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Item 8. Financial Statements and Supplementary Data

2024-03-07 compared with 2023-03-14 · 526 added, 801 removed, 929 unchanged (59% of the section changed)

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FINANCIAL TABLE OF CONTENTS

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2023 and 2022

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Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2022 and 2021

Consolidated Statements of S h a r e h o l d e r s ’ Equity for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

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We have audited the accompanying consolidated balance sheets of Team, Inc.

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with U.S.

and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

generally accepted accounting principles.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company’s current liquidity position and projected noncompliance with financial covenants raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of accounting for income taxes

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Prepaid expenses and other current assets 65,992 65,679

Current assets associated with discontinued operations — 83,096

Total current assets 322,101 347,553

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Other assets, net 7,847 6,351

Deferred tax asset 375 673

Non-current deferred tax asset 1,225 375

Total assets $ 565,744 $ 616,645

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Income tax payable 1,016 2,257

Current liabilities associated with discontinued operations — 16,396

Total current liabilities 174,938 448,864

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Commitments and contingencies

Shareholders' Equity:

Preferred stock, 500,000 shares authorized, no ne issued

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Accumulated other comprehensive loss ( 36,932 ) ( 38,997 )

Total equity 117,760 51,867

Total liabilities and equity $ 616,645 $ 706,544

Total shareholders' equity 45,596 117,760

Total liabilities and shareholders' equity $ 565,744 $ 616,645

See accompanying notes to consolidated financial statements.

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Selling, general and administrative expenses 224,430 241,397

Restructuring and other related charges, net (see Note 19) 16 2,535

Goodwill impairment charge (see Note 9) — 55,837

Restructuring and other related charges, net

Operating loss ( 13,276 ) ( 39,802 )

Interest expense, net ( 55,181 ) ( 85,052 )

Loss on warrants — ( 59 )

Loss on debt extinguishment ( 1,585 ) ( 30,083 )

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Discontinued operations:

Net income (loss) from discontinued operations, net of income tax 220,166 ( 1,174 )

Net income from discontinued operations, net of income tax — 220,166

Net income (loss) $ ( 75,722 ) $ 70,079

Basic and diluted net income (loss) per common share:

Basic net income (loss) per common share:

Loss from continuing operations ( 17.32 ) ( 35.85 )

Income (loss) from discontinued operations 52.58 ( 0.38 )

Income from discontinued operations — 52.58

Total $ ( 17.32 ) $ 16.73

Weighted-average number of shares outstanding:

Basic and diluted 4,187 3,098

Basic 4,371 4,187

See accompanying notes to consolidated financial statements.

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Defined benefit pension plans:

Net actuarial (loss) gain arising during period ( 6,632 ) 4,048

Settlement cost during period — 67

Net actuarial loss arising during period

( 883 ) ( 6,632 )

Amortization of prior service cost 31 31

Other comprehensive (loss) income, before tax ( 13,190 ) 1,935

Amortization of net actuarial loss

Other comprehensive income (loss), before tax 2,439 ( 13,190 )

Tax benefit (provision) attributable to other comprehensive income (loss) ( 374 ) 925

Other comprehensive (loss) income, net of tax ( 12,265 ) 946

Other comprehensive income (loss), net of tax 2,065 ( 12,265 )

Total comprehensive income (loss) $ ( 73,657 ) $ 57,814

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Comprehensive

income (loss)

Shareholders’

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

Net loss — — — ( 186,019 ) — ( 186,019 )

— — — 70,079 — 70,079

Foreign currency translation adjustment, net of tax — — — — ( 6,589 ) ( 6,589 )

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Net settlement of vested stock awards 1,221 367 9,289 — — 9,656

Issuance of warrant, net — — 15,564 — — 15,564

Effect of reverse stock split ( 28,092 ) ( 8,423 ) 8,423 — — —

Accounting pronouncement adjustment — — ( 5,650 ) 3,826 — ( 1,824 )

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

Net income — — — 70,079 — 70,079

— — — ( 75,722 ) — ( 75,722 )

Foreign currency translation adjustment, net of tax — — — — 3,028 3,028

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Net settlement of vested stock awards 72 12 ( 109 ) — — ( 97 )

Accounting pronouncement adjustment — — ( 5,650 ) 3,825 — ( 1,825 )

Balance as of December 31, 2023 4,415 $ 1,315 $ 458,614 $ ( 377,401 ) $ ( 36,932 ) $ 45,596

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Loss on debt extinguishment 1,585 17,719

Loss on Warrants — 59

Write-off of software cost 629 —

Amortization of debt issuance costs and debt discounts 18,725 35,509

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Gain on asset disposal ( 231 ) ( 4,721 )

Goodwill impairment charges — 64,632

Non-cash compensation cost 1,590 247

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Borrowings under Corre Delayed Draw Term Loan, gross — 35,000

Borrowings under Subordinated Term Loan, gross — 50,000

Borrowings under 2020 ABL Credit Facility, net — 62,000

Borrowings under Corre Incremental Term Loan 47,500 —

Payments under Corre Incremental Term Loan

Repayments of Convertible Debt ( 41,161 ) —

Borrowings under ME/RE Loans 27,398 —

Payments under ME/RE Loans ( 1,575 ) —

Payments under APSC Term Loan, gross ( 37,092 ) ( 224,946 )

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Other ( 1,047 ) ( 887 )

Net cash (used in) provided by financing activities ( 191,971 ) 91,850

Net cash used in financing activities

( 1,899 ) ( 191,971 )

Effect of exchange rate changes on cash 253 ( 690 )

Net increase (decrease) in cash and cash equivalents ( 7,240 ) 40,729

Net decrease in cash and cash equivalents

( 22,648 ) ( 7,240 )

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

Cash and cash equivalents at end of period $ 35,427 $ 58,075

1 Consolidated statement of cash flows for the year ended December 31, 2022 includes cash flows from discontinued operations.

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Supplemental disclosure of cash flow information:

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Income taxes $ 3,921 $ ( 553 )

1 Consolidated statements of cash flows include discontinued operations.

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Cash and cash equivalents from continuing operations $ 58,075 $ 55,193

Cash and cash equivalents from discontinued operations — 10,122

Total $ 58,075 $ 65,315

See accompanying notes to consolidated financial statements.

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Unless otherwise indicated, the terms “we”, “our” and “us” are used in this report to refer to either Team, Inc., to one or more of our consolidated subsidiaries, or to all of them taken as a whole.

We are a global leading provider of integrated, digitally-enabled asset performance assurance and optimization solutions.

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

We deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability, and operational efficiency for our clients’ most critical assets.

Prior to the sale of our Quest Integrity segment as discussed below, we conducted operations in three segments:

Inspection and Heat Treating, Mechanical Services and Quest Integrity.

We currently conduct operations in two segments.

We conduct operations in two segments:

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

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

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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:

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

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

On November 1, 2022, we completed the sale of all of the issued and outstanding equity interests of our wholly-owned subsidiary, TQ Acquisition Inc., a Texas corporation, to Baker Hughes Holdings LLC for an aggregate purchase price of approximately $ 279.0 million, after certain post-closing adjustments pursuant to that certain Equity Purchase Agreement by and among us and Baker Hughes, dated as of August 14, 2022.

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

In connection with the Quest Integrity Transaction, the credit support in the form of guarantees by and liens on assets, as applicable, of TQ Acquisition and its subsidiaries in respect of our existing debt arrangements were released.

We used approximately $ 238.0 million of the net proceeds from the Quest Integrity Transaction to pay down $ 225.0 million of our term loan debt, and certain fees associated with that repayment and related accrued interest, with the remainder reserved for general corporate purposes, thereby reducing our future debt service obligations and leverage, and improving our liquidity.

The criteria for reporting Quest Integrity as a discontinued operation were met as of completion of the Quest Integrity sale transaction and, as such, all periods presented in this Form 10-K have been recast to present Quest Integrity as a discontinued operation.

Unless otherwise specified, the financial information and discussion in this Form 10-K are based on our continuing operations (IHT and MS segments) and exclude any results of our discontinued operations (Quest Integrity).

Refer to Note 2 - Discontinued Operations for additional details.

IHT provides conventional and advanced non-destructive testing (“NDT”) services primarily for the process, pipeline and power sectors, pipeline integrity management services, and field heat treating services, as well as associated engineering and condition assessment services.

IHT provides conventional and advanced non-destructive testing services primarily for the process, pipeline and power sectors, pipeline integrity management services, and field heat treating services, as well as associated engineering and condition assessment services.

These services can be offered while facilities are running (on-stream), during facility turnarounds or during new construction or expansion activities.

In addition, IHT provides comprehensive non-destructive testing services and metallurgical and chemical processing services to the aerospace industry, covering a range of components including finished machined and in-service components.

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

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and valve management solutions.

Prior to its sale, Quest Integrity provided integrity and reliability management solutions for the process, pipeline and power sectors.

These solutions encompass two broadly-defined disciplines:

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

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

As referenced previously, Quest Integrity is now reported as discontinued operations.

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We market our services to companies in a diverse array of heavy industries which include:

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

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

• 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);

• 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 (valves, terminals and storage, and pipeline);

• Public Infrastructure (construction and building, roads, dams, amusement parks, bridges, ports, and railways);

• Aerospace and Defense.

Under the Coronavirus Aid, Relief and Economic Security Act we qualified to defer the employer portion of social security taxes incurred through the end of calendar year 2020.

We deferred total employer payroll taxes of $ 14.1 million.

We paid $ 7.0 million of the deferred payroll taxes in January 2022 and transferred $ 0.5 million of such obligation as part of the Quest Integrity sale transaction to the buyer.

The remaining amount of $ 6.6 million, outstanding as of December 31, 2022, was paid in January 2023.

Additionally, other governments in jurisdictions where we operate passed legislation to provide employers with relief programs, which include wage subsidy grants, deferral of certain payroll related expenses and tax payments and other benefits.

We elected to treat qualified government subsidies from Canada and other governments as offsets to the related expenses.

As these other governments review compliance with their relief programs, we may be required to return a portion of these funds.

We recognized $ 0.6 million and $ 0.1 million as a reduction to operating expenses and selling, general and administrative expenses, respectively, during the twelve months ended December 31, 2022.

We recognized $ 6.2 million and $ 1.5 million as a reduction to operating expenses and selling, general and administrative expenses, respectively, during the twelve months ended December 31, 2021.

We also deferred certain payroll related expenses and tax payments under other foreign government programs.

We had $ 2.1 million and $ 3.2 million as of December 31, 2022 and 2021, respectively, related to these foreign deferrals.

Reverse Stock Split .

On November 2, 2022, the Company’s shareholders approved a proposal to authorize the Board to implement a reverse stock split of the outstanding shares of the Company’s common stock at a ratio of one-for-ten.

The Board approved the Reverse Stock Split on December 9, 2022, which became effective on December 21, 2022.

As of the effective date, every ten issued and outstanding shares of common stock was converted into one share of common stock, The common stock began trading on a reverse split-adjusted basis on the NYSE at the opening of trading on December 22, 2022.

All issued and outstanding common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented.

In addition, a proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the exercise and/or vesting of all outstanding stock options, restricted stock units and warrants to purchase shares of common stock.

A proportionate adjustment was also made to the number of shares reserved for issuance pursuant to the Company’s equity incentive compensation plans to reflect the Reverse Stock Split.

Any fraction of a share of common stock that was created as a result of the Reverse Stock Split was rounded up to the next whole share.

The common stock par value and additional paid-in-capital line items contained in the financial statements were adjusted to account for the Reverse Stock Split for all periods presented.

Discontinued Operations.

On November 1, 2022, we completed the sale of all of the issued and outstanding equity interests of our wholly-owned subsidiary, TQ Acquisition Inc., a Texas corporation (“TQ Acquisition”), to Baker Hughes Holdings LLC (“Baker Hughes”) for an aggregate purchase price of approximately $ 279.0 million, after certain post-closing adjustments (the “Quest Integrity Transaction”), pursuant to that certain Equity Purchase Agreement by and among us and Baker Hughes, dated as of August 14, 2022 (the “Sale Agreement”).

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

The criteria for reporting Quest Integrity as a discontinued operation were met during the third quarter of 2022 pursuant to the Sale Agreement and, as such, the prior year amounts related to Quest Integrity are presented as discontinued operations.

Refer to Note 2 - Discontinued Operations for additional details.

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Basis for presentation.

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

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

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Liquidity and Going Concern.

These 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 consolidated financial statements.

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

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

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

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

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

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

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

Actual results could vary significantly from those projections.

We do not believe, based on the Company’s forecast, that current working capital, cash flow from operations, expected availability under our existing credit agreements and capital expenditure financing is sufficient to fund the operations, maintain compliance with our debt covenants (as amended), and satisfy the Company’s obligations, specifically with respect to the Notes described below, as they come due within one year after the date of issuance of these consolidated financial statements.

Our Notes are due on August 1, 2023 and had a principal balance of $ 41.2 million as of December 31, 2022 following the exchanged transactions described in Note 12 - Debt.

We are exploring alternatives to reduce or refinance the Notes outstanding balance, including extending their maturity as well as other alternatives.

There is no assurance that we will be able to execute a reduction, extension, or refinancing of the Notes or that the terms of any replacement financing would be as favorable as the terms of the Notes prior to the maturity date.

Under the terms of our amended financing arrangements that were entered into during 2022, the Maturity Reserve Trigger Date (as defined in the 2022 ABL Credit Agreement), and the Maturity Trigger Date (as defined in the Term Loan Credit Agreement) collectively referred to as the “Trigger Date” is June 17, 2023, see Note 12 - Debt for additional information.

Therefore, the Notes balance must be paid down to less than $ 10.0 million by June 17, 2023.

On October 4, 2022, we entered into Amendment No.

8 (“Corre Amendment 8”) to the Subordinated Term Loan Credit Agreement.

On November 1, 2022, we completed the Quest Integrity Transaction with Baker Hughes, as discussed above, for an aggregate purchase price of approximately $ 279.0 million, after certain post-closing adjustments, in accordance with the Sale Agreement.

On November 4, 2022, we entered into Amendment No.

9 (“Term Loan Amendment No.

9”) to the Term Loan Credit Agreement and Amendment No.

10 (“Corre Amendment 10”) to the Subordinated Term Loan Credit Agreement.

Refer to Note 12 - Debt for more information on the terms, maturity dates and amendments to our debt that may affect our future liquidity.

As of December 31, 2022, we are in compliance with our debt covenants.

Without the execution of a refinancing transaction, an agreement to extend the Notes maturity date, and/or amendments to our existing debt agreements there is a risk that the Company could be, among other things, unable to make principal payments on the Notes to satisfy the Trigger Date provision or will be unable to pay off the Notes when they become due on August 1, 2023.

The failure to pay down the Notes to less than $ 10.0 million would (i) trigger the early maturity of our Term Loan Credit Agreement pursuant to the Trigger Date concept, and (ii) permit the administrative agent under the 2022 ABL Credit Agreement to implement a borrowing base reserve in an amount equal to the outstanding principal amount of the Notes on such date.

A required repayment of the Term Loan Credit Agreement in accordance with the Trigger Date concept would in turn trigger a requirement to repay the Subordinated Term Loans pursuant to the Subordinated Term Loan Credit Agreement 14 days after repayment in full of the Term Loan Credit Agreement.

There is no assurance that we would be able to make such payments, and failure to make such payments would result in events of default under the applicable credit facility and associated cross defaults under the Company’s other debt instruments.

Failure to pay the Notes off at the maturity date on August 1, 2023 will result in an event of default under the Notes and the associated cross defaults noted above under the Company’s other debt instruments.

Refer to Note 12 - Debt for more information on the terms and maturity dates of our debt that may affect our future liquidity.

Our ability to maintain compliance with the financial covenants contained in the 2022 ABL Credit Agreement, the Term Loan Credit Agreement and the Subordinated Term Loan Credit Agreement is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties.

The lingering effects of COVID-19, threat of recession and resulting economic repercussions could have a significant adverse effect on our financial position and business condition, as well as our clients and suppliers.

Additionally, these events may, among other factors, impact our ability to generate cash flows from operations, access the capital markets on acceptable terms or at all, and affect our future need or ability to borrow under our 2022 ABL Credit Facility.

In addition to our current sources of funding our business,

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

Political economic repercussions could have a broad range of effects on our liquidity sources and will depend on future developments and cannot be predicted at this time.

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

We are evaluating and will continue to explore strategic alternatives to a refinancing transaction or the reduction of the debt, including negotiating amendments to our credit facilities and the financial covenants contained therein, the sale of assets, or other alternative financing transactions.

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

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

The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

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

Use of estimates.

Our accounting policies conform to Generally Accepted Accounting Principles (“GAAP”) in the United States.

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

Our accounting policies conform to GAAP in the United States.

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

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

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Our most significant accounting policies are described below.

Revenue recognition .

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

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

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

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

We act as a principal and have performance obligations to provide the service itself or oversee the services provided by any subcontractors.

Revenue is measured based on consideration specified in a customer contract and excludes amounts collected on behalf of third parties, such as taxes assessed by governmental authorities.

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

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

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

Billings under certain fixed-price contracts may be based upon the achievement of specified milestones, while some arrangements may require advance customer payment.

Our contracts do not include significant financing components since the contracts typically span less than one year.

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

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

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

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

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

For our fixed price

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contracts, as they are short term in nature, we recognize revenue as jobs are completed or costs are incurred.

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

The timing of revenue recognition, billings, and cash collections results in the recognition of trade accounts receivable, contract assets and contract liabilities on the 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 - Accounts Receivable for additional information on our trade receivables, unbilled revenue and the allowance for credit losses.

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

Amounts may not exceed their net realizable value.

Contract assets are included in “Prepaid expenses and other current assets” on our consolidated balance sheet.

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

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

We did not have a material amount of contract assets or contract liabilities as of December 31, 2023 and 2022.

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

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

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

Assets recognized for costs to fulfill a contract are included in the “Prepaid expenses and other current assets” line of the consolidated balance sheet and were not material as of December 31, 2023 and 2022.

Such assets are recognized as expenses as we transfer the related goods or services to the customer and recognize the related revenue.

All other costs to fulfill a contract are expensed as incurred.

Fair value of financial instruments .

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

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

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

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

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

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

For additional information regarding our pension assets, see Note 15 - Employee Benefit plan .

The fair value of our 2022 ABL Credit Facility and Term Loans are representative of the carrying value based upon the variable terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the debt.

The fair value of the Notes as of December 31, 2022 and 2021 was $ 37.5 million and $ 84.0 million, respectively, (inclusive of the fair value of the conversion option) and are a “Level 2” measurement, determined based on the observed trading price of these instruments.

For additional information regarding our 2022 ABL Credit Facility, Term Loan, Subordinated Term Loan and Notes, see Note 12 - Debt .

The fair value of our 2022 ABL Credit Facility, ME/RE Loans, and Term Loans under the A&R Term Loan Credit Agreement are representative of the carrying value based upon the variable terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the debt.

The Notes were fully paid off on August 1, 2023, however, 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 are a “Level 2” measurement, determined based on the observed trading price of these instruments.

For additional information regarding our debt obligations, see Note 11 - Debt .

Cash and cash equivalents .

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

Inventory quantities on hand are reviewed periodically and carrying value is reduced to net realizable

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value for inventories for which their cost exceeds their utility.

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

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

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Property, plant and equipment.

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Automobiles 2 - 5 years

Goodwill and intangible assets.

Goodwill and intangible assets acquired in a business combination determined to have an indefinite useful life are not amortized, but are instead tested for impairment, and assessed for potential triggering events, at least annually in accordance with the provisions of the ASC 350 Intangibles—Goodwill and Other (“ASC 350”).

Intangible assets.

Intangible assets with finite lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with ASC 360-10 Impairment or Disposal of Long-Lived Assets (“ASC 360”).

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

If the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

As of December 31, 2022 and December 31, 2021, there was no goodwill on the Company’s balance sheets related to continuing operations.

The only segment with goodwill was Quest Integrity, which is part of discontinued operations.

During the year ended December 31, 2021, our assessment of qualitative indicators associated with our interim and annual goodwill impairment tests indicated a potential impairment existed.

The next step of goodwill assessment determined that an impairment existed as the carrying value of the MS segment exceeded its fair value.

As a result, we recorded goodwill impairment of $ 55.8 million during the year ended December 31, 2021.

We also recorded goodwill impairment of $ 8.8 million on our discontinued operations during the year ended December 31, 2021.

There was no goodwill impairment recorded during or as of December 31, 2022.

Impairment of Long-lived Assets.

The Company reviews its property and equipment, intangible assets subject to amortization and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset class may not be recoverable.

We review our property and equipment, intangible assets subject to amortization and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset class may not be recoverable.

Indicators of potential impairment include:

an adverse change in legal factors or in the business climate that could affect the value of the asset;

an adverse change in legal factors or in the business climate that could affect the value of the asset in that asset class;

an adverse change in the extent or manner in which the asset is used or is expected to be used, or in its physical condition;

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If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset.

If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted cash flows.

If the expected undiscounted cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted cash flows.

There were no impairment charges in 2023 or 2022.

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

Evidence used includes the reversal of existing taxable

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

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

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

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

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

Our valuation allowance primarily relates to net operating loss carryforwards.

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

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

To the extent interest and penalties may be assessed by taxing authorities on any related underpayment of income tax, such amounts have been accrued

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and are classified as a component of income tax expense (benefit) in our consolidated statements of operations.

As of December 31, 2023, our gross unrecognized tax benefits, excluding penalties and interest related to uncertain tax positions, were $ 1.5 million.

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In accordance with ASC 450 Contingencies (“ASC 450”), we record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

We review our loss contingencies on an ongoing basis to ensure that we have appropriate reserves recorded on our balance sheet.

These reserves are based on historical experience with claims incurred but not received, estimates and judgments made by management, applicable insurance coverage for litigation matters, and are adjusted as circumstances warrant.

For workers’ compensation, our self-insured retention is $ 1.0 million and our automobile liability self-insured retention is currently $ 2.0 million per occurrence.

For professional liability claims, our self-insured retention is $ 2.0 million.

For general liability claims, we have a self-insured retention of $ 1.0 million and a deductible of $ 4.0 million per occurrence.

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

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

For medical claims, our self-insured retention is $ 350,000 per individual claimant determined on an annual basis.

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

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

We review our loss contingencies on an ongoing basis to ensure that we have appropriate reserves recorded on our consolidated balance sheet.

These reserves are based on historical experience with claims incurred but not received, estimates and judgments made by us, applicable insurance coverage for litigation matters, and are adjusted as circumstances warrant.

For workers’ compensation, our retention is $ 1.0 million and our automobile liability retention is currently $ 2.0 million.

For professional liability claims, our retention is $ 2.0 million.

For general liability claims, we have a retention of $ 6.0 million.

For environmental liability claims, our retention is $ 1.0 million.

We maintain insurance for claims that exceed such retention limits.

In 2023, our health care plan for U.S.

employees was self-funded and administered by a third party.

We purchased appropriate stop-loss coverage for self-funded insurance in 2023.

We moved our U.S.

employees to a fully funded healthcare policy in 2024 and no longer self-fund our health care plan for U.S.

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

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

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

Allowance for credit losses.

Accounts receivable and Allowance for credit losses.

In the ordinary course of business, a portion of our accounts receivable are not collected due to billing disputes, customer bankruptcies or other various reasons.

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

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

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

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

This applies to financial assets measured at amortized cost, including trade and unbilled accounts receivable, and requires immediate recognition of lifetime expected credit losses.

Significant factors that affect the expected collectability of our receivables include macroeconomic trends and forecasts in the oil and gas, refining, power, and petrochemical markets and changes in our results of operations and forecasts.

For unbilled receivables, we consider them as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate.

We have identified the following factors that primarily impact the collectability of our receivables and therefore determine the pools utilized to calculate expected credit losses:

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

For trade receivables, customers typically are provided with payment due date terms in the range of 30 to 90 days upon issuance of an invoice.

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

We believe that the historical loss information we have compiled is a reasonable basis on which to determine expected credit losses for trade receivables because the composition of the trade receivables is consistent with that used in developing the historical credit-loss percentages as typically our customers and payment terms do not change significantly.

Generally, the longer a receivable is outstanding the higher the percentage of the outstanding balance is reported as current expected credit losses.

We update the historical loss information for current conditions and reasonable and supportable forecasts that affect the expected collectability of the trade receivable using a loss-rate approach.

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

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

Our forecasted loss rates inherently incorporate expected macroeconomic trends.

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

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

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

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

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

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

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

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

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

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

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

Concentration of credit risk.

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Accounting for Warrants .

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

As of December 31, 2022 and 2021, we had equity-classified warrants that were issued in connection with our APSC Term Loan and Subordinated Term Loan Credit Agreement (see Note 12 - Debt ).

The warrants were accounted for as a component of additional paid-in capital and a debt warrant discount.

The warrant discount was being amortized over the term of the debt.

As of December 31, 2022 and 2021, an unamortized balance of warrant discount amounted to $ 3.3 million and $ 29.2 million, respectively.

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This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance.

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

• Equity-classified warrants issued in connection with our APSC Term Loan (“APSC Warrants”), and

• Equity-classified warrants issued in connection with our Subordinated Term Loan Credit Agreement (“Corre Warrants”).

The warrants were accounted for as a component of additional paid-in capital and a debt warrant discount (See Note 11 - Debt ).

The warrant discount is amortized over the term of the debt.

As of December 31, 2023 and 2022, unamortized balance of warrant discount amounted to $ 0.2 million and $ 3.3 million, respectively.

Earnings (loss) per share.

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

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

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

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

Accordingly, the conversion spread is included in the denominator for the computation of diluted earnings per common share using the treasury stock method and the numerator is adjusted for any recorded gain or loss, net of tax, on the embedded derivative associated with the conversion feature.

Diluted earnings (loss) per share is computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations or net income (loss) by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, (2) the dilutive effect of the assumed exercise of share-based compensation using the treasury stock method and (3) for 2022, the dilutive effect of the assumed conversion of our Notes under the treasury stock method.

The Notes were fully paid off on August 1, 2023.

For the years ended December 31, 2023, and 2022, all outstanding share-based compensation awards were excluded from the calculation of diluted loss per share because their inclusion would be antidilutive due to the loss from continuing operations in those periods.

Also, the effect of our Notes was excluded from the calculation of diluted earnings (loss) per share since the conversion price exceeded the average price of our common stock during the applicable periods.

Also, for 2022, the effect of our Notes was excluded from the calculation of diluted earnings (loss) per share since the conversion price exceeded the average price of our common stock during the applicable periods.

For information on our Notes and our share-based compensation awards, refer to Note 11 - Debt and Note 13 - Share-Based Compensation , respectively.

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

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

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

dollar, assets and liabilities are translated at the exchange rates as of end of the period and revenues and expenses are translated at period average exchange rates.

Translation adjustments for the asset and liability accounts are included as a separate component of accumulated other comprehensive income (loss) in the consolidated statements of shareholders’ equity.

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

We have historically executed a foreign currency hedging program to mitigate the foreign currency risk in countries where we have significant assets and liabilities denominated in currencies other than the functional currency.

Our hedging program ended in October 2021.

The impact from the foreign currency swap contracts was not material for the year ended December 31, 2022 or 2021.

Defined benefit pension plans .

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

These rates are reviewed annually and adjusted to reflect current conditions.

These rates are determined based on reference to yields.

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

These rates are reviewed annually and adjusted to reflect current conditions and are determined based on reference to yields.

The expected return on plan assets is derived from detailed periodic studies, which

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include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks (standard deviations) and correlations of returns among the asset classes that comprise the plans’ asset mix.

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

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

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Newly Adopted Accounting Standards

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

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

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

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

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

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

Accounting Standards Not Yet Adopted

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

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On December 21, 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848) Deferral of the Sunset Date of Topic 848 which defers the sunset date of ASC 848, Reference Rate Reform , from December 31, 2022, to December 31, 2024.

While we are currently determining whether we will elect the optional expedients, we do not expect our adoption of these ASU’s to have a significant impact on our consolidated financial position, results of operations, and cash flows.

We adopted ASU 2020-04 during the year ended December 31, 2023.

The adoption of ASU 2020-04 did not have a material impact on our Consolidated Financial Statements.

Accounting Standards Not Yet Adopted

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”).

ASU 2023-09 requires entities to provide additional information in the rate reconciliation and additional disclosures about income taxes paid.

This guidance requires public entities to disclose in their rate reconciliation table additional categories of information about federal, state, and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold.

ASU 2023-09 is effective to all annual periods beginning after December 31, 2024, and is applied prospectively, while retrospective application is permitted.

We are currently evaluating the effect this guidance will have on our tax disclosures.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280) :

Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

ASU 2023-07 requires enhanced disclosures regarding significant segment expenses and other segment items.

The guidance requires public entities to provide in interim periods all disclosures about a reportable segment's profit or loss and assets that are currently required annually.

ASU 2023-07 is effective to all fiscal years beginning after December 15, 2023 and for interim periods beginning after December 15, 2024, and is applied retrospectively to all periods presented.

We are evaluating the effect this guidance will have on our segment disclosures .

DISCONTINUED OPERATIONS

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Following the completion of the Quest Integrity Transaction, we now operate in two segments, IHT and MS.

Refer to Note 1 – Summary of Significant Accounting Policies and Practices for additional details regarding the Quest Integrity Transaction.

Our consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations.

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Twelve Months Ended

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

$ 101,418 $ 80,356

Operating expenses

( 45,044 ) ( 43,616 )

Selling, general and administrative expenses

( 32,230 ) ( 26,663 )

Goodwill impairment charge — ( 8,795 )

Restructuring and other related charges, net

Interest expense, net

( 108 ) ( 230 )

Other (expense) income

( 4,390 ) 591

Other expense, net

Income before income taxes

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Provision for income taxes

( 2,831 ) ( 2,436 )

Net income (loss) from discontinued operations

$ 220,166 $ ( 1,174 )

The table below represents the reconciliation of the major classes of assets and liabilities of discontinued operations to amounts presented separately in the consolidated balance sheet as of December 31, 2021 (in thousands).

We completed the sale of Quest Integrity on November 1, 2022, as a result there were no assets or liabilities in discontinued operations as of December 31, 2022.

Carrying amount of major classes of assets included as part of discontinued operations:

Cash and cash equivalents $ 10,122

Accounts receivable, net

Prepaid expenses and other current assets

Property, plant and equipment, net

Goodwill and intangible assets, net

Other classes of assets that are not major

Total assets associated with discontinued operations

Carrying amounts of major classes of liabilities included as part of discontinued operations:

Accounts payable $ 2,125

Income tax payable 1,939

Other accrued liabilities 9,363

Operating lease obligations 2,368

Other classes of liabilities that are not major 601

Total liabilities associated with discontinued operations $ 16,396

The assets and liabilities in discontinued operations are measured at the lower of their carrying value and fair value less cost to sell.

During the years ended December 31, 2022 and December 31, 2021, it was not necessary to write-down any assets or liabilities attributable to the disposal group in discontinued operations to fair value, less costs to sell.

Quest Integrity had $ 0.1 million of accrued capital expenditures as of December 31, 2021, which is excluded from the consolidated statements of cash flows until paid.

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Net income from discontinued operations

We completed the sale of Quest Integrity on November 1, 2022.

As a result, there were no assets or liabilities in discontinued operations as of December 31, 2023 or 2022.

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

Twelve Months Ended

Cash flows provided by operating activities of discontinued operations:

Depreciation and amortization

$ 1,141 $ 2,616

Cash flows provided by investing activities of discontinued operations:

Capital expenditures $ 4,146

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

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

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

We act as a principal and have performance obligations to provide the service itself or oversee the services provided by any subcontractors.

Revenue is measured based on consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties, such as taxes assessed by governmental authorities.

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

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

Billings under certain fixed-price contracts may be based upon the achievement of specified milestones, while some arrangements may require advance customer payment.

Our contracts do not include significant financing components since the contracts typically span less than one year.

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

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

For our fixed price contracts, as they are short term in nature, we recognize revenue as jobs are completed or costs are incurred.

Disaggregation of revenue.

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For additional information on our reportable operating segments and geographic information, refer to Note 17 - 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 consolidated balance sheets.

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

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

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

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

Amounts may not exceed their net realizable value.

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

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

Contract assets and contract liabilities are generally classified as current.

The following table provides information about trade accounts receivable, contract assets and contract liabilities as of December 31, 2022 and 2021 (in thousands):

Trade accounts receivable, net 1

$ 186,689 $ 168,273

Contract assets 2

Contract liabilities 3

_________________

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

See Note 4 - Receivables for details.

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

3 Included in the “Other accrued liabilities” line of the consolidated balance sheet.

Due to the short-term nature of our contracts, contract liability balances as of the end of any period are generally recognized as revenue in the following quarter.

Accordingly, essentially all of the contract liability balance as of December 31, 2021 was recognized as revenue during the year ended December 31, 2022.

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Contract costs .

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

Assets recognized for costs to fulfill a contract are included in the “Prepaid expenses and other current assets” line of the consolidated balance sheets and were not material as of December 31, 2022 and 2021.

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, we have elected not to disclose information about remaining performance obligations where (i) the performance obligation is part of a contract that has an original expected duration of one year or less or (ii) when we recognize revenue from the satisfaction of the performance obligation in accordance with the right-to-invoice practical expedient.

As 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 December 31, 2023 and 2022.

ACCOUNTS RECEIVABLE

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

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Accounts receivable, net $ 181,185 $ 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.

We have identified the following factors that primarily impact the collectability of our receivables and therefore determine the pools utilized to calculate expected credit losses:

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

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

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

Generally the longer a receivable is outstanding the higher the percentage of the outstanding balance is reported as current expected credit losses.