade accounts receivable, contract assets and contract liabilities on the consolidated balance sheets.

The timing of revenue recognition, billings, and cash collections results in trade accounts receivable, contract assets and contract liabilities on the condensed consolidated balance sheets.

Trade accounts receivable include billed and unbilled amounts currently due from customers and represent unconditional rights to receive consideration.

The amounts due are stated at their net estimated realizable value.

Refer to Note 1 - Summary of Significant Accounting Policies and Practices and Note 4 – Receivables for additional information on our trade receivables and the allowance for credit losses.

Contract assets include unbilled amounts typically resulting from sales under fixed-price contracts when the cost-to-cost method of revenue recognition is utilized, the revenue recognized exceeds the amount billed to the customer and the right to payment is conditional on something other than the passage of time.

Refer to Note 4 - Receivables for additional information on our trade receivables and the allowance for credit losses.

Contract assets include unbilled amounts when the revenue recognized exceeds the amount billed to the customer.

Amounts may not exceed their net realizable value.

If we receive advances or deposits from our customers, a contract liability is recorded.

Additionally, a contract liability arises if items of variable consideration result in less revenue being recorded than what is billed.

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 September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021 Change

The following table provides information about trade accounts receivable, and contract assets as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022 Change

Trade accounts receivable, net 1

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_________________

Contract liabilities 3

$ 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 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 nine months ended September 30, 2022.

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

Contract costs .

We recognize the incremental costs of obtaining contracts as selling, general and administrative expenses when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less.

Costs to fulfill a contract are recorded as assets if they relate directly to a contract or a specific anticipated contract, the costs are to generate or enhance resources that will be used in satisfying performance obligations in the future and the costs are expected to be recovered.

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 September 30, 2022 and December 31, 2021.

Costs to fulfill a contract are recorded as assets if they relate directly to a contract or a specific anticipated contract, the costs to generate

or enhance resources that will be used in satisfying performance obligations in the future and the costs are expected to be recovered.

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

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

September 30, 2022 December 31, 2021

As most of our contracts with customers are short-term in nature and billed on a time and material basis, there were no material amounts of remaining performance obligations as of March 31, 2023 and December 31, 2022.

A summary of accounts receivable as of March 31, 2023 and December 31, 2022 is as follows (in thousands):

March 31, 2023 December 31, 2022

Trade accounts receivable $ 142,723 $ 160,572

2 unchanged sentences

Total $ 178,211 $ 186,689

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.

We measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

This 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.

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:

(i) the aging of the receivable, (ii) any identification of known collectability concerns with specific receivables, and (iii) variances in economic risk characteristics across geographic regions.

For trade receivables, customers typically are provided with payment due date terms of 30 days upon issuance of an invoice.

We have tracked historical loss information for our trade receivables and compiled historical credit loss percentages for different aging categories.

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.

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.

We have not seen a negative trend in the current economic environment that significantly impacts our historical credit-loss percentages;

however, we will continue to monitor for changes that would indicate the historical loss information is no longer a reasonable basis for the determination of our expected credit losses.

Our forecasted loss rates inherently incorporate expected macroeconomic trends.

A loss-rate method for estimating expected credit losses on a pooled basis is applied for each aging category for receivables that continue to exhibit similar risk characteristics.

To measure expected credit losses for individual receivables with specific collectability risk, we identify specific factors based on customer-specific facts and circumstances that are unique to each customer.

Customer accounts with different risk characteristics are separately identified and a specific reserve is determined for these accounts based on the assessed credit risk.

We have also identified the following geographic regions in which to distinguish our trade receivables:

the (i) United States, (ii) Canada, (iii) the European Union, (iv) the United Kingdom, and (v) other countries.

These geographic regions are considered appropriate as they each operate in different economic environments with different foreign currencies, and therefore share similar economic risk characteristics.

For each geographic region, we evaluate the historical loss information and determine credit-loss percentages to apply to each aging category and individual receivable with specific risk characteristics.

We estimate future expected credit losses based on forecasted changes in gross domestic product and oil demand for each region.

We consider one year from the financial statement reporting date as representing a reasonable forecast period as this period aligns with the expected collectability of our trade receivables.

Financial distress experienced by our customers could have an adverse impact on us in the event our customers are unable to remit payment for the products or services we provide or otherwise fulfill their obligations to us.

In determining the current expected credit losses, we review macroeconomic conditions, market specific conditions, and internal forecasts to identify potential changes in our assessment.

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.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Balance at beginning of period $ 5,262 $ 7,843

Expected credit loss adjustment 1

( 442 ) 2,193

Provision for expected credit losses 155 1,059

Recoveries collected ( 351 ) ( 1,114 )

Write-offs ( 96 ) ( 2,479 )

1 unchanged sentence

Balance at end of period $ 4,926 $ 5,262

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

A summary of inventory as of March 31, 2023 and December 31, 2022 is as follows (in thousands):

March 31, 2023 December 31, 2022

Raw materials $ 9,742 $ 8,978

2 unchanged sentences

Total $ 37,998 $ 36,331

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

September 30, 2022 December 31, 2021

A summary of prepaid and other current assets as of March 31, 2023 and December 31, 2022 is as follows (in thousands):

March 31, 2023 December 31, 2022

Insurance receivable $ 39,000 $ 39,000

2 unchanged sentences

Total $ 62,702 $ 65,679

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 9 - Other Accrued Liabilities .

1 unchanged sentence

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 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).

The other current assets primarily include items such as software implementation costs, other receivables, and other accounts receivables.

As of March 31, 2023, the other current assets include deferred financing cost of $ 1.4 million due to all long-term debt now being classified as current.

Other current assets also include deferred financing fees amounting to $ 0.7 million in connection with the Substitute Reimbursement Facility (as defined below), see Note 11 - Debt for additional details.

PROPERTY, PLANT AND EQUIPMENT

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

A summary of property, plant and equipment as of March 31, 2023 and December 31, 2022 is as follows (in thousands):

March 31, 2023 December 31, 2022

Land $ 4,006 $ 4,006

9 unchanged sentences

Property, plant and equipment, net $ 134,520 $ 138,099

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.

Included in the table above are assets under finance leases of $ 7.4 million and $ 7.4 million, and accumulated amortization of $ 2.5 million and $ 2.3 million as of March 31, 2023 and December 31, 2022, respectively.

Depreciation expense for the three months ended March 31, 2023 and 2022 was $ 5.6 million and $ 6.5 million, respectively.

INTANGIBLE ASSETS

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

A summary of intangible assets as of March 31, 2023 and December 31, 2022 is as follows (in thousands):

March 31, 2023

Amount Accumulated

Amortization Net

Customer relationships $ 165,267 $ ( 94,409 ) $ 70,858

Trade names 20,570 ( 19,895 ) 675

Technology 2,712 ( 2,042 ) 670

Licenses 843 ( 843 ) —

Intangible assets $ 189,392 $ ( 117,189 ) $ 72,203

December 31, 2022

Amount Accumulated

1 unchanged sentence

Customer relationships $ 165,231 $ ( 91,296 ) $ 73,935

Non-compete agreements 5,288 ( 5,288 ) — 5,503 ( 5,503 ) —

Trade names 20,563 ( 19,830 ) 733

1 unchanged sentence

Licenses 840 ( 830 ) 10

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

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 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.

Intangible assets $ 189,341 $ ( 113,934 ) $ 75,407

Amortization expense of intangible assets for the three months ended March 31, 2023 and 2022 was $ 3.2 million and $ 3.5 million, respectively.

The weighted-average amortization period for intangible assets subject to amortization was 13.7 years as of March 31, 2023 and December 31, 2022.

OTHER ACCRUED LIABILITIES

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

A summary of other accrued liabilities as of March 31, 2023 and December 31, 2022 is as follows (in thousands):

March 31, 2023 December 31, 2022

Legal and professional accruals $ 43,856 $ 46,665

2 unchanged sentences

Property, sales and other non-income related taxes 3,815 7,348

Accrued commission 1,481 1,111

Accrued interest 3,385 3,963

Other 8,991 7,141

Volume discount 2,179 2,050

Other accruals 2,192 3,251

Total $ 99,308 $ 119,267

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 14 - Commitments and Contingencies .

4 unchanged sentences

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

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.

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

We recorded an income tax provision of $ 0.9 million for the three months ended March 31, 2023 compared to a provision of $ 0.5 million for the three months ended March 31, 2022.

The effective tax rate, inclusive of discrete items, was a provision of 3.6 % for the three months ended March 31, 2023, compared to a provision of 1.4 % for the three months ended March 31, 2022.

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

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.

The lack of going concern basis applicable for our current 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.

The $ 0.8 million charge is primarily attributable to our Germany and Canada subsidiaries.

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

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.

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

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

September 30, 2022 December 31, 2021

ABL Facilities $ 129,816 $ 62,000

Atlantic Park Term Loan 234,443 214,191

Refer to Note 1 - Description of Business and Basis of Presentation for additional liquidity and going concern discussion.

As of March 31, 2023 and December 31, 2022, our total long-term debt and finance lease obligations are summarized as follows (in thousands):

March 31, 2023 December 31, 2022

2022 ABL Credit Facility $ 93,915 $ 99,916

APSC Term Loan 33,599 31,562

Subordinated Term Loan 114,756 107,905

46,132 36,358

Total 242,270 239,383

Convertible Debt 1

40,922 40,650

Finance lease obligations 2

Total debt and finance lease obligations $ 511,224 $ 405,851

Total long-term debt and finance lease obligations 288,943 285,935

Current portion of long-term debt and finance lease obligations ( 284,102 ) ( 280,993 )

4 unchanged sentences

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”) 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.

(“Citibank”), as agent, which was repaid and terminated in full on February 11, 2022.

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

However, the ABL Credit Facility is subject to the Trigger Date as noted above in Note 1 - Summary of Significant Accounting Policies and Practices .

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

2022 ABL Facility

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, as amended by Amendment No.

1 dated as of May 6, 2022 and Amendment No.

2 dated as of November 1, 2022 the “2022 ABL Credit Agreement”).

Available funding commitments to us under the 2022 ABL Credit Agreement, subject to certain conditions, include a revolving credit line in an amount of up to $ 130.0 million to be provided by certain affiliates of Eclipse (the “Revolving Credit Loans”), with a $ 35.0 million sublimit for swingline borrowings and a $ 26.0 million sublimit for issuances of letters of credit, and an incremental delayed draw term loan of up to $ 35.0 million (the “Delayed Draw Term Loan”) provided by Corre Partners Management, LLC and certain of its affiliates (“Corre”) (collectively, the “2022 ABL Credit Facility”).

The proceeds of the loans under the 2022 ABL Credit Facility were used to, among other things, pay off and terminate the 2020 ABL Credit Facility.

The 2022 ABL Credit Facility is scheduled to mature in February 2025.

Availability of the Revolving Credit Loans is subject to a Maturity Reserve Trigger Date (as defined in the 2022 ABL Credit Agreement) concept such that, subject to certain conditions, a reserve will be put into place with respect to the outstanding principal amount of the Notes 45 days prior to the maturity date of the Notes, or June 17, 2023, if on such date, the Notes balance is not paid down to less than $ 10.0 million, or the Company does not have equivalent cash on hand to pay down the Notes to $ 10.0 million.

Our obligations under the 2022 ABL Credit Agreement are guaranteed by certain of our direct and certain indirect subsidiaries referenced below as the “ABL Guarantors” and, together with the Company, the “ABL Loan Parties.” Our obligations under the 2022 ABL Credit Facility are secured on a first priority basis by, among other things, accounts receivable, deposit accounts, securities accounts and inventory of the ABL Loan Parties and are secured on a second priority basis by substantially all of the other assets of the ABL Loan Parties.

Availability under the revolving credit line under the 2022 ABL Credit Facility is based on a percentage of the value of qualifying accounts receivable and inventory, reduced by certain reserves.

Revolving Credit Loans under the 2022 ABL Credit Facility bear interest through maturity at a variable rate based upon a LIBOR Rate (or a base rate if the LIBOR Rate is unavailable for any reason), plus an applicable margin (“LIBOR Rate Loan” and “Base Rate Loan,” respectively).

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

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

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

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

Interest under the 2022 ABL Credit Facility is payable monthly.

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

The Company may make voluntary prepayments of the loans under the 2022 ABL Credit Facility from time to time, subject, in the case of the Delayed Draw Term Loan, to certain conditions.

Mandatory prepayments are also required in certain circumstances, including with respect to the Delayed Draw Term Loan, if the ratio of aggregate value of the collateral under the 2022 ABL Credit Facility to the sum of the Delayed Draw Term Loan plus revolving facility usage outstanding is less than 130 %.

Amounts repaid may be re-borrowed, subject to compliance with the borrowing base and the other conditions set forth in the 2022 ABL Credit Agreement, subject, in the case of the Delayed Draw Term Loan to a maximum of four such borrowings in any 12-month period.

Certain permanent repayments of the 2022 ABL Credit Facility loans are subject to the payment of a premium of 2.00 % during the first year of the facility, 1.00 % during the second year of the facility, and 0.50 % in the last year of the facility.

The 2022 ABL Credit Agreement contains customary conditions to borrowings and covenants, including covenants that restrict our ability to sell assets, make changes to the nature of our business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of certain debt.

The 2022 ABL Credit Agreement also requires that we will not exceed $ 20.0 million in unfinanced capital expenditures in any calendar year;

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

In addition, the 2022 ABL Credit Agreement includes customary events of default, the occurrence of which may require that we pay an additional 2.0 % interest on the outstanding loans under the 2022 ABL Credit Facility.

The interest rate as of March 31, 2023 was 9.31 % for Revolving Credit Loans and 14.66 % for the Delayed Draw Term Loan.

The interest rate as of March 31, 2022 was 5.65 % for Revolving Credit Loans and 11.00 % for the Delayed Draw Term Loan.

Interest expense on Revolving Credit Loans amounted to $ 1.4 million and $ 0.8 million for the three months ended March 31, 2023 and 2022, respectively.

Cash interest paid on the Delayed Draw Term Loan amounted to $ 1.3 million and $ 0.1 million for the three months ended March 31, 2023 and 2022, respectively.

Direct and incremental costs associated with the issuance of the 2022 ABL Credit Facility were approximately $ 8.4 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 $ 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 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 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 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 costs are amortized on a straight-line basis over the term of the 2022 ABL Credit Facility.

Unamortized deferred financing cost amounted to $ 1.4 million and $ 3.1 million as of March 31, 2023 and December 31, 2022, respectively.

Additionally, the amortization period for deferred financing costs and debt discounts and issuance cost was accelerated to reflect the revised Maturity Reserve Trigger Date and the related reclassification of debt as current.

Refer to Note 1 - Description of Business and Basis of Presentation for additional liquidity and going concern discussion.

As of March 31, 2023, we had $ 58.9 million of Revolving Credit Loans outstanding and $ 35.0 million outstanding under the Delayed Draw Term Loan.

There were $ 8.9 million outstanding in letters of credit secured by these instruments, which are off-balance sheet.

As of March 31, 2023, subject to the applicable sublimit and other terms and conditions, $ 27.3 million was available for loans or for issuance of new letters of credit.

APSC Term Loan

On December 18, 2020, we entered into that certain Term Loan Credit Agreement (as amended by Amendment No.

1, dated as of October 19, 2021, Amendment No.

2, dated as of October 29, 2021, Amendment No.

3, dated as of November 8, 2021, Amendment No.

4, dated as of December 2, 2021, Amendment No.

5, dated as of December 7, 2021 Amendment No.

dated as of February 11, 2022, Amendment No.

7, dated as of May 6, 2022, Amendment No.

8, dated as of November 1, 2022 and Amendment No.

9, dated as of November 4, 2022, the “Term Loan Credit Agreement”) with Atlantic Park Strategic Capital Fund, L.P., as agent (“APSC”), pursuant to which we borrowed $ 250.0 million (the “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 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 become due on the Trigger Date.

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

Amendments in 2022:

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

6 (the “Sixth Amendment”) to the Term Loan Credit Agreement.

The Sixth Amendment, among other things, (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.

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

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

The Seventh Amendment, among other things, (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, 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.

However, certain conditions could result in an earlier maturity, including if, on the Maturity Trigger Date (45 days prior to the maturity date of the Notes (currently June 17, 2023)), (i) the maturity date of the Notes has not been extended past the date that is 91 days after the sixth anniversary of the closing date of the Term Loan Credit Agreement or (ii) the Notes have an aggregate principal amount outstanding of $ 10.0 million or more, in which case the Term Loan will terminate on the Maturity Trigger Date.

As set forth in the Term Loan Credit Agreement, the Term Loan is secured by substantially all assets, other than those secured on a first lien basis by the 2022 ABL Credit Facility, and we may, subject to the terms and conditions in the Term Loan Credit Agreement, increase the Term Loan by an amount not to exceed $ 100.0 million.

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

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

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

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

The Term Loan is prepayable in whole or in part, at any time and from time to time, subject to a prepayment premium (including a make whole during the first two years ) specified in the Term Loan Credit Agreement (subject to certain exceptions), plus accrued and unpaid interest.

As of March 31, 2023, the effective interest rate of 38.48 % consisted of a 12.30 % variable interest rate paid in cash and an additional 26.18 % due to the acceleration of the amortization of the related debt issuance costs due to the Maturity Trigger Date provision.

As of March 31, 2022, the effective interest rate of 12.22 % consisted of a 10.00 % weighted-average cash and PIK interest rate and an additional 2.22 % due to the acceleration of the amortization of the related debt issuance costs due to the Maturity Trigger Date provision.

The unamortized balances of debt discounts, warrant discount and debt issuance cost amounted to $ 1.9 million and $ 3.9 million at March 31, 2023 and December 31, 2022, respectively.

Cash interest paid amounted to $ 1.1 million and $ 4.2 million for the three months ended March 31, 2023 and 2022, respectively.

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

The Term Loan Credit Agreement contains a maximum net leverage ratio covenant that will begin being tested for the fiscal quarter ending June 30, 2023 and for each fiscal quarter thereafter at 7.00 to 1.00.

Subordinated Term Loan Credit Agreement

On November 9, 2021, we entered into a credit agreement (as amended by Amendment No.

1 dated as of November 30, 2021, Amendment No.

2 dated as of December 6, 2021,Amendment No.

3 dated as of December 7, 2021, Amendment No.

4 dated as of December 8, 2021, Amendment No.

5 dated as of February 11, 2022, Amendment No.

6 dated as of May 6, 2022, Amendment No.

7 dated as of June 28, 2022, Amendment No.

8 dated as of October 4, 2022, Amendment No.

9 dated as of November 1, 2022, Amendment No.

10 dated as of November 4, 2022, Amendment No.

11 dated as of November 21, 2022 and Amendment No.

12 dated as of March 29, 2023, the “Subordinated Term Loan Credit Agreement”) with Cantor Fitzgerald Securities, as agent, and the lenders party thereto providing for an unsecured approximately $ 119.0 million delayed draw subordinated term loan facility (the “Subordinated Term Loan”).

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

An additional approximately $ 57.0 million was added to the outstanding principal amount under the Subordinated Term Loan Credit Agreement on October 4, 2022 via an exchange of the Company’s convertible debt.

As of March 31, 2023, the availability date for the $ 10.0 million in Subordinated Term Loans remaining to be drawn is September 30, 2023.

The Subordinated Term Loan matures, and all outstanding amounts become due and payable, on the earlier of December 31, 2027 and the date that is two weeks following the maturity or full repayment of APSC Term Loan.

The stated interest rate on the Subordinated Term Loan is 12.00 % 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 July 1, 2022 (as amended by Amendment No.

7 as described further below).

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

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, 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 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.

As of March 31, 2023, the effective interest rate of 30.32 % consisted of 12.00 % stated interest and an additional 18.32 % due to the acceleration of the amortization of the related debt issuance costs due to the Trigger Date provision.

At March 31, 2022, the effective interest rate of 19.61 % consisted of the 12.00 % stated interest and an additional 7.61 % due to the acceleration of the amortization of the related debt issuance costs due to the Trigger Date provision.

The unamortized debt issuance cost amounted to $ 4.1 million and $ 7.5 million as of March 31, 2023 and December 31, 2022, respectively.

PIK interest expense amounted to $ 3.5 million and $ 1.5 million for the three months ended March 31, 2023 and 2022, respectively.

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

The Subordinated Term Loan Credit Agreement contains a maximum net leverage ratio covenant that will begin being tested for the fiscal quarter ending June 30, 2023 and for each fiscal quarter thereafter at 7.00 to 1.00.

On March 29, 2023, we entered into Amendment No.

12 to the Subordinated Term Loan Credit Agreement (“Corre Amendment 12”) with the lenders from time to time party thereto (including Corre), and Cantor Fitzgerald Securities, as agent.

Corre Amendment 12 amended the Subordinated Term Loan Credit Agreement to, inter alia , extend the availability date for the remaining $ 10.0 million in Subordinated Term Loans to September 30, 2023 rather than March 31, 2023.

As of March 31, 2023 and December 31, 2022, we held the following warrants:

Original After Reverse Stock Split (Effective date December 22, 2022)

Holder Date Number of shares Exercise price Expiration date Number of shares Exercise price Expiration date

APSC Holdco II, LP

Original, as awarded 12/18/2020 3,582,949 $ 7.75 6/14/2028

Amended 11/9/2021 500,000 $ 1.50 6/14/2028

Amended 12/8/2021 917,051 $ 1.50 12/8/2028

Total APSC 5,000,000 $ 1.50 12/8/2028 500,000 $ 15.00 12/8/2028

Corre 12/8/2021 5,000,000 $ 1.50 12/8/2028 500,000 $ 15.00 12/8/2028

Total warrants 10,000,000 1,000,000

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 were 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.

In connection with execution of the Subordinated Term Loan Credit Agreement and Term Loan Amendment No.

3, 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 and to reduce the exercise price to $ 1.50 per share.

In connection with execution of the Subordinated Term Loan Credit Agreement and the amendments to the Term Loan Credit Agreement, on December 8, 2021 we entered into (i) the Second Amended and Restated Common Stock Purchase Warrant No.

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

Following the Reverse Stock Split, the Warrants provide for the purchase of up to 1,000,000 shares of our common stock at an exercise price of $ 15.00 per share.

The exercise price and the number of shares of our common stock issuable on exercise of the Warrants are subject to certain antidilution adjustments, including for stock dividends, stock splits, reclassifications, noncash distributions, cash dividends, certain equity issuances and business combination transactions.

In connection with the Subscription Agreement (as defined below), on February 11, 2022, the Company, the Corre Holders and APSC Holdco entered into those certain Team, Inc.

Waivers of Anti-Dilution Adjustments and Cash Transaction Exercise (collectively, the “Warrant Waivers”) with respect to each of the Warrants.

Pursuant to the Warrant Waivers, the Corre Holders and APSC Holdco agreed with respect to such holders’ Warrant, subject to certain terms and conditions set forth therein (and for only so long as the applicable provisions remain in effect), among other things, (i) to irrevocably waive certain anti-dilution adjustments set forth in such Warrant in connection with the Proposed Equity Financing (as defined in the Warrant Waivers);

(ii) to not exercise such Warrant, in whole or in part, if the Company determines that such exercise will cause an ownership change within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (assuming, among other things, that the ownership change threshold is 47% rather than 50%);

and (iii) to only exercise such Warrant in a “cashless” or “net-issue” exercise.

Subscription Agreement

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;

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

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

On February 11, 2022, we entered into a common stock subscription agreement (the “Subscription Agreement”) with Corre Opportunities Qualified Master Fund, LP, Corre Horizon Fund, LP and Corre Horizon II Fund LP (collectively, the “Corre Holders”), pursuant to which the Company issued and sold 1,190,476 shares of our common stock to the Corre Holders at a price of $ 8.40 per share (the “Equity Issuance”) on February 11, 2022.

In accordance with, and subject to the terms and conditions of the Subscription Agreement, 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 Agreement remains outstanding.

For so long as the Corre Holders and their affiliates collectively beneficially own at least 10 % of the outstanding shares of our common stock, pursuant to and subject to the terms and conditions of the Subscription Agreement, we will nominate the initial Board Nominee, or a successor Board Nominee chosen by the Corre Holders, for re-election as a Class II director at the first annual meeting of the Company’s stockholders to be held after the Equity Issuance and at the end of each subsequent term of such Board Nominee.

If at any time, the Corre Holders and their affiliates beneficially own less than 10 % of the outstanding

shares of common stock, then, if requested by the Company, the Board Nominee then on the Board will resign from his or her directorship, effective as of our next annual meeting of stockholders or such earlier date reasonably requested by the Company.

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

Description of the Notes

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

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

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

As a result of the Reverse Stock Split, the Notes are convertible at a conversion rate of 4.6083 shares of our common stock per $1,000 principal amount of the Notes, which is equivalent to a conversion price of approximately $ 217.00 per share.

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

Pursuant to the Exchange Agreement (as defined below), the Company agreed to exchange approximately $ 57.0 million of aggregate principal amount, plus accrued and unpaid PIK Interest, of the PIK Securities (as defined below) beneficially owned by the Exchanging Holders (as defined below) for an equivalent increased principal amount of term loans under the Subordinated Term Loan Credit Agreement.

Following the closing of the Exchange Agreement and Amendment No.

8 to the Subordinate Term Loan Credit Agreement, the Company has 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.

As a result of the redemption and extinguishment of the Notes discussed below, the execution of the Exchange Agreement described below, the Notes are currently convertible into 189,682 shares of common stock.

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

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

Net proceeds received from the Offering were approximately $ 222.3 million after deducting discounts, commissions and expenses and were used to repay outstanding borrowings under the previous Credit Facility.

On January 13, 2022, we entered into a supplemental indenture (the “Supplemental Indenture”) with Truist Bank, as trustee, to the indenture governing the Notes (the “Indenture”) 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 amended the Indenture to, among other things:

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

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

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

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

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

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 PIK Securities.

Pursuant to the Exchange Agreement, we agreed to exchange approximately $ 57.0 million of aggregate principal amount, plus accrued and unpaid PIK Interest, of PIK Securities 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.

Following the closing of the Exchange Agreement and Amendment 8 to the Subordinated Term Loan Credit Agreement, we

had 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.

The exchange of the Notes into the New Term Loans was treated as debt modification and the unamortized balance of debt issuance and discount in the amount of $ 1.4 million was added to the modified debt and is amortized over the term of the Term Loan using the new effective interest rate.

Accounting Treatment of the Notes

As of March 31, 2023 and December 31, 2022, the Notes were recorded in our condensed consolidated balance sheet as follows (in thousands):

March 31, 2023 December 31, 2022

Liability component:

6 unchanged sentences

Carrying amount of the equity component, net of issuance costs 2

Carrying amount of the equity component, net of issuance costs 3

$ 37,276 $ 37,276

2 unchanged sentences

2 Relates to the portion of the Notes accounted for under ASC 815-15 (defined below) and is included in the “Additional paid-in capital” line of the condensed consolidated balance sheets.

3 Relates to the portion of the Notes accounted for under ASC 815-15 (defined below) and is included in the “Additional paid-in capital” line of the condensed consolidated balance sheets.

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

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

2022 2021 2022 2021

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

Coupon interest 1

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

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

Total interest expense $ 2,409 $ 1,955 $ 6,906 $ 5,818

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.

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 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.

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

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

The ASU updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging , or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract.

The convertible debt instruments will be accounted for as a single liability measured at amortized cost.

This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835, Interest.

Further, the ASU made amendments to the EPS guidance in Topic 260 for convertible debt instruments, the most significant impact of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method.

The ASU also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting.

The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities.

The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for periods beginning after December 15, 2020.

Adoption of the ASU can either be on a modified retrospective or full retrospective basis.

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

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

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

Accordingly, the cumulative effect of the changes made on our January 1, 2022 condensed consolidated balance sheet for the adoption of the ASU was as follows (in thousands):

Balances at December 31, 2021 Adjustments from Adoption of ASU 2020-06 Balances at January 1, 2022

Long-term debt and finance lease obligations $ 405,191 $ 1,827 $ 407,018

Additional paid-in capital $ 444,824 $ ( 5,651 ) $ 439,173

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

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.

Under ASC 470-20, Debt with Conversion and Other Options, (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments that may be settled entirely or partially in cash upon conversion (such as the Notes) in a manner that reflects the issuer’s economic interest cost.

However, entities must first consider the guidance in ASC 815-15, Embedded Derivatives (“ASC 815-15”), to determine if an instrument contains an embedded feature that should be separately accounted for as a derivative.

Fair Value of Debt

The fair value of our 2022 ABL Credit Facility, Term Loan and Subordinated Term Loan are 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 the Notes as of March 31, 2023 and December 31, 2022 was $ 34.0 million and $ 37.5 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.

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.

The 1970 Group extended us credit 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 policies (the “Insurance Policies”).

The 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 permitted the return of certain existing letters of credit for our account that were outstanding for the purpose of supporting the Insurance Policies and that were required to be collateralized, thereby providing us increased liquidity in the amount of approximately $ 21.3 million.

We are 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 terminates upon the earlier of (i) the expiration or termination of our Insurance Policies or (ii) September 29, 2023.

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

Therefore, until there is a draw on the Substitute Insurance Reimbursement Facility, the letters of credit are treated as an off-balance sheet credit arrangement.

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

As of March 31, 2023, the unamortized balance in the amount of $ 0.7 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 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 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.

As referenced above, all debt with original maturities greater than one year are classified as current as of March 31, 2023 due to the Trigger Date provisions.

As of March 31, 2023 and December 31, 2022, capitalized deferred financing costs, inclusive of debt issuance costs and discounts, net of accumulated amortization, related to Team’s outstanding debt were $ 7.7 million and $ 15.1 million, respectively.

Refer to Note 1 - Description of Business and Basis of Presentation for additional liquidity and going concern discussion.

As of March 31, 2023, we had $ 26.4 million of unrestricted cash and cash equivalents and $ 5.5 million of restricted cash including $ 4.5 million of restricted cash held as collateral for letters of credit and commercial card programs.

International cash balances as of March 31, 2023 were $ 13.7 million, and approximately $ 1.0 million of such cash is located in countries where currency restrictions exist.

As of March 31, 2023, we had approximately $ 37.3 million of availability in additional borrowing capacity consisting of $ 27.3 million available under the Revolving Credit Loans and $ 10.0 million available under the Subordinated Term Loan Credit Agreement.

We have $ 32.4 million in letters of credit issued domestically.

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

Additionally, we have $ 2.4 million in surety bonds outstanding and an additional $ 0.7 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.

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.

We determine if an arrangement is a lease at inception.

Operating leases are included in “Operating lease right-of-use (‘ROU’) assets”, “operating lease liabilities” and “current portion of operating lease obligations” on our consolidated balance sheets.

Finance leases are included in “property, plant and equipment, net”, “current portion of long-term debt and finance lease obligations” and “long-term debt and finance lease obligations” on our consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Variable lease payments and short-term lease payments (leases with initial terms less than twelve months) are expensed as incurred.

We have lease agreements with lease and non-lease components for certain equipment, office, and vehicle leases.

We have elected the practical expedient to not separate lease and non-lease components and account for both as a single lease component.

We have operating and finance leases primarily for equipment, real estate, and vehicles.

Our leases have remaining lease terms of 1 year to 14 years, some of which may include options to extend the leases for up to 10 years, and some of which may include options to terminate the leases within 1 year.

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

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

2022 2021 2022 2021

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

Operating lease costs $ 6,035 $ 6,784 $ 19,056 $ 21,044

Variable lease costs 1,057 1,503 3,958 4,106

Finance lease costs:

Amortization of right-of-use assets 237 155 498 467

Interest on lease liabilities 143 84 269 252

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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Supplemental cash flow information:

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

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases $ 4,934 $ 6,226 $ 15,434 $ 17,569

Operating cash flows from finance leases 89 81 204 252

Financing cash flows from finance leases 295 119 615 356

Right-of-use assets obtained in exchange for lease obligations

Operating leases 1,343 721 2,697 9,304

Finance leases 752 611 852 1,017

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, 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:

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:

Operating leases 5.8 years 6.0 years

Finance leases 9.1 years 10.0 years

Weighted average discount rate:

Operating leases 7.1 % 6.8 %

Finance leases 7.0 % 6.4 %

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

(unaudited) (unaudited)

2022 (Remainder of the year) $ 5,774 $ 424

2023 15,146 1,197

2024 12,058 954

2025 8,711 667

2026 6,654 608

Thereafter 17,553 3,925

Total future minimum lease payments 65,896 7,775

Interest 13,424 2,067

Present value of lease liabilities $ 52,472 $ 5,708

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

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.

In May 2021, our shareholders approved the amendment and restatement of the 2018 Team, Inc.

Equity Incentive Plan (the “2018 Plan”).

The 2018 Plan replaced the 2016 Team, Inc.

Equity Incentive Plan.

The amendment and restatement to the 2018 Plan increased the shares available for issuance by 3.0 million shares of our common stock.

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 $ 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 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.

We determine the fair value of each stock unit based on the market price on the date of grant.

Stock units generally vest in annual installments over three or four years and the expense associated with the units is recognized over the same vesting period.

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

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

(in thousands)

Stock and stock units, beginning of year 804 $ 7.27

Changes during the period:

Granted 525 $ 1.30

Vested and settled ( 135 ) $ 7.16

Forfeited and cancelled ( 101 ) $ 6.95

Stock and stock units, end of period 1,093 $ 4.44

Performance stock units.

We have a performance stock unit award program whereby we grant Long-Term Performance Stock Unit (“LTPSU”) awards to our executive officers.

Under this program, we communicate “target awards” to the executive officers during the first year of a performance period.

LTPSU awards cliff vest with the achievement of the performance goals and completion of the required service period.

Settlement occurs with common stock as soon as practicable following the vesting date.

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 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.

The 2019 Awards vested as of March 15, 2021 at the RTSR performance target level of 25 % and the results of operations performance metric at 0 % of the target level.

The RTSR and the stock price milestone factors are considered to be market conditions under GAAP.

For performance units subject to market conditions, we determine the fair value of the performance units based on the results of a Monte Carlo simulation, which uses market-based inputs as of the date of grant to simulate future stock returns.

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 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 $ 1.2 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

Fair Value No.

(in thousands) (in thousands)

Performance stock units, beginning of period 684 $ 6.45 219 $ 9.91

Changes during the period:

Granted — — — —

Vested and settled — — — —

Cancelled ( 653 ) $ 6.04 ( 188 ) $ 9.61

Performance stock units, end of period 31 $ 14.96 31 $ 11.69

_________________

1 Performance units with variable payouts are shown at target level of performance.

Stock Options.

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 September 30, 2022 or December 31, 2021.

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

Expense related to an option grant is recognized on a straight-line basis over the specified vesting period for those options.

Stock options generally have a ten-year term.

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 .

Our cash and cash equivalents as of December 31, 2022 totaled $ 58.1 million.

Additionally, $ 16.3 million of the cash and cash equivalents was in foreign accounts, primarily in Europe, Canada and Australia including $ 1.4 million of cash located in countries where currency restrictions exist.

Refer to Note 1 - Description of Business and Basis of Presentation for additional liquidity and going concern discussion.

EMPLOYEE BENEFIT PLANS

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

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

2022 2021 2022 2021

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

Three Months Ended March 31,

(unaudited) (unaudited)

Interest cost 687 $ 422

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Amortization of prior service cost 8 $ 8

Unrecognized Net Actuarial Loss $ 71 $ —

Net periodic pension credit $ ( 159 ) $ ( 199 )

Net pension credit is included in “Other income, net” on our condensed consolidated statement of operations.

The expected long-term rate of return on invested assets is determined based on the weighted average of expected returns on asset investment categories for the U.K.

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6.4 % overall, 9.5 % for equities and 5.3 % for debt securities.

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

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

Plan for 2023, of which $ 0.9 million has been contributed through March 31, 2023.

STOCKHOLDERS’ EQUITY

Shareholder’s Equity and Preferred Stock

On December 21, 2022, we completed a reverse stock split of our outstanding common stock at a ratio of one-for-ten.

No fractional shares were issued in connection with the Reverse Stock Split.

As of March 31, 2023 there were 4,357,401 shares of our common stock outstanding and 12,000,000 shares authorized at $ 0.30 par value per share.

As of March 31, 2023 we had 500,000 authorized shares of preferred stock, none of which had been issued.

Accumulated Other Comprehensive Income (loss)

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

Nine Months Ended

September 30, 2022 Nine Months Ended

September 30, 2021

Three Months Ended

March 31, 2023 Three Months Ended

March 31, 2022

(unaudited) (unaudited)

Adjustments Foreign

Hedge Defined Benefit Pension Plans Tax

Adjustments Defined Benefit Pension Plans Tax

Provision Total Foreign

Adjustments Foreign

Hedge Defined Benefit Pension Plans Tax

Adjustments Defined Benefit Pension Plans Tax

Provision Total

1 unchanged sentence

$ ( 28,859 ) $ ( 10,474 ) $ 336 $ ( 38,997 ) $ ( 22,270 ) $ ( 3,873 ) $ ( 589 ) $ ( 26,732 )

Other comprehensive loss ( 12,152 ) — — — ( 12,152 ) ( 2,210 ) — — 536 ( 1,674 )

Other comprehensive income (loss) 778 — ( 23 ) 755 $ 346 $ — $ — 346

Balance, end of period $ ( 28,081 ) $ ( 10,474 ) $ 313 $ ( 38,242 ) $ ( 21,924 ) $ ( 3,873 ) $ ( 589 ) $ ( 26,386 )

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

Nine Months Ended

September 30, 2022 Nine Months Ended

September 30, 2021

(unaudited) (unaudited)

Foreign currency translation adjustments $ ( 12,152 ) — $ ( 12,152 ) $ ( 2,210 ) $ 536 $ ( 1,674 )

Total $ ( 12,152 ) $ — $ ( 12,152 ) $ ( 2,210 ) $ 536 $ ( 1,674 )

COMMITMENTS AND CONTINGENCIES

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, which will only be resolved when one or more future events occur or fail to occur.

Team’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.

In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, Team’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

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.

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

We accrue for contingencies where the occurrence of a material loss is probable and can be reasonably estimated, based on our best estimate of the expected liability.

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Because such matters are inherently unpredictable and unfavorable developments or outcomes can occur, assessing contingencies is highly subjective and requires judgments about future events.

Notwithstanding the uncertainty as to the outcome and while our insurance coverage might not be available or adequate to cover these claims, based upon the information currently available, we do not believe that any uninsured losses that might arise from these lawsuits and proceedings will have a materially adverse effect on our consolidated financial statements.

California Wage and Hour Litigation - On June 24, 2019 and August 26, 2020, two putative class action complaints were filed against Team Industrial Services, Inc.

in the Superior Court for the County of Los Angeles, California.

The plaintiff in the first filed action is Michael Thai (the “Thai action”).

The plaintiff in the second filed action is Alex Esqueda (the “Esqueda action”).

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).

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

Both cases were stayed shortly after filing to allow the parties to mediate the claims.

On February 23, 2021, the Los Angeles Superior Court designated the Thai and Esqueda actions as related cases.

While the parties mediated on March 18, 2021, the cases did not settle.

On April 16, 2021, Team Industrial Services, Inc.

moved both the Thai and Esqueda actions to the United States District Court for the Central District of California.

Plaintiff’s motion for remand was denied, and these matters remain in federal court.

In November 2021, the parties agreed in principle to settle all claims in this litigation and all parties entered into a formal settlement agreement in March 2022.

As part of the settlement agreement, the parties have agreed to remand the case to the Los Angeles Superior Court for approval of the settlement.

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 first quarter of 2023.

California Wage and Hour Litigation - The Company was a defendant in a consolidated class and collective action, Michael Thai v.

Team Industrial Services, Inc., et al, pending in the U.S.

District Court for the Central District of California, originally filed by two separate plaintiffs as separate cases in the Superior Court for the County of Los Angeles, California in June 2019 and August 2020, respectively.

The Company settled the consolidated class and collective action in 2022 that resulted in the Company recording a pre-tax charge of $ 3.0 million in the third quarter of fiscal year 2022, and the Company paid the settlement in January 2023.

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

received Notices of Potential Violation from the U.S.

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 the claims relate to the characterization and quantities of those wastes and related notices, reporting, training, and planning.

Environmental Protection Agency 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 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.

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 that 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.

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

1 unchanged sentence

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

We believe that 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 September 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 March 31, 2023 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.

3 unchanged sentences

We will continue to evaluate the possible outcomes of this case in light of future developments and their potential impact on factors relevant to our assessment of any possible loss.

Simon, Vige, and Roberts Matter – On February 19, 2019, a personal injury claim was filed by the plaintiffs against several counterparties including Team Industrial Services Inc., in the 295th District Court of Harris County, Texas.

The plaintiffs filed the action seeking monetary damages for personal injury, and emotional and mental distress.

This matter was settled in July 2021.

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 September 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 $ 41.2 million as of March 31, 2023, of which approximately $ 2.2 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 condensed consolidated financial statements.

SEGMENT AND GEOGRAPHIC DISCLOSURES

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.

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 two 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

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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

(unaudited) (unaudited)

IHT $ 101,829 $ 95,595

MS 100,448 93,441

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

Total Revenues $ 202,277 $ 189,036

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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

(unaudited) (unaudited)

Operating income (loss):

IHT $ 4,723 $ 134

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

Corporate and shared support services ( 15,662 ) ( 23,054 )

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

Total Operating income (loss) $ ( 7,746 ) $ ( 22,407 )

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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

(unaudited) (unaudited)

Capital expenditures 1 :

IHT $ 1,427 $ 4,771

MS 1,427 741 3,861 3,260

Corporate and shared support services — 38

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

Total Capital expenditures $ 2,028 $ 5,622

_____________

1 Excludes finance leases.

Totals may vary from amounts presented in the consolidated statements of cash flows due to the timing of cash payments.

Totals may vary from amounts presented in the condensed consolidated statements of cash flows due to the timing of cash payments.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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

(unaudited) (unaudited)

Depreciation and amortization:

2 unchanged sentences

Corporate and shared support services 1,739 1,316

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

Total Depreciation and amortization $ 9,546 $ 9,454

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 for the three and nine months ended September 30, 2022 and 2021 is as follows (unaudited, in thousands):

A geographic breakdown of our revenues for the three months ended March 31, 2023 and 2022 is as follows (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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

(unaudited) (unaudited)

Total Revenues 1

4 unchanged sentences

Total $ 202,277 $ 189,036

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.

SEVERANCE AND OTHER CHARGES

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):

Nine Months Ended

September 30, 2022

Balance, beginning of period $ 712

Charges 3,028

Payments ( 1,952 )

Balance, end of period $ 1,788

RELATED PARTY TRANSACTIONS

1 unchanged sentence

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 .

The Company paid $ 8.1 million in consulting fees to Alvarez & Marsal for the year ended December 31, 2022.

In connection with the Company’s debt transactions, the Company engaged in transactions with Corre and APSC to provide funding as described in Note 11 - Debt .

SUBSEQUENT EVENTS

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.

As of May 11, 2023, the filing date of this Quarterly Report on Form 10-Q, management evaluated the existence of events occurring subsequent to the quarter ended March 31, 2023, and determined that there were no events or transactions that would have a material impact on the Company’s results of operations or financial position.

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