TEAM INC 10-Q

ITEM 1. FINANCIAL STATEMENTS TEAM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) September 30, 2023 December 31, 2022 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 21,483 $ 58,075 Accounts receivable, net of allowance of $ 5,326 and $ 5,262 respectively 185,800 186,689 Inventory 38,874 36,331 Income tax receivable 1,226 779 Prepaid expenses and other current assets 65,453 65,679 Total current assets 312,836 347,553 Property, plant and equipment, net 127,714 138,099 Intangible assets, net 65,816 75,407 Operating lease right-of-use assets 43,101 48,462 Defined benefit pension asset 3,618 398 Other assets, net 7,388 6,351 Deferred tax asset 981 375 Total assets $ 561,454 $ 616,645 LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt and finance lease obligations $ 5,302 $ 280,993 Current portion of operating lease obligations 14,517 13,823 Accounts payable 32,039 32,524 Other accrued liabilities 104,750 119,267 Income tax payable 2,464 2,257 Total current liabilities 159,072 448,864 Long-term debt and finance lease obligations 295,778 4,942 Operating lease obligations 32,436 38,819 Deferred tax liabilities 5,325 3,661 Other long-term liabilities 4,228 2,599 Total liabilities 496,839 498,885 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 September 30, 2023 and December 31, 2022, respectively 1,311 1,303 Additional paid-in capital 457,924 457,133 Accumulated deficit ( 354,277 ) ( 301,679 ) Accumulated other comprehensive loss ( 40,343 ) ( 38,997 ) Total equity 64,615 117,760 Total liabilities and equity $ 561,454 $ 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues $ 206,715 $ 218,339 $ 648,484 $ 628,917 Operating expenses 153,928 162,322 487,779 479,656 Gross margin 52,787 56,017 160,705 149,261 Selling, general and administrative expenses 54,045 57,746 165,113 184,174 Restructuring and other related charges, net — — — 16 Operating loss ( 1,258 ) ( 1,729 ) ( 4,408 ) ( 34,929 ) Interest expense, net ( 10,067 ) ( 26,653 ) ( 43,499 ) ( 63,708 ) Loss on debt extinguishment ( 3 ) — ( 1,585 ) — Other income, net 266 3,227 914 9,664 Loss from continuing operations before income taxes ( 11,062 ) ( 25,155 ) ( 48,578 ) ( 88,973 ) Provision for income taxes ( 1,072 ) ( 1,465 ) ( 4,020 ) ( 4,182 ) Net loss from continuing operations ( 12,134 ) ( 26,620 ) ( 52,598 ) ( 93,155 ) Discontinued operations: Net income from discontinued operations, net of income tax — 3,747 — 16,268 Net loss $ ( 12,134 ) $ ( 22,873 ) $ ( 52,598 ) $ ( 76,887 ) Basic net loss per common share: Loss from continuing operations ( 2.78 ) ( 6.16 ) ( 12.07 ) ( 22.51 ) Income from discontinued operations — 0.87 — 3.93 Total $ ( 2.78 ) $ ( 5.29 ) $ ( 12.07 ) $ ( 18.58 ) Weighted-average number of shares outstanding: Basic 4,368 4,322 4,358 4,139 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net loss $ ( 12,134 ) $ ( 22,873 ) $ ( 52,598 ) $ ( 76,887 ) Other comprehensive loss before tax: Foreign currency translation adjustment ( 3,366 ) ( 7,035 ) ( 1,311 ) ( 12,152 ) Other comprehensive loss, before tax ( 3,366 ) ( 7,035 ) ( 1,311 ) ( 12,152 ) Tax provision attributable to other comprehensive loss 11 — ( 35 ) — Other comprehensive loss, net of tax ( 3,355 ) ( 7,035 ) ( 1,346 ) ( 12,152 ) Total comprehensive loss $ ( 15,489 ) $ ( 29,908 ) $ ( 53,944 ) $ ( 89,039 ) See accompanying notes to unaudited condensed consolidated financial statements. 4 Table of Contents TEAM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (in thousands) (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Loss Total Shareholders’ Equity (Deficit) 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 Net loss — — — ( 12,134 ) — ( 12,134 ) Foreign currency translation adjustment, net of tax — — — — ( 3,355 ) ( 3,355 ) Non-cash compensation — — 232 — — 232 Balance at September 30, 2023 4,368 $ 1,311 $ 457,924 $ ( 354,277 ) $ ( 40,343 ) $ 64,615 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 Net loss — — — ( 22,873 ) — ( 22,873 ) Foreign currency translation adjustment, net of tax — — — — ( 7,035 ) ( 7,035 ) Non-cash compensation — — 629 — — 629 Balance at September 30, 2022 4,322 $ 1,296 $ 457,505 $ ( 448,647 ) $ ( 38,884 ) $ ( 28,730 ) 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) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 52,598 ) $ ( 76,887 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 28,481 28,591 Write-off of deferred loan costs — 2,748 Write-off of software cost 629 — Loss on debt extinguishment 1,585 — Amortization of debt issuance costs, debt discounts, and deferred financing costs 16,926 25,666 Paid-in-kind interest 10,906 15,464 Allowance for credit losses 687 ( 362 ) Foreign currency (gains) losses ( 776 ) 571 Deferred income taxes 986 382 Gain on asset disposal ( 268 ) ( 4,296 ) Non-cash compensation costs 859 571 Other, net ( 3,282 ) ( 3,469 ) Changes in operating assets and liabilities: Accounts receivable 140 ( 31,313 ) Inventory ( 2,513 ) ( 3,076 ) Prepaid expenses and other assets ( 5,207 ) ( 7,048 ) Accounts payable 363 ( 6,038 ) Other accrued liabilities ( 18,763 ) 5,911 Income taxes ( 224 ) 6,220 Net cash used in operating activities ( 22,069 ) ( 46,365 ) Cash flows from investing activities: Capital expenditures ( 7,433 ) ( 21,002 ) Proceeds from disposal of assets 414 7,165 Net cash used in investing activities ( 7,019 ) ( 13,837 ) 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) 27,292 106,531 Payments under 2022 ABL Credit Facility (Revolving Credit Loans) ( 16,293 ) ( 11,715 ) Repayment of APSC Term Loan ( 37,092 ) — Repayment of Convertible Debt ( 41,161 ) — Borrowings under ME/RE Loans 27,398 — Payments under ME/RE Loans ( 847 ) — Borrowings under Corre Incremental Term Loans 42,500 — Borrowings under 2022 ABL Credit Facility (Delayed Draw Term Loan) — 35,000 Payments for debt issuance costs ( 8,446 ) ( 13,609 ) Issuance of common stock, net of issuance costs — 9,696 Other ( 746 ) ( 615 ) Net cash provided by (used in) financing activities ( 7,395 ) 63,288 Effect of exchange rate changes on cash ( 109 ) ( 1,373 ) Net (decrease) increase in cash and cash equivalents ( 36,592 ) 1,713 Cash and cash equivalents at beginning of period 58,075 65,315 Cash and cash equivalents at end of period $ 21,483 $ 67,028 _________________ 1 Condensed consolidated statement of cash flows for the nine months ended September 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, offshore oil and gas, and liquefied natural gas); • Manufacturing and Process (chemical, petrochemical, pulp and paper industries, automotive and mining); • Midstream and Others (valves, terminals and storage, and pipeline); • 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. Basis of 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 7 Table of Contents 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 (“our Annual Report on Form 10-K”). 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. 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, 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 related to Quest Integrity are presented 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 nine months ended September 30, 2022 report discontinued operations separate from continuing operations. Our condensed consolidated statements of comprehensive loss and statements of shareholders’ equity (deficit) for the three and nine months ended September 30, 2022, as well as statements of cash flows for the nine months ended September 30, 2022, combine continuing and discontinued operations. A summary of financial information related to our discontinued operations is presented in the tables below. 8 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 September 30, 2022 (unaudited) Nine Months Ended September 30, 2022 (unaudited) Major classes of line items constituting income (loss) from discontinued operations Revenues $ 29,441 $ 88,704 Operating expenses ( 12,052 ) ( 39,508 ) Selling, general and administrative expenses ( 8,832 ) ( 26,422 ) Interest expense, net ( 78 ) ( 108 ) Other expense ( 2,675 ) ( 4,934 ) Income from discontinued operations before income taxes 5,804 17,732 Provision for income taxes ( 2,057 ) ( 1,464 ) Net income from discontinued operations $ 3,747 $ 16,268 The following table presents the depreciation and amortization and capital expenditures of Quest Integrity (in thousands): Nine Months Ended September 30, 2022 (unaudited) Cash flows provided by operating activities of discontinued operations: Depreciation and amortization $ 1,143 Cash flows provided by investing activities of discontinued operations: Capital expenditures $ 3,703 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 September 30, 2023 Three Months Ended September 30, 2022 (unaudited) (unaudited) United States and Canada Other Countries Total United States and Canada Other Countries Total Revenue: IHT $ 100,800 $ 3,057 $ 103,857 $ 108,009 $ 2,303 $ 110,312 MS 67,286 35,572 102,858 76,135 31,892 108,027 Total $ 168,086 $ 38,629 $ 206,715 $ 184,144 $ 34,195 $ 218,339 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 (unaudited) (unaudited) United States and Canada Other Countries Total United States and Canada Other Countries Total Revenue: IHT $ 312,344 $ 10,082 $ 322,426 $ 312,928 $ 7,105 $ 320,033 MS 221,943 104,115 326,058 217,749 91,135 308,884 Total $ 534,287 $ 114,197 $ 648,484 $ 530,677 $ 98,240 $ 628,917 9 Table of Contents Revenue by Operating segment and service type (in thousands): Three Months Ended September 30, 2023 (unaudited) Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: IHT $ 83,207 $ 39 $ 12,946 $ 7,665 $ 103,857 MS — 101,624 55 1,179 102,858 Total $ 83,207 $ 101,663 $ 13,001 $ 8,844 $ 206,715 Three Months Ended September 30, 2022 (unaudited) Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: IHT $ 87,267 $ 19 $ 16,357 $ 6,669 $ 110,312 MS — 106,776 125 1,126 108,027 Total $ 87,267 $ 106,795 $ 16,482 $ 7,795 $ 218,339 Nine Months Ended September 30, 2023 (unaudited) Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: IHT $ 259,118 $ 261 $ 42,391 $ 20,656 $ 322,426 MS — 323,484 544 2,030 326,058 Total $ 259,118 $ 323,745 $ 42,935 $ 22,686 $ 648,484 Nine Months Ended September 30, 2022 (unaudited) Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: IHT $ 255,419 $ 158 $ 45,983 $ 18,473 $ 320,033 MS — 305,277 238 3,369 308,884 Total $ 255,419 $ 305,435 $ 46,221 $ 21,842 $ 628,917 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 the recognition of 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 10 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 September 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 September 30, 2023 and December 31, 2022. 4. RECEIVABLES A summary of accounts receivable as of September 30, 2023 and December 31, 2022 is as follows (in thousands): September 30, 2023 December 31, 2022 (unaudited) Trade accounts receivable $ 141,303 $ 160,572 Unbilled receivables 49,823 31,379 Allowance for credit losses ( 5,326 ) ( 5,262 ) Total $ 185,800 $ 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): September 30, 2023 December 31, 2022 (unaudited) Balance at beginning of period $ 5,262 $ 7,843 Provision for expected credit losses 1,317 1,059 Recoveries collected ( 619 ) ( 1,114 ) Write-offs ( 540 ) ( 2,479 ) Foreign exchange effects ( 94 ) ( 47 ) Balance at end of period $ 5,326 $ 5,262 5. INVENTORY A summary of inventory as of September 30, 2023 and December 31, 2022 is as follows (in thousands): September 30, 2023 December 31, 2022 (unaudited) Raw materials $ 9,819 $ 8,978 Work in progress 2,989 2,945 Finished goods 26,066 24,408 Total $ 38,874 $ 36,331 11 Table of Contents 6. PREPAID AND OTHER CURRENT ASSETS A summary of prepaid expenses and other current assets as of September 30, 2023 and December 31, 2022 is as follows (in thousands): September 30, 2023 December 31, 2022 (unaudited) Insurance receivable $ 39,000 $ 39,000 Prepaid expenses 16,526 15,238 Other current assets 9,927 11,441 Total $ 65,453 $ 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, deferred financing charges and other receivables. 7. PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment as of September 30, 2023 and December 31, 2022 is as follows (in thousands): September 30, 2023 December 31, 2022 (unaudited) Land $ 4,006 $ 4,006 Buildings and leasehold improvements 61,820 50,833 Machinery and equipment 280,842 277,852 Furniture and fixtures 10,708 10,558 Capitalized ERP system development costs 45,903 45,917 Computers and computer software 19,802 19,457 Automobiles 3,325 3,536 Construction in progress 5,898 19,196 Total 432,304 431,355 Accumulated depreciation ( 304,590 ) ( 293,256 ) Property, plant and equipment, net $ 127,714 $ 138,099 Included in the table above are assets under finance leases of $ 8.3 million and $ 7.4 million, and related accumulated amortization of $ 2.9 million and $ 2.3 million as of September 30, 2023 and December 31, 2022, respectively. Depreciation expense for the three months ended September 30, 2023 and 2022 was $ 5.4 million and $ 5.5 million, respectively. Depreciation expense for the nine months ended September 30, 2023 and 2022 was $ 16.5 million and $ 17.3 million, respectively. 12 Table of Contents 8. INTANGIBLE ASSETS A summary of intangible assets as of September 30, 2023 and December 31, 2022 is as follows (in thousands): September 30, 2023 (unaudited) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 164,221 $ ( 99,511 ) $ 64,710 Trade names 20,248 ( 19,698 ) 550 Technology 2,300 ( 1,744 ) 556 Licenses 683 ( 683 ) — Intangible assets $ 187,452 $ ( 121,636 ) $ 65,816 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 September 30, 2023 and 2022 was $ 3.2 million and $ 3.4 million, respectively. Amortization expense of intangible assets for the nine months ended September 30, 2023 and 2022 was $ 9.6 million and $ 10.2 million, respectively. The weighted-average amortization period for intangible assets subject to amortization was 13.7 years as of September 30, 2023 and December 31, 2022. 9. OTHER ACCRUED LIABILITIES A summary of other accrued liabilities as of September 30, 2023 and December 31, 2022 is as follows (in thousands): September 30, 2023 December 31, 2022 (unaudited) Legal and professional accruals $ 49,223 $ 46,665 Payroll and other compensation expenses 35,561 48,507 Insurance accruals 6,124 7,483 Property, sales and other non-income related taxes 5,474 7,348 Accrued interest 3,694 3,963 Volume discount 2,337 2,050 Other accruals 2,337 3,251 Total $ 104,750 $ 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 for legal claims information. Certain legal claims are covered by our third-party insurance providers 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. 13 Table of Contents 10. INCOME TAXES We recorded an income tax provision of $ 1.1 million and $ 4.0 million for the three and nine months ended September 30, 2023, compared to a provision of $ 1.5 million and $ 4.2 million for the three and nine months ended September 30, 2022. The effective tax rate, inclusive of discrete items, was a provision of 9.7 % for the three months ended September 30, 2023, compared to a provision of 5.8 % for the three months ended September 30, 2022. For the nine months ended September 30, 2023, our effective tax rate, inclusive of discrete items, was a provision of 8.3 %, compared to a provision of 4.7 % for the nine months ended September 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 September 30, 2023 and December 31, 2022, our total long-term debt and finance lease obligations are summarized as follows (in thousands): September 30, 2023 December 31, 2022 (unaudited) 2022 ABL Credit Facility $ 110,915 $ 99,916 ME/RE Loans 1 24,739 — Uptiered Loan / Subordinated Term Loan 1 125,588 107,905 Incremental Term Loan 1 34,034 — APSC Term Loan 1 — 31,562 Total 295,276 239,383 Convertible Debt 1 — 40,650 Finance lease obligations 5,804 5,902 Total long-term debt and finance lease obligations 301,080 285,935 Current portion of long-term debt and finance lease obligations ( 5,302 ) ( 280,993 ) Total long-term debt and finance lease obligations, less current portion $ 295,778 $ 4,942 _________________ 1 Comprised of principal amount outstanding, less unamortized discount and issuance costs. See below for additional information. 2022 ABL Credit Facility On February 11, 2022, we entered into a credit agreement, with the lender parties thereto, and Eclipse Business Capital, LLC, a Delaware limited liability company, as agent, (the “ABL Agent”) (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 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 the ABL Agent (the “Revolving Credit Loans”), with a $ 35.0 million sublimit for swingline borrowings, 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”). Our obligations under the 2022 ABL Credit Agreement are guaranteed by certain of our direct and 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. The terms of the 2022 ABL Credit Facility are described in the table below (dollar amounts are presented in thousands): 14 Table of Contents Revolving Credit Loans Delayed Draw Term Loan Original maturity date 2/11/2025 2/11/2025 Amended maturity date 8/11/2025 8/11/2025 Original stated interest rate LIBOR + applicable margin (base + applicable margin) LIBOR+ 10 % (Base+ 9 %) Amended interest rate SOFR + applicable margin (base + applicable margin) SOFR + 10 % (Base + 9 %) Actual interest rate: 9/30/2023 10.09 % 15.44 % 9/30/2022 7.21 % 12.56 % Interest payments monthly monthly Cash paid for interest YTD 9/30/2023 $ 4,932 $ 3,951 YTD 9/30/2022 $ 3,656 $ 1,683 Unamortized balance of deferred financing cost 9/30/2023 $ 227 $ — 12/31/2022 $ 2,312 $ 798 Available amount at 9/30/2023 $ 4,911 $ — The “applicable margin” in the table above 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 Adjusted Term Secured Overnight Financing Rate (“SOFR”) loans with a 1.00 % SOFR floor, in each case depending on the amount of EBITDA (as defined in ABL Amendment No. 3 to the 2022 ABL Credit Facility) as of the most recent measurement period as reported in a monthly compliance certificate. The fee for undrawn revolving amounts is 0.50 %. We incurred additional $ 0.3 million of financing cost related to the 2022 ABL Credit Facility in connection with Amendment No. 3 thereto (“ABL Amendment No. 3”) dated June 16, 2023. These costs were capitalized and amortized on a straight-line basis over the new term of the 2022 ABL Credit Facility. 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 June 16, 2023 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, as described therein. As of September 30, 2023, we are in compliance with the covenants. As of September 30, 2023, $ 10.1 million in letters of credit was issued under the 2022 ABL Credit Agreement. Such amounts remain undrawn and are off-balance sheet. ME/RE Loans The ABL Amendment No. 3, in addition to making certain other changes to the 2022 ABL Credit Facility, provided us with $ 27.4 million of new term loans (the “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, certain real estate and machinery and equipment (the “Specified ME/RE Collateral”), accounts receivable, deposit accounts, securities accounts and inventory of the ABL Loan Parties (collectively, 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 (as defined below). 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. 15 Table of Contents The terms of ME/RE Loans are described in the table below (dollar amounts are presented in thousands): Original maturity date 8/11/2025 Original stated interest rate SOFR + 5.75 % + 0.11 % credit spread adjustment Principal payments $ 254 monthly Effective interest rate 9/30/2023 16.75 % 9/30/2022 N/A Actual interest rate 9/30/2023 11.19 % 9/30/2022 N/A Interest payments monthly Cash paid for interest YTD 9/30/2023 $ 640 YTD 9/30/2022 N/A Balances at 9/30/2023 Principal balance $ 26,551 Unamortized balance of debt issuance cost $( 1,812 ) Net carrying balance $ 24,739 Available amount at 9/30/2023 $ — The Company may make voluntary prepayments of the ME/RE Loans from time to time. Mandatory prepayments are required in certain instances when sales of assets are completed that are related to the Specified ME/RE Collateral, 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 remaining unpaid principal balance of the ME/RE loans at maturity will be $ 21.0 million. Direct and incremental costs associated with the issuance of the ABL Amendment No. 3 were approximately $ 2.1 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. APSC Term Loan 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 APSC Term Loan balance of $ 35.5 million plus the applicable prepayment premium, resulting in a loss on debt extinguishment of $ 1.6 million. On December 18, 2020, we had entered into that certain Term Loan Credit Agreement with Atlantic Park Strategic Capital Fund, L.P., as agent (“APSC”), pursuant to which we borrowed $ 250.0 million (the “APSC Term Loan”). The terms of APSC Term Loan are described in the table below (dollar amounts are presented in thousands): 16 Table of Contents Original maturity date 12/18/2026 Original stated interest rate variable Effective interest rate 9/30/2023 N/A 9/30/2022 25.72 % Actual interest rate: 9/30/2023 N/A 9/30/2022 10.24 % Interest payments Quarterly Cash paid for interest YTD 9/30/2023 $ 2,849 YTD 9/30/2022 $ 9,693 PIK interest added to principal YTD 9/30/2023 $ — YTD 9/30/2022 $ 6,627 Balances at 12/31/2022 Principal balance $ 35,510 Unamortized balance of debt issuance cost $( 3,948 ) Net carrying balance $ 31,562 Amended and Restated Term Loan Credit Agreement - Uptiered Loan / Subordinated Term Loan and Incremental Term Loan 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. 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 senior unsecured 5.00 % Convertible Senior Notes (the “Notes”) held by Corre. 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 and certain of its affiliates, consisting of a $ 37.5 million term loan tranche and a $ 20.0 million delayed draw 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. 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 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 tranche of $ 15.0 million will be used, subject to certain maximum liquidity conditions, for working capital purposes. 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. 17 Table of Contents 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. The A&R Term Loan Credit Agreement contains certain customary conditions to borrowings, events of default and affirmative, negative, and financial covenants (as described in the A&R Term Loan Credit Agreement). As of September 30, 2023, we are in compliance with the covenants. Further, the A&R Term Loan Credit Agreement includes certain customary events of default, the occurrence of which may require an additional 2.00 % interest on the outstanding loans and other obligations under the A&R Term Loan Credit Agreement and the debt may become payable immediately. The terms of Uptiered Loan / Subordinated Term Loan and Incremental Term Loan are described in the table below (dollar amounts are presented in thousands): Uptiered Loan / Subordinated Term Loan Incremental Term Loan Maturity date 12/31/2027 (12/31/2026 if outstanding balance is greater than $ 50 million) 12/31/2026 Stated interest rate 12 % PIK through 12/31/2023, then cash and PIK split as described below 12 % paid in cash Principal payments at maturity $ 300 quarterly Effective interest rate 9/30/2023 12.86 % 23.69 % 9/30/2022 46.79 % N/A Interest payments cash quarterly/PIK monthly quarterly PIK interest added to principal YTD 9/30/2023 $ 10,829 N/A YTD 9/30/2022 $ 4,596 N/A Balances at 9/30/2023 Principal balance 1 $ 126,272 $ 43,371 Unamortized balance of debt issuance cost $( 684 ) $( 9,337 ) Net carrying balance $ 125,588 $ 34,034 Balances at 12/31/2022 Principal balance 1 $ 115,443 N/A Unamortized balance of debt issuance cost $( 7,538 ) N/A Net carrying balance $ 107,905 N/A Available amount at 9/30/2023 2 $ — $ 15,000 ___________ 1 The principal balance of the Uptiered Loan / Subordinated Term Loan is made up of $ 22.5 million drawn on November 9, 2021, $ 27.5 million drawn on December 8, 2021, and $ 57.0 million added as part of the exchange agreement on October 4, 2022. In addition, the principal balance also includes PIK interest recorded to date of $ 18.2 million and $ 7.4 million as of September 30, 2023 and December 31, 2022, respectively, and, with respect to the Incremental Term Loan, PIK fees of $ 0.9 million. 2 $ 5.0 million was drawn from the available balance on October 6, 2023. The Uptiered Loan under the A&R Term Loan Credit Agreement bears interest at an annual rate of 12.00 %, paid-in-kind (noncash) (“PIK”) from June 16, 2023 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). 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. 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. Warrants As of September 30, 2023 and December 31, 2022, APSC Holdco II, L.P. held 500,000 warrants and certain Corre holders collectively held 500,000 warrants in each case providing for the purchase of one share of the Company’s common stock per warrant at an exercise price of $ 15.00 . The warrants will expire on December 8, 2028. 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. Convertible Notes Description of Convertible Notes On July 31, 2023, $ 42.5 million of the $ 57.5 million under the Incremental Term Loan was drawn down and the proceeds thereof were used to repay the principal and accrued interest of the outstanding Notes on their maturity date of August 1, 2023. On July 31, 2017, we issued $ 230.0 million principal amount of 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. Cash interest paid amounted to $ 2.1 million and $ 2.1 million for the nine months ended September 30, 2023 and 2022, respectively. PIK interest of $ 4.2 million was added to principal during the nine months ended September 30, 2022. There was no PIK interest in 2023. Fair Value of Debt The fair value of our 2022 ABL Credit Facility, Uptiered Loan, Incremental Term Loan 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 December 31, 2022 was $ 37.5 million, (inclusive of the fair value of the conversion option) and a “Level 2” measurement, determined based on the observed trading price of these instruments. The Notes were fully paid off on August 1, 2023. 1970 Group Substitute Insurance Reimbursement Facility On September 29, 2022, 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”). 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 was renewed on August 29, 2023 to update the letters of credit limit up to approximately $ 24.9 million with the termination date on the earlier of (i) the expiration or termination of our Insurance Policies or (ii) September 29, 2024. 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 paid by us periodically under this arrangement are deferred and amortized to interest expense over the term of the arrangement. As of September 30, 2023, we had approximately $ 2.8 million of unamortized deferred fees. Liquidity As of September 30, 2023, we had $ 16.5 million of unrestricted cash and cash equivalents and $ 5.0 million of restricted cash. International cash balances as of September 30, 2023 were $ 11.2 million, and approximately $ 0.7 million of such cash is located in countries where currency restrictions exist. As of September 30, 2023, we had approximately $ 19.9 million of available borrowing capacity under our various credit agreements, consisting of $ 4.9 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 $ 37.6 million in letters of credit and $ 1.7 million in surety bonds outstanding and $ 2.1 million in miscellaneous cash 19 Table of Contents 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (unaudited) (unaudited) (unaudited) (unaudited) Interest cost $ 678 $ 358 $ 2,054 $ 1,171 Expected return on plan assets ( 913 ) ( 533 ) ( 2,765 ) ( 1,744 ) Amortization of prior service cost 8 7 23 23 Unrecognized Net Actuarial Loss 70 — 212 — Net periodic pension credit $ ( 157 ) $ ( 168 ) $ ( 476 ) $ ( 550 ) 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 $ 2.8 million has been contributed through September 30, 2023. 13. SHAREHOLDERS’ 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 as of such date 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 September 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 September 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): Nine Months Ended September 30, 2023 Nine Months Ended September 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 loss ( 1,311 ) — ( 35 ) ( 1,346 ) ( 12,152 ) — — ( 12,152 ) Balance, end of period $ ( 30,170 ) $ ( 10,474 ) $ 301 $ ( 40,343 ) $ ( 35,438 ) $ ( 3,277 ) $ ( 169 ) $ ( 38,884 ) 20 Table of Contents 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 September 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 $ 40.7 million as of September 30, 2023, of which approximately $ 1.7 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. 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): 21 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (unaudited) (unaudited) (unaudited) (unaudited) Revenues: IHT $ 103,857 $ 110,312 $ 322,426 $ 320,033 MS 102,858 108,027 326,058 308,884 Total Revenues $ 206,715 $ 218,339 $ 648,484 $ 628,917 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (unaudited) (unaudited) (unaudited) (unaudited) Operating income (loss): IHT $ 6,412 $ 7,390 $ 17,683 $ 13,038 MS 6,482 7,655 22,395 15,152 Corporate and shared support services ( 14,152 ) ( 16,774 ) ( 44,486 ) ( 63,119 ) Total Operating loss $ ( 1,258 ) $ ( 1,729 ) $ ( 4,408 ) $ ( 34,929 ) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (unaudited) (unaudited) (unaudited) (unaudited) Capital expenditures 1 : IHT $ 835 $ 2,557 $ 3,857 $ 10,654 MS 988 1,427 2,263 3,861 Corporate and shared support services 10 274 10 331 Total Capital expenditures $ 1,833 $ 4,258 $ 6,130 $ 14,846 ____________ 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (unaudited) (unaudited) (unaudited) (unaudited) Depreciation and amortization: IHT $ 3,148 $ 3,022 $ 9,390 $ 9,372 MS 4,656 4,704 14,113 14,222 Corporate and shared support services 1,592 1,261 4,978 3,856 Total Depreciation and amortization $ 9,396 $ 8,987 $ 28,481 $ 27,450 Separate measures of our assets by operating segment are not produced or utilized by management to evaluate segment performance. A geographic breakdown of our revenues for the three and nine months ended September 30, 2023 and 2022 is as 22 Table of Contents follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (unaudited) (unaudited) (unaudited) (unaudited) Total Revenues 1 United States $ 148,635 $ 158,613 $ 466,440 $ 453,000 Canada 19,451 25,531 67,847 77,677 Europe 17,739 15,837 55,801 46,296 Other foreign countries 20,890 18,358 58,396 51,944 Total $ 206,715 $ 218,339 $ 648,484 $ 628,917 ______________ 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 November 9, 2023, the filing date of this Quarterly Report on Form 10-Q, management evaluated the existence of events occurring subsequent to the quarter ended September 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 . 23 Table of Contents