What changed in this filing

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Item 1. Financial Statements

2023-08-10 compared with 2023-05-11 · 280 added, 259 removed, 489 unchanged (52% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

ASSETS (unaudited)

30 unchanged sentences

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

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

4,368,422 and 4,342,909 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 457,692 457,133

7 unchanged sentences

(in thousands, except per share data)

Three Months Ended

Three Months Ended June 30, Six Months Ended

2023 2022 2023 2022

Revenues $ 239,492 $ 221,540 $ 441,769 $ 410,578

3 unchanged sentences

Restructuring and other related charges, net — — — 16

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

Operating income (loss) 4,596 ( 10,794 ) ( 3,150 ) ( 33,201 )

Interest expense, net ( 16,691 ) ( 18,476 ) ( 33,432 ) ( 37,055 )

Loss on debt extinguishment ( 1,582 ) — ( 1,582 ) —

Other income, net 13 3,259 648 6,438

5 unchanged sentences

Net loss $ ( 15,753 ) $ ( 21,552 ) $ ( 40,464 ) $ ( 54,014 )

Basic and diluted net loss per common share:

Basic net loss per common share:

Loss from continuing operations ( 3.61 ) ( 6.53 ) ( 9.30 ) ( 16.45 )

2 unchanged sentences

Weighted-average number of shares outstanding:

Basic and diluted 4,344 3,770

Basic 4,362 4,318 4,353 4,045

See accompanying notes to unaudited condensed consolidated financial statements.

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net loss $ ( 15,753 ) $ ( 21,552 ) $ ( 40,464 ) $ ( 54,014 )

1 unchanged sentence

Foreign currency translation adjustment 1,277 ( 5,463 ) 2,055 ( 5,117 )

Other comprehensive income, before tax 778 346

Other comprehensive income (loss), before tax 1,277 ( 5,463 ) 2,055 ( 5,117 )

Tax provision attributable to other comprehensive income ( 23 ) — ( 46 ) —

Other comprehensive income, net of tax 755 346

Other comprehensive income (loss), net of tax 1,254 ( 5,463 ) 2,009 ( 5,117 )

Total comprehensive loss $ ( 14,499 ) $ ( 27,015 ) $ ( 38,455 ) $ ( 59,131 )

15 unchanged sentences

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

Net loss — — — $ ( 15,753 ) — $ ( 15,753 )

Net settlement of vested stock awards 11 4 ( 16 ) — — ( 12 )

Foreign currency translation adjustment, net of tax — — — — 1,254 1,254

Non-cash compensation — — 245 — — 245

Balance at June 30, 2023 4,368 $ 1,311 $ 457,692 $ ( 342,143 ) $ ( 36,988 ) $ 79,872

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

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

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

Issuance of common stock 10 3 ( 74 ) — — ( 71 )

Foreign currency translation adjustment, net of tax — — — — ( 5,463 ) ( 5,463 )

Non-cash compensation — — 565 — — 565

Balance at June 30, 2022 4,322 $ 1,296 $ 456,876 $ ( 425,774 ) $ ( 31,849 ) $ 549

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

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Write-off of deferred loan costs — 2,748

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

Loss on debt extinguishment 1,582 —

Amortization of debt issuance costs, debt discounts, and deferred financing costs 16,229 12,077

Paid-in-kind interest 7,117 9,962

Allowance for credit (gains) losses ( 201 ) 67

Foreign currency gains ( 177 ) ( 185 )

Allowance for credit losses 276 30

Foreign currency (gains) losses ( 35 ) 569

Deferred income taxes 730 ( 357 )

15 unchanged sentences

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 )

Borrowings under 2020 ABL Facility — 10,300

Payments under 2020 ABL Facility — ( 72,300 )

Borrowings under 2022 ABL Credit Facility (Revolving Credit Loans) 30,797 104,641

Payments under 2022 ABL Credit Facility (Revolving Credit Loans) ( 14,798 ) ( 1,588 )

Repayment of APSC Term Loan ( 37,092 ) —

Borrowings under ME/RE Loans 27,398 —

Borrowings under 2022 ABL Credit Facility (Delayed Draw Term Loan) — 25,000

Payments for debt issuance costs ( 5,327 ) ( 10,640 )

1 unchanged sentence

Other ( 495 ) ( 323 )

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

Net cash provided by financing activities 483 64,786

Effect of exchange rate changes on cash 237 ( 382 )

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

Net increase (decrease) in cash and cash equivalents ( 27,638 ) 2,131

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

1 unchanged sentence

_________________

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

1 Condensed consolidated statement of cash flows for the six months ended June 30, 2022 includes discontinued operations.

See accompanying notes to unaudited condensed consolidated financial statements.

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

IHT provides conventional and advanced non-destructive testing 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.

IHT provides conventional and advanced non-destructive testing services primarily for the process, pipeline and power sectors, 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.

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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.

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”).

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.

1 unchanged sentence

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

Recent Refinancing Transactions.

On June 16, 2023, we entered into the following separate amendments / agreements with our lenders.

Corre Amended and Restated Term Loan Credit Agreement.

On June 16, 2023, we entered into an amendment and restatement of that certain subordinated term loan credit agreement dated as of November 9, 2021 (as amended and restated, the “A&R Term Loan Credit Agreement”).

Available funding commitments under the A&R Term Loan Credit Agreement, subject

to certain conditions, include a $ 57.5 million senior secured first lien term loan (the “Incremental Term Loan”) provided by Corre Partners Management, LLC (“Corre”) and certain of its affiliates, consisting of a $ 37.5 million term loan tranche and a $ 20.0 million delayed draw term loan tranche.

Amounts outstanding under the existing subordinated term loan credit agreement (the “Uptiered Loan”) have become senior secured obligations of the Company and the A&R Term Loan Guarantors, secured on a pari passu basis with the Incremental Term Loans.

All outstanding amounts in respect of the Incremental Term Loan under the A&R Term Loan Credit Agreement mature and become due and payable on December 31, 2026.

All outstanding amounts in respect of the Uptiered Loan under the A&R Term Loan Credit Agreement mature and become due and payable on December 31, 2027;

provided that, if greater than $ 50.0 million (including amounts in respect of payments in kind) of the Uptiered Loan is outstanding on December 31, 2026, then all outstanding amounts in respect of the Uptiered Loan under the A&R Term Loan Credit Agreement become due and payable on December 31, 2026.

As discussed in Note 11 - Debt , $ 42.5 million of the $ 57.5 million Incremental Term Loan under the A&R Term Loan Credit Agreement was drawn down and the proceeds thereof were used to repay the Notes (as defined below) that matured on August 1, 2023.

Eclipse Amendment No.

3 to Credit Agreement .

On June 16, 2023, we also entered into Amendment No.

3 (“ABL Amendment No.

3”) to that certain credit agreement with Eclipse (defined below), dated as of February 11, 2022 (as amended by Amendment No.

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

2 dated as of November 1, 2022 and ABL Amendment No.3, the “ABL Credit Agreement”).

The ABL Amendment No.

3 amended the ABL Credit Agreement to, among other things,

(i) provide the Company with a new $ 27.4 million term loan (the “ME/RE Loans”) secured by a first priority lien and mortgage on certain real estate and machinery and equipment of the Company and the ABL Guarantors, as defined below, (the “Specified RE/ME”),

(ii) increase borrowing base availability under the revolving credit facility by an additional $ 2.5 million,

(iii) extend the maturity date for the entire facility under the ABL Credit Agreement to August 11, 2025,

(iv) amend the financial maintenance covenant therein to match the maximum unfinanced capital expenditures covenant included in the A&R Term Loan Credit Agreement, and

(v) amend provisions applicable to the $ 35.0 million delayed draw term loans under the ABL Credit Agreement to remove the ability of the Company to repay and reborrow such loans, to remove the ability to pay any portion of the interest on such loans in PIK (as defined below) and add a mandatory prepayment with respect to such loan in relation to any sale of certain collateral principally supporting such loans.

The ME/RE Loans were drawn in full on the closing date and were used to pay off the amounts owed under the existing term loan credit agreement dated as of December 18, 2020 (as amended from time to time), among the Company, the lenders party thereto and Atlantic Park Strategic Capital Fund, L.P., as agent, which was repaid and terminated in full on June 16, 2023.

See Note 11 - Debt for additional information.

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.

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

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

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

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

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

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

Actual results could vary significantly from those projections.

We do not believe, based on the Company’s forecast, that current working capital, cash flow from operations, 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.

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.

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.

As discussed above, we successfully negotiated amendments to existing debt instruments (including to the financial covenants contained therein) and / or entered into new agreements with our lenders.

These actions removed the substantial doubt about our ability to continue as a going concern that previously existed and had been disclosed in prior periods.

In addition, as of June 30, 2023, we are in compliance with our debt covenants.

Based on the Company’s forecast and the amendments/new agreements entered in June 2023, we believe that our current working capital including cash on hand, our capital expenditure financing and the remaining borrowing availability under our various debt agreements is sufficient to fund our operations, maintain compliance with our debt covenants (as amended), and satisfy the Company’s obligations as they come due within one year after the date of issuance of these unaudited condensed consolidated financial statements.

Our ability to maintain compliance with the financial covenants contained in the various debt agreements is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties.

While our lenders agreed to amend the financial covenants contained therein and, in the case of the ABL Credit Agreement, to extend the maturity, there can be no assurance that our lenders will provide additional waivers or amendments in the event of future non-compliance with our debt covenants, or other possible events of default that could happen.

Basis for presentation.

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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.

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.

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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.

Since the date of our Annual Report on Form 10-K for the year ended December 31, 2022, 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.

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).

On November 1, 2022, we completed the sale of Quest Integrity (the “Quest Integrity Transaction”).

The criteria for reporting Quest Integrity as a discontinued operation were met during the third quarter of 2022 pursuant to that certain Equity Purchase Agreement by and between us and Baker Hughes Holdings LLC, dated as of August 14, 2022 (the “Sale Agreement”), and, as such, the prior year amounts presented in this Quarterly Report on Form 10-Q have been recast to present Quest Integrity as a discontinued operation.

Unless otherwise specified, the financial information and discussion in this Quarterly Report on 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.

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.

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

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.

During the fourth quarter of 2022, we recorded total gain of $ 203.4 million, net of tax and working capital adjustments, on the sale of Quest Integrity.

We settled the working capital adjustment in the second quarter of 2023.

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 – 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.

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

Our condensed consolidated statements of operations for the three and six months ended June 30, 2022 report discontinued operations separate from continuing operations.

Our condensed consolidated statements of comprehensive loss and statements of shareholders’ equity for the three and six months ended June 30, 2022 as well as statements of cash flows for the six months ended June 30, 2022 combine continuing and discontinued operations.

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

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

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

Three Months Ended

March 31, 2022 (unaudited)

June 30, 2022 (unaudited) Six Months Ended

June 30, 2022 (unaudited)

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

8 unchanged sentences

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

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Cash flows provided by operating activities of discontinued operations:

2 unchanged sentences

Capital expenditures $ 2,585

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.

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Geographic area:

Three Months Ended March 31, 2023

United States and Canada Other Countries Total

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

(unaudited) (unaudited)

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

IHT $ 113,013 $ 3,727 $ 116,740 $ 111,541 $ 2,583 $ 114,124

1 unchanged sentence

Total $ 195,639 $ 43,853 $ 239,492 $ 189,224 $ 32,316 $ 221,540

Three Months Ended March 31, 2022

United States and Canada Other Countries Total

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

(unaudited) (unaudited)

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

IHT $ 211,544 $ 7,025 $ 218,569 $ 204,919 $ 4,802 $ 209,721

1 unchanged sentence

Total $ 366,201 $ 75,568 $ 441,769 $ 346,533 $ 64,045 $ 410,578

Operating segment and service type:

Three Months Ended March 31, 2023

Revenue by Operating segment and service type (in thousands):

Three Months Ended June 30, 2023

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

2 unchanged sentences

Total $ 94,305 $ 122,241 $ 15,928 $ 7,018 $ 239,492

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

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

2 unchanged sentences

Total $ 91,701 $ 106,846 $ 15,843 $ 7,150 $ 221,540

Six Months Ended June 30, 2023

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

IHT $ 175,911 $ 222 $ 29,445 $ 12,991 $ 218,569

MS — 221,860 489 851 223,200

Total $ 175,911 $ 222,082 $ 29,934 $ 13,842 $ 441,769

Six Months Ended June 30, 2022

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

IHT $ 168,152 $ 139 $ 29,626 $ 11,804 $ 209,721

MS — 198,501 113 2,243 200,857

Total $ 168,152 $ 198,640 $ 29,739 $ 14,047 $ 410,578

For additional information on our reportable operating segments and geographic information, refer to Note 15 - Segment and Geographic Disclosures .

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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.

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

$ 178,211 $ 186,689 $ ( 8,478 )

Contract assets 2

_________________

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

See Note 4 - Receivables for details.

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

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 March 31, 2023 and December 31, 2022.

Assets recognized for

costs to fulfill a contract are included in the “Prepaid expenses and other current assets” line of the condensed consolidated balance sheets and were not material as of June 30, 2023 and December 31, 2022.

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 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.

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

As permitted by ASC 606, Revenue from Contracts with Customers , 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, 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.

A summary of accounts receivable as of June 30, 2023 and December 31, 2022 is as follows (in thousands):

June 30, 2023 December 31, 2022

Trade accounts receivable $ 159,330 $ 160,572

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

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Balance at end of period $ 5,145 $ 5,262

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

March 31, 2023 December 31, 2022

A summary of inventory as of June 30, 2023 and December 31, 2022 is as follows (in thousands):

June 30, 2023 December 31, 2022

Raw materials $ 9,829 $ 8,978

3 unchanged sentences

PREPAID AND OTHER CURRENT ASSETS

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

A summary of prepaid and other current assets as of June 30, 2023 and December 31, 2022 is as follows (in thousands):

June 30, 2023 December 31, 2022

Insurance receivable $ 39,000 $ 39,000

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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 March 31, 2023 and December 31, 2022 is as follows (in thousands):

March 31, 2023 December 31, 2022

A summary of property, plant and equipment as of June 30, 2023 and December 31, 2022 is as follows (in thousands):

June 30, 2023 December 31, 2022

Land $ 4,006 $ 4,006

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Property, plant and equipment, net $ 131,956 $ 138,099

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.

Included in the table above are assets under finance leases of $ 8.2 million and $ 7.4 million, and related accumulated amortization of $ 2.6 million and $ 2.3 million as of June 30, 2023 and December 31, 2022, respectively.

Depreciation expense for the three months ended June 30, 2023 and 2022 was $ 5.5 million and $ 5.7 million, respectively.

Depreciation expense for the six months ended June 30, 2023 and 2022 was $ 11.1 million and $ 11.8 million, respectively.

INTANGIBLE ASSETS

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

March 31, 2023

A summary of intangible assets as of June 30, 2023 and December 31, 2022 is as follows (in thousands):

June 30, 2023

Amount Accumulated

13 unchanged sentences

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.

Amortization expense of intangible assets for the three months ended June 30, 2023 and 2022 was $ 3.2 million and $ 3.2 million, respectively.

Amortization expense of intangible assets for the six months ended June 30, 2023 and 2022 was $ 6.4 million and $ 6.4 million, respectively.

The weighted-average amortization period for intangible assets subject to amortization was 13.7 years as of June 30, 2023 and December 31, 2022.

OTHER ACCRUED LIABILITIES

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

A summary of other accrued liabilities as of June 30, 2023 and December 31, 2022 is as follows (in thousands):

June 30, 2023 December 31, 2022

Legal and professional accruals $ 44,637 $ 46,665

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

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.

Other accruals include various business accruals.

We recorded an income tax provision of $ 2.1 million and $ 2.9 million for the three and six months ended June 30, 2023 compared to a provision of $ 2.2 million and $ 2.7 million for the three and six months ended June 30, 2022.

The effective tax rate, inclusive of discrete items, was a provision of 15.3 % for the three months ended June 30, 2023, compared to a provision of 8.5 % for the three months ended June 30, 2022.

For the six months ended June 30, 2023, our effective tax rate, inclusive of discrete items, was a provision of 7.7 %, compared to a provision of 4.2 % for the six months ended June 30, 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 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.

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

As of June 30, 2023 and December 31, 2022, our total long-term debt and finance lease obligations are summarized as follows (in thousands):

June 30, 2023 December 31, 2022

2022 ABL Credit Facility $ 115,915 $ 99,916

APSC Term Loan 1

Subordinated Term Loan 114,756 107,905

Uptiered Loan 1

122,416 107,905

ME/RE Loans 1

Total 263,820 239,383

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_________________

1 Net carrying balances of the loans are presented below (in thousands):

June 30, 2023 December 31, 2022

Principal balance Debt issuance cost and discount, net of accumulated amortization Net carrying balance Principal balance Debt issuance cost and discount, net of accumulated amortization Net carrying balance

APSC Term Loan $ — $ — $ — $ 35,510 $ ( 3,948 ) $ 31,562

Uptiered Loan 123,129 ( 713 ) 122,416 115,443 ( 7,538 ) 107,905

ME/RE Loans $ 27,398 $ ( 1,909 ) $ 25,489 $ — $ — $ —

2 Comprised of principal amount outstanding, less unamortized discount and issuance costs.

See Convertible Debt section below for additional information.

2 Excludes finance lease obligations associated with discontinued operations.

2022 ABL Facility

2022 ABL Credit 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”).

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

2 dated as of November 1, 2022 and Amendment No.3 (described below) dated June 16, 2023, 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.

The 2022 ABL Credit Facility was originally scheduled to mature in February 2025 but is now extended to August 2025 by Amendment No.3 as described below.

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.

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

After the execution of Amendment No.3, described below, Revolving Credit Loans under the 2022 ABL Credit Facility bear interest through maturity at a variable rate based upon an Adjusted Term Secured Overnight Financing Rate (SOFR) (or a base rate if the SOFR Rate is unavailable for any reason), plus an applicable margin (“SOFR Loan” and “Base Rate Loan,” respectively).

Prior to Amendment No.3, as described below, the rate utilized was LIBOR.

The “base rate” is a fluctuating interest rate equal to the greatest of (1) 2.00 %, (2) the federal funds rate plus 0.50 %, (3) Term SOFR for a one-month tenor in effect on such day plus 1.00 %, and (4) Wells Fargo Bank, National Association’s prime 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 SOFR Loans with a 1.00 % SOFR 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 Adjusted Term SOFR Rate plus 10.0 %, provided that, in the event that Adjusted Term SOFR is unavailable for any reason, then such rate shall be a rate per annum equal to the sum of the Base Rate, plus 9.00 % per annum.

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

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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.

Amounts repaid under the Revolving Credit Loans may be re-borrowed, subject to compliance with the borrowing base and the other conditions set forth in the 2022 ABL Credit Agreement.

Amounts repaid under the Delayed Draw Term Loan cannot be re-borrowed.

Certain permanent repayments of the 2022 ABL Credit Facility loans are subject to the payment of a premium of 1.00 % from the ABL Amendment No.3 Effective Date (defined below) until August 11, 2024, and 0.50 % after August 11, 2024 until August 11, 2025.

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.

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.

The 2022 ABL Credit Agreement following the execution of Amendment No.3, as described below, also requires that we will not exceed $ 15.0 million in unfinanced capital expenditures in any CapEx Test Period (as defined therein);

provided the Company shall be permitted to make up to $ 25.0 million in unfinanced capital expenditures in any CapEx Test Period (as defined therein) if we maintain a net leverage ratio of less than or equal to 2.00 to 1.00 on a pro forma basis immediately after giving effect to each such unfinanced capital expenditures in excess of the $ 15.0 million maximum annual capital expenditure limit.

In addition, the 2022 ABL Credit Agreement includes customary events of default, the occurrence of which may require that we pay an additional 2.00 % interest on the outstanding loans under the 2022 ABL Credit Facility and that the debt becomes payable immediately.

Amendment No.3

On June 16, 2023 (the “ABL Amendment No.3 Effective Date”), the Company entered into Amendment No.

3 (“ABL Amendment No.

3”) among the Company, as borrower, the lenders from time-to-time party thereto and Eclipse, as agent (the “ABL Agent”).

The ABL Amendment No.

3 amended the 2022 ABL Credit Agreement to, among other things,

(ii) increase borrowing base availability under the revolving credit facility by an additional $ 2.5 million,

(iii) extend the maturity date for the entire facility under the 2022 ABL Credit Agreement to August 11, 2025,

(iv) amend the financial maintenance covenant with respect to the maximum unfinanced capital expenditures, and

(iv) amend provisions applicable to the $ 35.0 million delayed draw term loans under the 2022 ABL Credit Agreement to remove the ability of the Company to repay and re-borrow such loans, to remove the ability to pay any portion of the interest on

such loans in PIK (as defined below) and add a mandatory prepayment with respect to such loan in relation to any sale of certain collateral principally supporting such loans.

The interest rate after the execution of Amendment No.3 as of June 30, 2023 was 9.92 % for Revolving Credit Loans and 15.27 % for the Delayed Draw Term Loan.

The interest rate as of June 30, 2022 was 5.71 % for Revolving Credit Loans and 11.06 % for the Delayed Draw Term Loan.

Cash interest paid on Revolving Credit Loans amounted to $ 3.0 million and $ 2.0 million for the six months ended June 30, 2023 and 2022, respectively.

Cash interest paid on the Delayed Draw Term Loan amounted to $ 2.6 million and $ 0.8 million for the six months ended June 30, 2023 and 2022, respectively.

Direct and incremental costs associated with the issuance of the 2022 ABL Credit Facility excluding Amendment No.3 were approximately $ 8.4 million and were capitalized as deferred financing costs.

These costs were fully amortized as of June 16, 2023 due to the Maturity Reserve Trigger Date provision that was previously applicable.

We incurred additional $ 0.3 million of financing cost related to the existing ABL Credit Facility in connection with the ABL Amendment No.

These costs were capitalized and amortized on a straight-line basis over the new term of the 2022 ABL Credit Facility.

As described above, on June 16, 2023, we entered into ABL Amendment No.

3 that, provided us with $ 27.4 million of new ME/RE Loans.

Our obligations in respect of the ME/RE Loans are guaranteed by certain direct and indirect material subsidiaries of the Company (the “ABL Guarantors” and, together with the Company, the “ABL Loan Parties”).

The ME/RE Loans under the 2022 ABL Credit Agreement are secured on a first priority basis by, among other things, the Specified RE/ME, accounts receivable, deposit accounts, securities accounts and inventory of the ABL Loan Parties (the “ABL Priority Collateral”) and on a second priority basis by substantially all of the other assets of the ABL Loan Parties, subject to the terms of the Intercreditor Agreement.

The ME/RE Loans were drawn in full on June 16, 2023 and were used to pay off the amounts owed under the existing APSC Term Loan, discussed below.

The ME/RE Loans bear interest at an annual rate of the SOFR, plus a credit spread adjustment of 0.11 % per annum and a margin of 5.75 % per annum and is payable monthly.

Amounts outstanding under the ME/RE Loans amortize each month in aggregate installments of $ 0.3 million, subject to certain adjustments.

The Company may make voluntary prepayments of the ME/RE Loans from time to time, and mandatory prepayment is required in certain instances related to asset sales of the Specified RE/ME and with annual excess cash flow (as defined in the 2022 ABL Credit Agreement), subject to certain prepayment premiums (subject to certain exceptions), plus accrued and unpaid interest.

The effective interest rate of the ME/RE Loans as of June 30, 2023 was approximately 16.54 % and consisted of the 11.02 % stated interest rate and an additional 5.51 % due to amortization of the related debt issuance cost.

No interest was paid during the six months ended June 30, 2023.

Direct and incremental costs associated with the issuance of the ABL Amendment No.

3 were approximately $ 1.9 million and were deferred and presented as a direct deduction from the carrying amount of the related debt and are amortized on a straight-line basis over the term of the ME/RE Loans.

Unamortized debt issuance cost amounted to $ 1.9 million as of June 30, 2023.

As of June 30, 2023, we had $ 80.9 million of Revolving Credit Loans outstanding and $ 35.0 million outstanding under the Delayed Draw Term Loan.

There were $ 10.1 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.

As of June 30, 2023, subject to the applicable sublimit and other terms and conditions, $ 21.8 million was available for loans or for issuance of new letters of credit.

APSC Term Loan

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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.

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, 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

The Term Loan had an original maturity date of December 18, 2026.

On June 16, 2023, we used the proceeds from the ME/RE Loans and borrowings under the 2022 ABL Credit Facility to repay the total outstanding Term Loan balance of $ 35.5 million plus the applicable prepayment premium of $ 1.4 million and related accrued interest, resulting in a loss on debt extinguishment of $ 1.6 million.

As of June 30, 2022, the effective interest amounted to 23.85 % and consisted of a 9.00 % variable interest rate paid in cash and an additional 14.85 % due to the acceleration of the amortization of the related debt issuance costs.

The unamortized

balance of debt discounts, warrant discount and debt issuance cost amounted to $ 3.9 million at December 31, 2022.

Cash interest paid amounted to $ 2.9 million and $ 5.5 million for the six months ended June 30, 2023 and 2022, respectively.

Subordinated Term Loan Credit Agreement / Amended and Restated Term Loan Credit Agreement

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

12 unchanged sentences

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”).

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:

On October 4, 2022, an additional approximately $ 57.0 million was added to the outstanding principal amount under the Subordinated Term Loan Credit Agreement in exchange for an equivalent amount of the Company’s Notes held by Corre (as defined below).

On June 16, 2023, the Company, entered into an amendment and restatement of that certain subordinated term loan credit agreement dated as of November 9, 2021 (as amended and restated, the “A&R Term Loan Credit Agreement”) among the Company, as borrower, the guarantors party thereto, the lenders from time to time party thereto and Cantor Fitzgerald Securities, as agent (the “A&R Term Loan Agent”).

Additional funding commitments to the Company under the A&R Term Loan Credit Agreement, subject to certain conditions, included a $ 57.5 million senior secured first lien term loan (the “Incremental Term Loan”) provided by Corre Partners Management, LLC (“Corre” or the “Investor Representative”) and certain of its affiliates, consisting of a $ 37.5 million term loan tranche and a $ 20.0 million delayed draw term loan tranche.

Amounts outstanding under the existing subordinated term loan credit agreement (the “Uptiered Loan”) have become senior secured obligations of the Company and the A&R Term Loan Guarantors (as defined below) and are secured on a pari passu basis with the Incremental Term Loan, on the terms described below.

As of the closing date of the A&R Term Loan Credit Agreement (the “Closing Date”), the aggregate principal amount of the Uptiered Loan was $ 123.1 million.

All outstanding amounts in respect of the Incremental Term Loan under the A&R Term Loan Credit Agreement mature and become due and payable on December 31, 2026.

All outstanding amounts in respect of the Uptiered Loan under the A&R Term Loan Credit Agreement mature and become due and payable on December 31, 2027;

The Company’s obligations under the A&R Term Loan Credit Agreement are guaranteed by certain direct and indirect material subsidiaries of the Company (the “A&R Term Loan Guarantors” and, together with the Company, the “A&R Term Loan Parties”).

The obligations of the A&R Term Loan Parties are secured on a second priority basis by the ABL Priority Collateral and on a first priority basis by substantially all of the other assets of the A&R Term Loan Parties, subject to the terms of an intercreditor agreement (the “Intercreditor Agreement”) between the A&R Term Loan Agent, the ABL Agent and the A&R Term Loan Parties, that sets forth the priorities in respect of the collateral and certain related agreements with respect thereto.

Incremental Term Loans borrowed under the A&R Term Loan Credit Agreement bear interest at an annual rate of 12.00 %, payable in cash.

The Uptiered Loan under the A&R Term Loan Credit Agreement bear interest at an annual rate of 12.00 %, paid-in-kind (noncash) (“PIK”) from the Closing Date through December 31, 2023, and thereafter a split between cash and PIK, with the cash portion ranging from 2.50 % per annum to 12.00 % per annum, and the PIK portion ranging from 9.50 % per annum to 0.00 % per annum, depending on the Company’s Net Leverage Ratio (as defined in the A&R Term Loan Credit Agreement).

Cash interest under the A&R Term Loan Credit Agreement is payable quarterly, and PIK interest is payable monthly.

In addition, if certain minimum liquidity thresholds set forth in the A&R Term Loan Credit Agreement are not met for an applicable interest payment date, all interest in respect of the Uptiered Loan payable on such interest payment date will be PIK, irrespective of the Net Leverage Ratio at such time.

Amounts outstanding under the Incremental Term Loan amortize in quarterly installments of 0.75 % of the original principal amount borrowed.

The Company may make voluntary prepayments of the loans under the A&R Term Loan Credit Agreement from time to time, and the Company is required in certain instances related to change of control, asset sales, equity issuances, non-permitted debt issuances and with annual excess cash flow (as defined in the A&R Term Loan Credit Agreement), to make mandatory prepayments of the loans under the A&R Term Loan Credit Agreement, subject to certain prepayment premiums as specified in the A&R Term Loan Credit Agreement (subject to certain exceptions), plus accrued and unpaid interest.

In addition, if certain conditions related to repayments in respect of the Incremental Term Loan are not met, certain additional quarterly fees (not to exceed 4 such fees) plus a 150 basis point increase to the applicable interest rate will be payable to the lenders under the A&R Term Loan Credit Agreement in cash or common stock of the Company, at the Company’s option.

The A&R Term Loan Credit Agreement contains certain conditions to borrowings, events of default and affirmative, negative and financial covenants, including covenants that restrict the Company’s ability to sell assets, make changes to the nature of the Company’s business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, make distributions or redeem or repurchase capital stock or make investments, engage in transactions with affiliates and make payments in respect of certain debt.

The A&R Term Loan Credit Agreement also requires that the Company will not exceed $ 15.0 million in unfinanced capital expenditures in any four-fiscal quarter period, tested as of the end of the second and fourth fiscal quarters of each calendar year starting with the period ending December 31, 2023;

provided that such amount shall increase to $ 25.0 million if the Company’s Total Leverage Ratio (as defined in the A&R Term Loan Credit Agreement) is less than or equal to 2.00 to 1.00 on a pro forma basis for such additional expenditure.

In addition, the A&R Term Loan Credit Agreement requires that the Company not exceed a maximum Net Leverage Ratio, tested as of the end of each fiscal quarter, beginning at 9.25 to 1.00 for the fiscal quarter ending June 30, 2023 and stepping down each quarter to a ratio of 4.75 to 1.00 for the fiscal quarters ending March 31, 2026 and thereafter.

Further, the A&R Term Loan Credit Agreement includes certain customary events of default, the occurrence of which may require that we pay an additional 2.00 % interest on the outstanding loans and other obligations under the A&R Term Loan Credit Agreement and the debt becomes payable immediately.

As of June 30, 2023, following the execution of the A&R Term Loan Credit Agreement, the effective interest rate on the Uptiered Term Loan amounted to 12.86 %.

At June 30, 2022, the effective interest rate of 46.79 % consisted of the 12.00 % stated interest and an additional 34.79 % due to the accelerated amortization of the related debt issuance costs due to the Trigger Date provision.

The unamortized debt issuance cost amounted to $ 0.7 million and $ 7.5 million as of June 30, 2023 and December 31, 2022, respectively.

PIK interest added to principal amounted to $ 7.7 million and $ 3.0 million for the six months ended June 30, 2023 and 2022, respectively.

On July 31, 2023, $ 42.5 million, made up of $ 37.5 million of the term loan tranche and $ 5.0 million of the delayed draw term loan tranche, of the $ 57.5 million Incremental Term Loan under the A&R Term Loan Credit Agreement was drawn down and the proceeds thereof were used to repay the Notes that matured on August 1, 2023.

The remaining availability of the delayed draw term loan tranche of $ 15.0 million will be used, subject to certain maximum liquidity conditions, for working capital purposes.

As of June 30, 2023 and December 31, 2022, we had the following warrants outstanding:

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

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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

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

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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.

The Notes bore 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.

After a series of Note repurchases by the Company since issuance and the exchange by Corre in October 2022 of Notes totaling approximately $ 57.0 million for an equivalent amount of principal added to borrowings under the Subordinated Term Loan Credit Agreement, there was approximately $ 41.2 million of Notes outstanding at June 30, 2023.

As noted above, on July 31, 2023, $ 42.5 million of the $ 57.5 million Incremental Term Loan was drawn down and the proceeds thereof were used to repay the principal and accrued interest of the outstanding Notes that matured on August 1, 2023.

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

As of June 30, 2023 and December 31, 2022, the Notes were recorded in our condensed consolidated balance sheet as follows (in thousands):

June 30, 2023 December 31, 2022

Liability component:

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_________________

1 Included in the “Current portion of long-term debt and finance lease obligations” line of the condensed consolidated balance sheets.

1 Included in the “Long-term debt and finance lease obligation” line for June 30, 2023 and “Current portion of long-term debt and finance lease obligations” line for December 31, 2022 of the condensed consolidated balance sheets.

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.

2 unchanged sentences

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.

The fair value of our 2022 ABL Credit Facility, Uptiered Loans and ME/RE Loans are representative of the carrying value based upon the variable interest rate 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 June 30, 2023 and December 31, 2022 was $ 41.0 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

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.

3 unchanged sentences

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 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.

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 date of June 17, 2023.

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 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.

As of June 30, 2023, all fees were fully amortized.

As of June 30, 2023, we had $ 25.0 million of unrestricted cash and cash equivalents and $ 5.4 million of restricted cash.

International cash balances as of June 30, 2023 were $ 10.4 million, and approximately $ 0.6 million of such cash is located in countries where currency restrictions exist.

As of June 30, 2023, excluding availability dedicated to repayment of Notes as part of the A&R Term Loan Credit Agreement as described above, we had approximately $ 36.8 million of available borrowing capacity under our various credit agreements, consisting of $ 21.8 million available under the Revolving Credit Loans and $ 15.0 million available under the Incremental Term Loan under the A&R Term Loan Credit Agreement.

We have $ 33.7 million in letters of credit and $ 2.2 million in surety bonds outstanding and $ 0.7 million in miscellaneous cash deposits securing leases or other required obligations.

Our cash and cash equivalents as of December 31, 2022 totaled $ 58.1 million including $ 1.4 million of cash located in countries where currency restrictions existed.

EMPLOYEE BENEFIT PLANS

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

Three Months Ended March 31,

(unaudited) (unaudited)

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

2023 2022 2023 2022

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

Interest cost $ 689 $ 390 $ 1,376 $ 813

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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.

Plan for 2023, of which $ 1.9 million has been contributed through June 30, 2023.

STOCKHOLDERS’ EQUITY

4 unchanged sentences

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.

As of June 30, 2023 there were 4,368,422 shares of our common stock outstanding and 12,000,000 shares authorized at $ 0.30 par value per share.

As of June 30, 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):

Three Months Ended

March 31, 2023 Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2023 Six Months Ended

June 30, 2022

(unaudited) (unaudited)

12 unchanged sentences

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 condensed consolidated financial statements.

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 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.

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 related to spent film developing solutions generated through our mobile radiographic inspection services and related 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 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.

2 unchanged sentences

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 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.

We currently estimate a range of possible outcomes between $ 13.0 million and approximately $ 51.0 million, and as of June 30, 2023 we have recorded a receivable from our third-party insurance providers in other current assets with a corresponding liability of the same amount in other accrued liabilities at an amount we believe is the most likely estimate for a probable loss on this matter.

Such amounts are treated as non-cash operating activities.

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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.

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.

Accordingly, for all matters discussed above, we have accrued in the aggregate approximately $ 41.2 million as of June 30, 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”).

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Three Months Ended

(unaudited) (unaudited)

June 30, Six Months Ended

2023 2022 2023 2022

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

IHT $ 116,740 $ 114,124 $ 218,569 $ 209,721

2 unchanged sentences

Three Months Ended

(unaudited) (unaudited)

June 30, Six Months Ended

2023 2022 2023 2022

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

Operating income (loss):

IHT $ 6,548 $ 5,514 $ 11,271 $ 5,648

MS 12,720 6,984 15,913 7,497

Corporate and shared support services ( 14,672 ) ( 23,292 ) ( 30,334 ) ( 46,346 )

1 unchanged sentence

Three Months Ended

(unaudited) (unaudited)

June 30, Six Months Ended

2023 2022 2023 2022

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

Capital expenditures 1 :

IHT $ 1,595 $ 3,326 $ 3,022 $ 8,097

MS 674 1,621 1,275 2,434

Corporate and shared support services — 19 — 57

Total Capital expenditures $ 2,269 $ 4,966 $ 4,297 $ 10,588

_____________

1 Excludes finance leases.

1 unchanged sentence

Three Months Ended

(unaudited) (unaudited)

June 30, Six Months Ended

2023 2022 2023 2022

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

Depreciation and amortization:

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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 months ended March 31, 2023 and 2022 is as follows (in thousands):

A geographic breakdown of our revenues for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):

Three Months Ended

(unaudited) (unaudited)

June 30, Six Months Ended

2023 2022 2023 2022

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

Total Revenues 1

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SUBSEQUENT EVENTS

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.

As of August 10, 2023, the filing date of this Quarterly Report on Form 10-Q, management evaluated the existence of events occurring subsequent to the quarter ended June 30, 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 except as described in Note 11 - Debt .

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