TEAM INC 10-Q

ITEM 1. FINANCIAL STATEMENTS TEAM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) June 30, 2023 December 31, 2022 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 30,437 $ 58,075 Accounts receivable, net of allowance of $ 5,145 and $ 5,262 respectively 197,033 186,689 Inventory 37,861 36,331 Income tax receivable 821 779 Prepaid expenses and other current assets 60,603 65,679 Total current assets 326,755 347,553 Property, plant and equipment, net 131,956 138,099 Intangible assets, net 69,003 75,407 Operating lease right-of-use assets 44,999 48,462 Defined benefit pension asset 2,642 398 Other assets, net 10,700 6,351 Deferred tax asset 630 375 Total assets $ 586,685 $ 616,645 LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt and finance lease obligations $ 4,547 $ 280,993 Current portion of operating lease obligations 14,440 13,823 Accounts payable 36,270 32,524 Other accrued liabilities 101,932 119,267 Income tax payable 1,377 2,257 Total current liabilities 158,566 448,864 Long-term debt and finance lease obligations 306,334 4,942 Operating lease obligations 34,566 38,819 Deferred tax liabilities 4,634 3,661 Other long-term liabilities 2,713 2,599 Total liabilities 506,813 498,885 Commitments and contingencies Equity: Preferred stock, 500,000 shares authorized, none issued — — Common stock, par value $ 0.30 per share, 12,000,000 shares authorized; 4,368,422 and 4,342,909 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively 1,311 1,303 Additional paid-in capital 457,692 457,133 Accumulated deficit ( 342,143 ) ( 301,679 ) Accumulated other comprehensive loss ( 36,988 ) ( 38,997 ) Total equity 79,872 117,760 Total liabilities and equity $ 586,685 $ 616,645 See accompanying notes to unaudited condensed consolidated financial statements. 2 Table of Contents TEAM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues $ 239,492 $ 221,540 $ 441,769 $ 410,578 Operating expenses 178,576 169,426 333,851 317,334 Gross margin 60,916 52,114 107,918 93,244 Selling, general and administrative expenses 56,320 62,908 111,068 126,429 Restructuring and other related charges, net — — — 16 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 Loss from continuing operations before income taxes ( 13,664 ) ( 26,011 ) ( 37,516 ) ( 63,818 ) Provision for income taxes ( 2,089 ) ( 2,191 ) ( 2,948 ) ( 2,717 ) Net loss from continuing operations ( 15,753 ) ( 28,202 ) ( 40,464 ) ( 66,535 ) Discontinued operations: Net income from discontinued operations, net of income tax — 6,650 — 12,521 Net loss $ ( 15,753 ) $ ( 21,552 ) $ ( 40,464 ) $ ( 54,014 ) Basic net loss per common share: Loss from continuing operations ( 3.61 ) ( 6.53 ) ( 9.30 ) ( 16.45 ) Income from discontinued operations — 1.54 — 3.10 Total $ ( 3.61 ) $ ( 4.99 ) $ ( 9.30 ) $ ( 13.35 ) Weighted-average number of shares outstanding: Basic 4,362 4,318 4,353 4,045 See accompanying notes to unaudited condensed consolidated financial statements. 3 Table of Contents TEAM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net loss $ ( 15,753 ) $ ( 21,552 ) $ ( 40,464 ) $ ( 54,014 ) Other comprehensive income (loss) before tax: Foreign currency translation adjustment 1,277 ( 5,463 ) 2,055 ( 5,117 ) 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 (loss), net of tax 1,254 ( 5,463 ) 2,009 ( 5,117 ) Total comprehensive loss $ ( 14,499 ) $ ( 27,015 ) $ ( 38,455 ) $ ( 59,131 ) See accompanying notes to unaudited condensed consolidated financial statements. 4 Table of Contents TEAM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands) (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Amount Balance at December 31, 2022 4,343 $ 1,303 $ 457,133 $ ( 301,679 ) $ ( 38,997 ) $ 117,760 Net loss — — — ( 24,711 ) — ( 24,711 ) Net settlement of vested stock awards 14 4 ( 52 ) — — ( 48 ) Foreign currency translation adjustment, net of tax — — — — 755 755 Non-cash compensation — — 382 — — 382 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 Accounting pronouncement adjustment — — ( 5,651 ) 3,824 — ( 1,827 ) Net loss — — — ( 32,462 ) — ( 32,462 ) Issuance of common stock 1,190 357 9,411 — — 9,768 Foreign currency translation adjustment, net of tax — — — — 346 346 Non-cash compensation — — ( 624 ) — — ( 624 ) Net settlement of vested stock awards — — 2 — — 2 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. 5 Table of Contents TEAM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 1 (in thousands) (Unaudited) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 40,464 ) $ ( 54,014 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 19,085 19,609 Write-off of deferred loan costs — 2,748 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 losses 276 30 Foreign currency (gains) losses ( 35 ) 569 Deferred income taxes 730 ( 357 ) Gain on asset disposal ( 245 ) ( 3,532 ) Non-cash compensation costs (credits) 627 ( 59 ) Other, net ( 2,169 ) ( 2,382 ) Changes in operating assets and liabilities: Accounts receivable ( 9,037 ) ( 29,595 ) Inventory ( 1,140 ) ( 1,620 ) Prepaid expenses and other current assets ( 2,043 ) ( 3,305 ) Accounts payable 3,994 ( 5,889 ) Other accrued liabilities ( 17,201 ) 3,367 Income taxes ( 923 ) ( 1,000 ) Net cash used in operating activities ( 23,617 ) ( 53,391 ) Cash flows from investing activities: Capital expenditures ( 5,073 ) ( 14,001 ) Proceeds from disposal of assets 332 5,119 Net cash used in investing activities ( 4,741 ) ( 8,882 ) Cash flows from financing activities: 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 ) Issuance of common stock, net of issuance costs — 9,696 Other ( 495 ) ( 323 ) Net cash provided by financing activities 483 64,786 Effect of exchange rate changes on cash 237 ( 382 ) Net increase (decrease) in cash and cash equivalents ( 27,638 ) 2,131 Cash and cash equivalents at beginning of period 58,075 65,315 Cash and cash equivalents at end of period $ 30,437 $ 67,446 _________________ 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. 6 Table of Contents TEAM, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of Business. Unless otherwise indicated, the terms “we,” “our,” “us,” and “Team” are used in this report to refer to either Team, Inc., to one or more of its consolidated subsidiaries or to all of them taken as a whole. We are a global leading provider of specialty industrial services offering clients access to a full suite of conventional, specialized, and proprietary mechanical, heat-treating, and inspection services. We deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability and operational efficiency for our clients’ most critical assets. We conduct operations in two segments: Inspection and Heat Treating (“IHT”) and Mechanical Services (“MS”). Through the capabilities and resources in these two segments, we believe that we are uniquely qualified to provide integrated solutions: inspection to assess condition; engineering assessment to determine fitness for purpose in the context of industry standards and regulatory codes; and mechanical services to repair, rerate or replace based upon the client’s election. In addition, we are capable of escalating with the client’s needs, as dictated by the severity of the damage found and the related operating conditions, from standard services to some of the most advanced services and integrated asset integrity and reliability management solutions available in the industry. We also believe that we are unique in our ability to provide services in three distinct client demand profiles: (i) turnaround or project services, (ii) call-out services and (iii) nested or run-and-maintain services. IHT provides conventional and advanced non-destructive testing 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. IHT also provides advanced digital imaging including remote digital video imaging. MS provides solutions designed to serve clients’ unique needs during both the operational (onstream) and off-line states of their assets. Our onstream services include our range of standard to custom-engineered leak repair and composite solutions; emissions control and compliance; hot tapping and line stopping; and on-line valve insertion solutions, which are delivered while assets are in an operational condition, which maximizes client production time. Asset shutdowns can be planned, such as a turnaround maintenance event, or unplanned, such as those due to component failure or equipment breakdowns. Our specialty maintenance, turnaround and outage services are designed to minimize client downtime and are primarily delivered while assets are off-line and often through the use of cross-certified technicians, whose multi-craft capabilities deliver the production needed to achieve tight time schedules. These critical services include on-site field machining; bolted-joint integrity; vapor barrier plug testing; and valve management solutions. We market our services to companies in a diverse array of heavy industries which include: • Energy (refining, power, renewables, nuclear and liquefied natural gas); • Manufacturing and Process (chemical, petrochemical, pulp and paper industries, automotive and mining); • Midstream and Others (valves, terminals and storage, pipeline and offshore oil and gas); • Public Infrastructure (amusement parks, bridges, ports, construction and building, roads, dams and railways); and • Aerospace and Defense. Reverse Stock Split. On December 21, 2022, we completed a reverse stock split of our outstanding common stock at a ratio of one-for-ten (the “Reverse Stock Split”). The Reverse Stock Split effected a proportionate reduction in our authorized shares of common stock from 120,000,000 shares to 12,000,000 shares and reduced the number of shares of common stock outstanding from approximately 43,429,089 shares to approximately 4,342,909 shares. We have made proportionate adjustments to the number of common shares issuable upon exercise or conversion of our outstanding warrants, equity awards and convertible securities, as well as the applicable exercise prices and weighted average fair value of the equity awards. No fractional shares were issued in connection with the Reverse Stock Split. 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 7 Table of Contents 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. 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. These condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain disclosures have been condensed or omitted from the interim financial statements included in this report. These condensed consolidated financial statements should be read 8 Table of Contents in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission. Consolidation. The condensed consolidated financial statements include the accounts of our subsidiaries where we have control over operating and financial policies. All material intercompany accounts and transactions have been eliminated in consolidation. Reclassifications. Certain amounts in prior periods have been reclassified to conform to the current year presentation, including the separate presentation and reporting of discontinued operations. Such reclassifications did not have any effect on our financial condition or results of operations as previously reported. Significant Accounting Policies. Our significant accounting policies are disclosed in Note 1 - Summary of Significant Accounting Policies and Practices in our Annual Report on Form 10-K for the year ended December 31, 2022. On an ongoing basis, we evaluate the estimates and assumptions, including among other things, those related to long-lived assets. Since the date of our 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 “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. 2. 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, 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 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. 9 Table of Contents 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 June 30, 2022 (unaudited) Six Months Ended June 30, 2022 (unaudited) Major classes of line items constituting income (loss) from discontinued operations Revenues $ 29,723 $ 59,263 Operating expenses ( 11,886 ) ( 27,456 ) Selling, general and administrative expenses ( 9,823 ) ( 17,589 ) Interest expense, net ( 4 ) ( 30 ) Other expense ( 1,783 ) ( 2,260 ) Income from discontinued operations before income taxes 6,227 11,928 Benefit from income taxes 423 593 Net income from discontinued operations $ 6,650 $ 12,521 The following table presents the depreciation and amortization and capital expenditures of Quest Integrity (in thousands): Six Months Ended June 30, 2022 (unaudited) Cash flows provided by operating activities of discontinued operations: Depreciation and amortization $ 1,146 Cash flows provided by investing activities of discontinued operations: Capital expenditures $ 2,585 3. REVENUE Disaggregation of revenue. Essentially all of our revenues are associated with contracts with customers. A disaggregation of our revenue from contracts with customers by geographic region, by reportable operating segment and by service type is presented below (in thousands): Geographic area: Three Months Ended 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 Revenue: IHT $ 113,013 $ 3,727 $ 116,740 $ 111,541 $ 2,583 $ 114,124 MS 82,626 40,126 122,752 77,683 29,733 107,416 Total $ 195,639 $ 43,853 $ 239,492 $ 189,224 $ 32,316 $ 221,540 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 Revenue: IHT $ 211,544 $ 7,025 $ 218,569 $ 204,919 $ 4,802 $ 209,721 MS 154,657 68,543 223,200 141,614 59,243 200,857 Total $ 366,201 $ 75,568 $ 441,769 $ 346,533 $ 64,045 $ 410,578 10 Table of Contents Revenue by Operating segment and service type (in thousands): Three Months Ended June 30, 2023 (unaudited) Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: IHT $ 94,305 $ 219 $ 15,717 $ 6,499 $ 116,740 MS — 122,022 211 519 122,752 Total $ 94,305 $ 122,241 $ 15,928 $ 7,018 $ 239,492 Three Months Ended June 30, 2022 (unaudited) Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: IHT $ 91,701 $ 115 $ 15,787 $ 6,521 $ 114,124 MS — 106,731 56 629 107,416 Total $ 91,701 $ 106,846 $ 15,843 $ 7,150 $ 221,540 Six Months Ended June 30, 2023 (unaudited) Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: 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 (unaudited) Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: 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 . Contract balances . The timing of revenue recognition, billings, and cash collections results in trade accounts receivable, contract assets and contract liabilities on the condensed consolidated balance sheets. Trade accounts receivable include billed and unbilled amounts currently due from customers and represent unconditional rights to receive consideration. The amounts due are stated at their net estimated realizable value. Refer to Note 4 - Receivables for additional information on our trade receivables and the allowance for credit losses. 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 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 11 Table of Contents 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. All other costs to fulfill a contract are expensed as incurred. Remaining performance obligations. 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. 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 June 30, 2023 and December 31, 2022. 4. RECEIVABLES 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 (unaudited) Trade accounts receivable $ 159,330 $ 160,572 Unbilled receivables 42,848 31,379 Allowance for credit losses ( 5,145 ) ( 5,262 ) Total $ 197,033 $ 186,689 We measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This applies to financial assets measured at amortized cost, including trade and unbilled accounts receivable, and requires immediate recognition of lifetime expected credit losses. Significant factors that affect the expected collectability of our receivables include macroeconomic trends and forecasts in the oil and gas, refining, power, and petrochemical markets and changes in our results of operations and forecasts. For unbilled receivables, we consider them as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate. The following table shows a rollforward of the allowance for credit losses (in thousands): June 30, 2023 December 31, 2022 (unaudited) Balance at beginning of period $ 5,262 $ 7,843 Provision for expected credit losses 783 1,059 Recoveries collected ( 498 ) ( 1,114 ) Write-offs ( 369 ) ( 2,479 ) Foreign exchange effects ( 33 ) ( 47 ) Balance at end of period $ 5,145 $ 5,262 5. INVENTORY A summary of inventory as of June 30, 2023 and December 31, 2022 is as follows (in thousands): June 30, 2023 December 31, 2022 (unaudited) Raw materials $ 9,829 $ 8,978 Work in progress 2,749 2,945 Finished goods 25,283 24,408 Total $ 37,861 $ 36,331 12 Table of Contents 6. PREPAID AND OTHER CURRENT ASSETS 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 (unaudited) Insurance receivable $ 39,000 $ 39,000 Prepaid expenses 15,021 15,238 Other current assets 6,582 11,441 Total $ 60,603 $ 65,679 The insurance receivable relates to the receivable from our third-party insurance providers for a legal claim that is recorded in other accrued liabilities, refer to Note 9 - Other Accrued Liabilities . These receivables are covered by our third-party insurance providers for any litigation matter that has been settled, or pending settlements where the deductibles have been satisfied. The prepaid expenses primarily relate to prepaid insurance and other expenses that have been paid in advance of the coverage period. The other current assets primarily include items such as software implementation costs, other receivables, and other accounts receivables. 7. PROPERTY, PLANT AND EQUIPMENT 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 (unaudited) Land $ 4,006 $ 4,006 Buildings and leasehold improvements 62,229 50,833 Machinery and equipment 285,403 277,852 Furniture and fixtures 10,794 10,558 Capitalized ERP system development costs 45,903 45,917 Computers and computer software 19,797 19,457 Automobiles 3,369 3,536 Construction in progress 2,161 19,196 Total 433,662 431,355 Accumulated depreciation ( 301,706 ) ( 293,256 ) Property, plant and equipment, net $ 131,956 $ 138,099 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. 13 Table of Contents 8. INTANGIBLE ASSETS A summary of intangible assets as of June 30, 2023 and December 31, 2022 is as follows (in thousands): June 30, 2023 (unaudited) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 165,282 $ ( 97,507 ) $ 67,775 Trade names 20,571 ( 19,957 ) 614 Technology 2,714 ( 2,100 ) 614 Licenses 843 ( 843 ) — Intangible assets $ 189,410 $ ( 120,407 ) $ 69,003 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 165,231 $ ( 91,296 ) $ 73,935 Trade names 20,563 ( 19,830 ) 733 Technology 2,707 ( 1,978 ) 729 Licenses 840 ( 830 ) 10 Intangible assets $ 189,341 $ ( 113,934 ) $ 75,407 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. 9. OTHER ACCRUED LIABILITIES 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 (unaudited) Legal and professional accruals $ 44,637 $ 46,665 Payroll and other compensation expenses 38,615 48,507 Insurance accruals 6,659 7,483 Property, sales and other non-income related taxes 4,673 7,348 Accrued interest 2,740 3,963 Volume discount 2,282 2,050 Other accruals 2,326 3,251 Total $ 101,932 $ 119,267 Legal and professional accruals include accruals for legal and professional fees as well as accrued legal claims, refer to Note 14 - Commitments and Contingencies . Certain legal claims are covered by insurance and the related insurance receivable for these claims is recorded in prepaid expenses and other current assets, refer to Note 6 - Prepaid and Other Current Assets . Payroll and other compensation expenses include all payroll related accruals including, among others, accrued vacation, severance, and bonuses. Insurance accruals primarily relate to accrued medical and workers compensation costs. Property, sales and other non-income related taxes includes accruals for items such as sales and use tax, property tax and other related tax accruals. Accrued interest relates to the interest accrued on our long-term debt. Other accruals include various business accruals. 14 Table of Contents 10. INCOME TAXES 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. 11. DEBT 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 (unaudited) 2022 ABL Credit Facility $ 115,915 $ 99,916 APSC Term Loan 1 — 31,562 Uptiered Loan 1 122,416 107,905 ME/RE Loans 1 25,489 — Total 263,820 239,383 Convertible Debt 2 41,161 40,650 Finance lease obligations 5,900 5,902 Total long-term debt and finance lease obligations 310,881 285,935 Current portion of long-term debt and finance lease obligations ( 4,547 ) ( 280,993 ) Total long-term debt and finance lease obligations, less current portion $ 306,334 $ 4,942 _________________ 1 Net carrying balances of the loans are presented below (in thousands): June 30, 2023 December 31, 2022 (unaudited) 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. 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, 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 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. 15 Table of Contents 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 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 %. Interest under the 2022 ABL Credit Facility is payable monthly. The Company will also be required to pay customary letter of credit fees, as necessary. The Company may make voluntary prepayments of the loans under the 2022 ABL Credit Facility from time to time, subject, in the case of the Delayed Draw Term Loan, to certain conditions. Mandatory prepayments are also required in certain circumstances, including with respect to the Delayed Draw Term Loan, if the ratio of aggregate value of the collateral under the 2022 ABL Credit Facility to the sum of the Delayed Draw Term Loan plus revolving facility usage outstanding is less than 130 %. Amounts repaid 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 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, (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 (the “Specified RE/ME”) as described further below, (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 16 Table of Contents 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. 3. These costs were capitalized and amortized on a straight-line basis over the new term of the 2022 ABL Credit Facility. ME/RE Loans 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 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 On December 18, 2020, we entered into that certain Term Loan Credit Agreement (as amended by Amendment No. 1, dated as of October 19, 2021, Amendment No. 2, dated as of October 29, 2021, Amendment No. 3, dated as of November 8, 2021, Amendment No. 4, dated as of December 2, 2021, Amendment No. 5, dated as of December 7, 2021 Amendment No. 6, dated as of February 11, 2022, Amendment No. 7, dated as of May 6, 2022, Amendment No. 8, dated as of November 1, 2022 and Amendment No. 9, dated as of November 4, 2022, the “Term Loan Credit Agreement”) with Atlantic Park Strategic Capital Fund, L.P., as agent (“APSC”), pursuant to which we borrowed $ 250.0 million (the “Term Loan”). The Term Loan 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 17 Table of Contents 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. 1 dated as of November 30, 2021, Amendment No. 2 dated as of December 6, 2021, Amendment No. 3 dated as of December 7, 2021, Amendment No. 4 dated as of December 8, 2021, Amendment No. 5 dated as of February 11, 2022, Amendment No. 6 dated as of May 6, 2022, Amendment No. 7 dated as of June 28, 2022, Amendment No. 8 dated as of October 4, 2022, Amendment No. 9 dated as of November 1, 2022, Amendment No. 10 dated as of November 4, 2022, Amendment No. 11 dated as of November 21, 2022 and Amendment No. 12 dated as of March 29, 2023, the “Subordinated Term Loan Credit Agreement”) with Cantor Fitzgerald Securities, as agent, and the lenders party thereto providing for an unsecured approximately $ 123.1 million delayed draw subordinated term loan facility (the “Subordinated Term Loan”). Pursuant to the Subordinated Term Loan Credit Agreement, we borrowed $ 22.5 million on November 9, 2021, and an additional $ 27.5 million on December 8, 2021. 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; 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. 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. 18 Table of Contents 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. Warrants 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) Holder Date Number of shares Exercise price Expiration date Number of shares Exercise price Expiration date APSC Holdco II, LP Original, as awarded 12/18/2020 3,582,949 $ 7.75 6/14/2028 Amended 11/9/2021 500,000 $ 1.50 6/14/2028 Amended 12/8/2021 917,051 $ 1.50 12/8/2028 Total APSC 5,000,000 $ 1.50 12/8/2028 500,000 $ 15.00 12/8/2028 Corre 12/8/2021 5,000,000 $ 1.50 12/8/2028 500,000 $ 15.00 12/8/2028 Total warrants 10,000,000 1,000,000 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. 19 Table of Contents Convertible Notes Description of the Notes On July 31, 2017, we issued $ 230.0 million principal amount of senior unsecured 5.00 % Convertible Senior Notes (the “Notes”) due 2023 in a private offering to qualified institutional buyers (as defined in the Securities Act of 1933) pursuant to Rule 144A under the Securities Act (the “Offering”). 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 a previous credit facility. 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 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 (unaudited) Liability component: Principal $ 41,161 $ 41,162 Unamortized issuance costs — ( 377 ) Unamortized discount — ( 135 ) Net carrying amount of the liability component 1 $ 41,161 $ 40,650 Equity component: Carrying amount of the equity component, net of issuance costs 2 $ 37,276 $ 37,276 _________________ 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. Under ASC 470-20, Debt with Conversion and Other Options, (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments that may be settled entirely or partially in cash upon conversion (such as the Notes) in a manner that reflects the issuer’s economic interest cost. However, entities must first consider the guidance in ASC 815-15, Embedded Derivatives (“ASC 815-15”), to determine if an instrument contains an embedded feature that should be separately accounted for as a derivative. Fair Value of Debt The fair value of our 2022 ABL Credit Facility, 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”). 20 Table of Contents We are required to reimburse the 1970 Group for any draws made under the letters of credit within five business days of notice of any such draw. The Substitute Insurance Reimbursement Facility Agreement terminates upon the earlier of (i) the expiration or termination of our Insurance Policies or (ii) September 29, 2023. According to the provisions of ASC 470 – Debt, the arrangement is a Substitute Insurance Reimbursement Facility limited to the amounts drawn under the letters of credit. Therefore, until there is a draw on the Substitute Insurance Reimbursement Facility, the letters of credit are treated as an off-balance sheet credit arrangement. The fees in the amount of $ 2.9 million paid by us are deferred and amortized to interest expense over the term of the arrangement. As of June 30, 2023, all fees were fully amortized. Liquidity 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. 12. EMPLOYEE BENEFIT PLANS We have a defined benefit pension plan covering certain United Kingdom employees (the “U.K. Plan”). Net periodic pension credit includes the following components (in thousands): 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 Expected return on plan assets ( 927 ) ( 582 ) ( 1,852 ) ( 1,211 ) Amortization of prior service cost 7 8 15 16 Unrecognized Net Actuarial Loss 71 — 142 — Net periodic pension credit $ ( 160 ) $ ( 184 ) $ ( 319 ) $ ( 382 ) Net pension credit is included in “Other income, net” on our condensed consolidated statement of operations. The expected long-term rate of return on invested assets is determined based on the weighted average of expected returns on asset investment categories for the U.K. Plan as follows: 6.4 % overall, 9.5 % for equities and 5.3 % for debt securities. We expect to contribute $ 3.7 million to the U.K. Plan for 2023, of which $ 1.9 million has been contributed through June 30, 2023. 13. STOCKHOLDERS’ EQUITY Shareholder’s Equity and Preferred Stock On December 21, 2022, we completed a reverse stock split of our outstanding common stock at a ratio of one-for-ten. The Reverse Stock Split effected a proportionate reduction in our authorized shares of common stock from 120,000,000 shares to 12,000,000 shares and reduced the number of shares of common stock outstanding from approximately 43,429,089 shares to approximately 4,342,909 shares. We have made proportionate adjustments to the number of common shares issuable upon exercise or conversion of our outstanding warrants, equity awards and convertible securities, as well as the applicable exercise prices and weighted average fair value of the equity awards. No fractional shares were issued in connection with the Reverse Stock Split. 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) 21 Table of Contents A summary of changes in accumulated other comprehensive loss included within shareholders’ equity is as follows (in thousands): Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 (unaudited) (unaudited) Foreign Currency Translation Adjustments Defined Benefit Pension Plans Tax Provision Total Foreign Currency Translation Adjustments Defined Benefit Pension Plans Tax Provision Total Balance, beginning of period $ ( 28,859 ) $ ( 10,474 ) $ 336 $ ( 38,997 ) $ ( 23,286 ) $ ( 3,277 ) $ ( 169 ) $ ( 26,732 ) Other comprehensive income (loss) 2,055 — ( 46 ) 2,009 ( 5,117 ) — — ( 5,117 ) Balance, end of period $ ( 26,804 ) $ ( 10,474 ) $ 290 $ ( 36,988 ) $ ( 28,403 ) $ ( 3,277 ) $ ( 169 ) $ ( 31,849 ) 14. COMMITMENTS AND CONTINGENCIES We accrue for contingencies where the occurrence of a material loss is probable and can be reasonably estimated, based on our best estimate of the expected liability. We may increase or decrease our legal accruals in the future, on a matter-by-matter basis, to account for developments in such matter. Because such matters are inherently unpredictable and unfavorable developments or outcomes can occur, assessing contingencies is highly subjective and requires judgments about future events. Notwithstanding the uncertainty as to the outcome and while our insurance coverage might not be available or adequate to cover these claims, based upon the information currently available, we do not believe that any uninsured losses that might arise from these lawsuits and proceedings will have a materially adverse effect on our condensed consolidated financial statements. Notice of Potential Environmental Violation - On April 20, 2021, Team Industrial Services, Inc. received Notices of Potential Violation from the U.S. Environmental Protection Agency (“EPA”) alleging noncompliance with various waste determination, reporting, training, and planning obligations under the Resource Conservation and Recovery Act at seven of our facilities located in Texas and Louisiana. The allegations largely 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. Kelli Most Litigation - On November 13, 2018, Kelli Most filed a lawsuit against Team Industrial Services, Inc., individually and as a personal representative of the estate of Jesse Henson, in the 268th District Court of Fort Bend County, Texas (the “Most litigation”). The complaint asserted claims against Team for negligence resulting in the wrongful death of Jesse Henson. A jury trial commenced on this matter on May 4, 2021. On June 1, 2021, the jury rendered a verdict against Team for $ 222.0 million in compensatory damages. On January 25, 2022, the trial court signed a final judgment in favor of the plaintiff and against Team Industrial Services, Inc. Post-judgment motions challenging the judgment were filed on February 24, 2022 and were denied by the court on April 22, 2022. A notice of appeal was filed on April 25, 2022, and this case is currently pending in the Court of Appeals for the First District of Texas, in Houston. We believe that the likelihood that the amount of the judgment will be affirmed is not probable. 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. The Most litigation is covered by our general liability and excess insurance policies which are occurrence based and subject to an aggregate $ 3.0 million self-insured retention and deductible. All retentions and deductibles have been met, accordingly, we believe pending the final settlement, all further claims will be fully funded by our insurance policies. 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 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”). Management believes that based on its current knowledge and after consultation with legal counsel that the Other Proceedings, individually or in the aggregate, will not have a material effect on our condensed consolidated financial statements. 22 Table of Contents 15. SEGMENT AND GEOGRAPHIC DISCLOSURES ASC 280, Segment Reporting , requires us to disclose certain information about our operating segments. Operating segments are defined as “components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.” We conduct operations in two segments: IHT and MS. Segment data for our two operating segments are as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (unaudited) (unaudited) (unaudited) (unaudited) Revenues: IHT $ 116,740 $ 114,124 $ 218,569 $ 209,721 MS 122,752 107,416 223,200 200,857 Total Revenues $ 239,492 $ 221,540 $ 441,769 $ 410,578 Three Months Ended June 30, Six Months Ended June 30, 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 ) Total Operating income (loss) $ 4,596 $ ( 10,794 ) $ ( 3,150 ) $ ( 33,201 ) Three Months Ended June 30, Six Months Ended June 30, 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. Totals may vary from amounts presented in the condensed consolidated statements of cash flows due to the timing of cash payments. Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (unaudited) (unaudited) (unaudited) (unaudited) Depreciation and amortization: IHT $ 3,188 $ 3,096 $ 6,242 $ 6,350 MS 4,704 4,634 9,457 9,518 Corporate and shared support services 1,647 1,279 3,386 2,595 Total Depreciation and amortization $ 9,539 $ 9,009 $ 19,085 $ 18,463 23 Table of Contents Separate measures of our assets by operating segment are not produced or utilized by management to evaluate segment performance. A geographic breakdown of our revenues for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (unaudited) (unaudited) (unaudited) (unaudited) Total Revenues 1 United States $ 165,311 $ 156,447 $ 317,805 $ 294,387 Canada 30,328 32,778 48,396 52,145 Europe 21,731 16,285 38,062 30,459 Other foreign countries 22,122 16,030 37,506 33,587 Total $ 239,492 $ 221,540 $ 441,769 $ 410,578 ______________ 1 Revenues attributable to individual countries/geographic areas are based on the country of domicile of the legal entity that performs the work. 16. RELATED PARTY TRANSACTIONS Alvarez & Marsal provided certain consulting services to the Company in connection with our former Interim Chief Financial Officer position and other corporate support costs. Effective June 12, 2022 the Interim Chief Financial Officer position ended as the Company named a permanent Chief Financial Officer. The Company paid $ 8.1 million in consulting fees to Alvarez & Marsal for the year ended December 31, 2022. In connection with the Company’s debt transactions, the Company engaged in transactions with Corre and APSC to provide funding as described in Note 11 - Debt . 17. SUBSEQUENT EVENTS 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 . 24 Table of Contents