Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to the accompanying consolidated financial statements and notes to help provide an understanding of our financial condition, changes in financial condition, and results of operations. The following should be read in conjunction with Item 1 “Business,” Item 1A “Risk Factors,” Item 2 “Properties,” and Item 8 “Consolidated Financial Statements and Supplementary Data,” included in this Annual Report on Form 10-K.
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future developments and/or otherwise are not statements of historical fact. See Item 1 at the beginning of this Annual Report.
Overview of Business
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 involving: 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 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.
Significant Factors Impacting Results and Recent Developments
Our revenues, gross margins and other results of operations can be influenced by a variety of factors in any given period, including those described in Cautionary Note Regarding Forward-Looking Statements above and Part 1, Item 1A. “Risk Factors” included in this report and have caused fluctuations in our results in the past and are expected to cause fluctuations in our results in the future. Additional information with respect to certain factors are described below.
Financing Transactions. During 2023, we entered into an amendment and restatement of that certain subordinated term loan credit agreement dated as of November 9, 2021 (as amended and restated, the “A&R Term Loan Credit Agreement”) among us, as borrower, the guarantors party thereto, the lenders from time to time party thereto and Cantor Fitzgerald Security, as agent; we entered into ABL Amendment No. 3; we paid off the remaining balance on the APSC Term Loan (defined below) and our 5.00% Convertible Senior Notes due 2023 (the “Notes”); and entered into an amendment of the Substitute Insurance Reimbursement Facility Agreement. See Note 11 - Debt to the consolidated financial statements for additional details related to these transactions.
Market Conditions Update . Fluctuations in oil and gas prices continued during 2023 with an overall decline in prices as compared to 2022. Oil and gas price volatility may impact the current and future spending on our services by our clients. Although oil and gas prices are expected to be relatively stable in 2024 given the current balance between oil and gas supply and demand, the future impacts to our business from potentially higher interest rates, persistent global and domestic inflation, geopolitical unrest especially in the Middle East, and volatility in global supply chains cannot be predicted. See Item 1A “Risk Factors” in this Annual Report on Form 10-K for additional information.
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Results of Operations
The following is a comparison of our results of operations for the twelve months ended December 31, 2023 and December 31, 2022.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
The following table sets forth the components of revenue and operating income (loss) from our operations for the twelve months ended December 31, 2023 and 2022 (in thousands):
Twelve Months Ended December 31, Increase
(Decrease)
2023 2022 $ %
Revenues by business segment:
IHT $ 429,559 $ 422,562 $ 6,997 1.7 %
MS 433,056 417,646 15,410 3.7 %
Total revenues $ 862,615 $ 840,208 $ 22,407 2.7 %
Operating income (loss):
IHT 24,220 17,093 7,127 41.7 %
MS 27,759 20,930 6,829 32.6 %
Corporate and shared support services (65,255) (77,825) 12,570 16.2 %
Total operating loss $ (13,276) $ (39,802) $ 26,526 66.6 %
Interest expense, net 55,181 85,052 (29,871) (35.1) %
Loss on debt extinguishment 1,585 30,083 (28,498) (94.7) %
Other expense (income), net 1,102 (8,156) 9,258 (113.5) %
Loss before income taxes $ (71,144) $ (146,781) $ 75,637 51.5 %
Provision for income taxes 4,578 3,306 1,272 38.5 %
Net loss from continuing operations
$ (75,722) $ (150,087) $ 74,365 49.5 %
Revenues. Total revenues increased $22.4 million or 2.7% from the prior year. Total revenue was negatively impacted by $2.3 million of unfavorable foreign exchange rate movements during 2023. IHT revenues increased by $7.0 million or 1.7%, driven by a $10.3 million increase in the U.S., primarily due to higher callout and turnaround activities in various districts due to higher demand for our non-destructive testing services, a $5.1 million increase in Europe due to higher turnaround activity primarily in the Netherlands, and a $1.5 million increase in our aerospace business as our new facility in Cincinnati experienced increased client interest. These increases were partially offset by a $9.9 million decrease in Canada due to reduced scope in certain client turnaround projects. MS revenues increased by $15.4 million or 3.7%, over prior year, driven by a $16.7 million increase across our international regions other than Canada due to higher activity related to leak repair, machining and bolting services, and hot tapping services primarily in the United Kingdom and Europe. MS revenue in the U.S. increased by $1.1 million, these increases were offset by decreases in valve sales and non-repeating turnaround work in Canada of $1.4 million, and $1.0 million, respectively.
Operating income (loss) . Overall operating loss decreased by $26.5 million to a loss of $13.3 million in 2023 as compared to a loss of $39.8 million in the prior year. IHT’s operating income increased by $7.1 million, primarily driven by higher activity as described above. MS operating income increased by $6.8 million year over year to $27.8 million for 2023, mainly due to increased activity levels from U.S. and international operations; partially offset by a decrease in operating income from our valve business. Corporate operating loss decreased by $12.6 million year over year, mainly due to lower personnel and professional costs in the current year as compared to prior year and lower overall costs due to our ongoing cost reduction efforts. The impact of our cost reduction efforts has been partially offset by continued cost inflation in several areas across all segments, such as raw materials, transportation, and labor costs.
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Operating loss for the current year includes net expenses totaling $16.3 million that we do not believe are indicative of our core operating activities, while the same period in the prior year included $20.4 million of such items.
The detail of operating income (loss) excluding non-core expenses is below (unaudited) (in thousands):
Twelve Months Ended December 31, Increase
(Decrease)
2023 2022 $ %
Operating loss $ (13,276) $ (39,802) $ 26,526 66.6 %
Professional fees and other 9,121 13,915 (4,794) (34.5) %
Legal costs 5,635 2,571 3,064 119.2 %
Severance charges, net 1,564 3,961 (2,397) (60.5) %
Total non-core expenses 16,320 20,447 (4,127) (20.2) %
Total operating income (loss), excluding non-core expenses $ 3,044 $ (19,355) $ 22,399 115.7 %
Excluding the impact of these identified non-core expenses in both periods, operating loss decreased by $22.4 million from a loss of $19.4 million to income of $3.0 million. See our non-GAAP reconciliation for additional details of our non-core expenses.
Interest expense, net . Interest expense for 2023 was $55.2 million, a decrease of $29.9 million compared to the prior year. The decrease was primarily attributable to lower interest expense and amortization of debt issuance costs on our APSC Term Loan in 2023 due to the pay down of $225.0 million of the balance in November 2022, full payoff of the remaining balance in June 2023, payoff of the Notes in August 2023, as well as decrease in accelerated amortization due to the “Maturity Reserve Trigger Date” provision that was previously applicable. These effects were partially offset by a year over year increase in cash interest on the 2022 ABL Credit Facility due to higher balances outstanding related to the June 2023 Refinancing and an increase in the Secured Overnight Financing Rate (“SOFR”) rate, and the increase in amounts outstanding and paid-in-kind (noncash) (“PIK”) interest on the Uptiered Loan / Subordinated Term Loan and the Incremental Term Loan.
Cash interest paid for the years ended December 31, 2023 and 2022 amounted to $19.5 million and $29.2 million, respectively.
Loss on debt extinguishment . Loss on debt extinguishment for the year ended December 31, 2023 was $1.6 million compared to $30.1 million in the prior year. Loss on debt extinguishment during 2023 was due to the payoff of the remaining balance of the APSC Term Loan in June 2023 and consisted mainly of an early payment premium. The prior year loss on debt extinguishment was due to the $225.0 million paydown of the APSC Term Loan in November 2022 and consisted of $12.4 million of cash fees and early payment premium and $17.7 million of noncash expense related to the write off of the related unamortized balance of deferred issuance costs and debt and warrant discounts.
Other expense (income), net . Other expense (income), net decreased by $9.3 million, from income of $8.2 million in the prior year to expense of $1.1 million for 2023. The decrease was primarily driven by a $4.6 million gain on disposal of assets and impairment in prior year as compared to current year, and $3.4 million foreign currency transaction gain in the prior year. Foreign currency transaction losses in the current year period reflect the effects of negative fluctuations in the value of the U.S. dollar relative to the foreign currencies to which we have exposure.
Taxes. The provision for income tax was $4.6 million on the pre-tax loss from continuing operations of $71.1 million in the current year compared to the provision for income tax of $3.3 million on pre-tax loss from continuing operations of $146.8 million in the prior year. The effective tax rate was a provision of 6.4% and 2.3% for years ended December 31, 2023 and 2022, respectively.
Non-GAAP Financial Measures and Reconciliations
We use supplemental non-GAAP financial measures which are derived from the consolidated financial information including adjusted net income (loss); adjusted net income (loss) per share; earnings before interest and taxes (“EBIT”); adjusted EBIT; adjusted earnings before interest, taxes, depreciation, and amortization (“adjusted EBITDA”) and free cash flow to supplement financial information presented on a GAAP basis.
We define adjusted net income (loss) and adjusted net income (loss) per share to exclude the following items: non-routine legal costs and settlements, non-routine professional fees, loss on debt extinguishment, certain severance charges, non-routine
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write off of assets and certain other items that we believe are not indicative of core operating activities. Consolidated adjusted EBIT, as defined by us, excludes the costs excluded from adjusted net income (loss) as well as income tax expense (benefit), interest charges, foreign currency (gain) loss, and items of other (income) expense. Consolidated adjusted EBITDA further excludes from consolidated adjusted EBIT depreciation, amortization, and non-cash share-based compensation costs. Segment adjusted EBIT is equal to segment operating income (loss) excluding costs associated with non-routine legal costs and settlements, non-routine professional fees, certain severance charges, and certain other items as determined by us. Segment adjusted EBITDA further excludes from segment adjusted EBIT depreciation, amortization, and non-cash share-based compensation costs. Free cash flow is defined as net cash provided by (used in) operating activities minus capital expenditures.
We believe these non-GAAP financial measures are useful to both management and investors in their analysis of our financial position and results of operations. In particular, adjusted net income (loss), adjusted net income (loss) per share, consolidated adjusted EBIT, and consolidated adjusted EBITDA are meaningful measures of performance which are commonly used by industry analysts, investors, lenders, and rating agencies to analyze operating performance in our industry, perform analytical comparisons, benchmark performance between periods, and measure our performance against externally communicated targets. Our segment adjusted EBIT and segment adjusted EBITDA are also used as a basis for the Chief Operating Decision Maker (Chief Executive Officer) to evaluate the performance of our reportable segments. Free cash flow is used by our management and investors to analyze our ability to service and repay debt and return value directly to stakeholders.
Non-GAAP measures have important limitations as analytical tools because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures and should be read only in conjunction with financial information presented on a GAAP basis. Further, our non-GAAP financial measures may not be comparable to similarly titled measures of other companies who may calculate non-GAAP financial measures differently, limiting the usefulness of those measures for comparative purposes. The liquidity measure of free cash flow does not represent a precise calculation of residual cash flow available for discretionary expenditures. Reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure are presented below.
The following tables set forth the reconciliation of Adjusted Net Income (Loss), EBIT and EBITDA to their most comparable GAAP financial measurements on a consolidated and segmented basis:
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TEAM, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands except per share data)
Three Months Ended
December 31, Twelve Months Ended
December 31,
2023 2022 2023 2022
Adjusted Net Income (Loss):
Net loss from continuing operations
$ (23,124) $ (56,932) $ (75,722) $ (150,087)
Professional fees and other 1
3,301 3,339 9,121 13,915
Legal costs (credit) and other 2
4,785 (700) 5,635 2,571
Severance charges, net 3
387 933 1,564 3,961
Natural disaster insurance recovery 4
— (324) — (1,196)
Loss on debt extinguishment 5
— 30,083 1,585 30,083
Write-off of other assets 6
666 — 1,295 —
Tax impact of adjustments and other net tax items 7
(37) (48) (159) (79)
Adjusted net loss $ (14,022) $ (23,649) $ (56,681) $ (100,832)
Adjusted net loss per common share:
Basic $ (3.18) $ (5.46) $ (12.97) $ (24.08)
Consolidated Adjusted EBIT and Adjusted EBITDA:
Net loss from continuing operations
$ (23,124) $ (56,932) $ (75,722) $ (150,087)
Provision (benefit) for income taxes
558 (876) 4,578 3,306
Interest expense, net 11,682 21,344 55,181 85,052
Foreign currency loss (gain) 1,510 1,263 734 (2,692)
Pension credit 8
(159) (178) (640) (749)
Loss (gain) on equipment sale (5) 69 (291) (4,200)
Loss on debt extinguishment 5
— 30,083 1,585 30,083
Professional fees and other 1
3,301 3,339 9,121 13,915
Legal costs (credit) and other 2
4,785 (700) 5,635 2,571
Severance charges, net 3
387 933 1,564 3,961
Natural disaster insurance recovery 4
— (324) — (1,196)
Write-off of other assets 6
666 — 1,295 —
Consolidated Adjusted EBIT (399) (1,979) 3,040 (20,036)
Depreciation and amortization
Amount included in operating expenses 3,529 3,757 14,555 15,600
Amount included in SG&A expenses 5,862 5,246 23,317 20,853
Total depreciation and amortization 9,391 9,003 37,872 36,453
Non-cash share-based compensation costs 731 (323) 1,590 247
Consolidated Adjusted EBITDA $ 9,723 $ 6,701 $ 42,502 $ 16,664
Free Cash Flow:
Cash provided by (used in) operating activities
$ 11,083 $ (1,152) $ (10,986) $ (51,725)
Capital expenditures (2,997) (3,245) (10,430) (20,544)
Free Cash Flow $ 8,086 $ (4,397) $ (21,416) $ (72,269)
____________________________________
1 The three and twelve months ended December 31, 2023, includes $2.2 million and $6.7 million, respectively, related to costs associated with debt financing, and $1.1 million and $2.4 million, respectively, for lease extinguishment charges, support and other costs. The three and twelve months ended December 31, 2022, includes $1.8 million and $10.2 million, respectively, related to costs associated with debt financing, and $1.5 million and $3.7 million of corporate support and other costs.
2 Primarily relates to accrued legal matters, adjustments to legal reserves and other legal fees related to debt restructuring and other non-routine matters. These amounts include $3.9 million for 2023 and $1.6 million for 2022 related to accruals for repayment of pandemic related subsidies in foreign jurisdiction.
3 For 2023, represents customary severance costs associated with staff reductions across multiple departments. For 2022, severance charges represent costs associated with executive departures and our ongoing cost reduction efforts across multiple segments .
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4 Represents the insurance recovery received during the year for hurricane damage incurred in 2021.
5 Represents loss on payoff of remaining APSC Term Loan in June 2023 and loss on payoff of $225.0 million of the APSC Term Loan in November 2022. The 2022 loss consists of $12.4 million of cash fees and premium, and $17.7 million of noncash expense related to the write off of the related unamortized balance of deferred issuance cost and warrant and debt discounts.
6 Includes $0.7 million for the loss on settlement of a note receivable and, for the full year 2023, an additional $0.6 million for the write-off of software related costs.
7 Represents the tax effect of the adjustments.
8 Represents pension credit for the U.K. pension plan based on the difference between the expected return on plan assets and the amount of the discounted pension liability. The pension plan was frozen in 1994 and no new participants have been added since that date.
TEAM, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued)
(unaudited, in thousands)
Three Months Ended
December 31, Twelve Months Ended
December 31,
2023 2022 2023 2022
IHT
Operating income $ 6,537 $ 4,055 $ 24,220 $ 17,093
Professional fees and other 113 — 941 —
Severance charges, net 1
92 94 492 286
Adjusted EBIT 6,742 4,149 25,653 17,379
Depreciation and amortization 3,012 3,019 12,402 12,391
Adjusted EBITDA $ 9,754 $ 7,168 $ 38,055 $ 29,770
MS
Operating income (loss) $ 5,364 $ 5,778 $ 27,759 $ 20,930
Professional fees and other 80 — 147 —
Severance charges, net 1
197 596 792 685
Adjusted EBIT 5,641 6,374 28,698 21,615
Depreciation and amortization 4,642 4,799 18,755 19,021
Adjusted EBITDA $ 10,283 $ 11,173 $ 47,453 $ 40,636
Corporate and shared support services
Net loss $ (35,025) $ (66,765) $ (127,701) $ (188,110)
Provision (benefit) for income taxes
558 (876) 4,578 3,306
Loss (gain) on equipment sale (5) 69 (291) (4,200)
Interest expense, net 11,682 21,344 55,181 85,052
Loss on debt extinguishment 2
— 30,083 1,585 30,083
Foreign currency loss (gain) 1,510 1,263 734 (2,692)
Pension credit 3
(159) (178) (640) (749)
Write-off of other assets 4
666 — 1,295 —
Professional fees and other 5
3,108 3,339 8,033 13,915
Legal costs (credit) and other 6
4,785 (700) 5,635 2,571
Severance charges, net 1
98 243 280 2,990
Natural disaster insurance recovery 7
— (324) — (1,196)
Adjusted EBIT (12,782) (12,502) (51,311) (59,030)
Depreciation and amortization 1,737 1,185 6,715 5,041
Non-cash share-based compensation costs 731 (323) 1,590 247
Adjusted EBITDA $ (10,314) $ (11,640) $ (43,006) $ (53,742)
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1 For 2023, represents customary severance costs associated with staff reductions across multiple departments. For 2022, severance charges represent costs associated with executive departures and our ongoing cost reduction efforts across multiple segments .
2 Represents loss on payoff of remaining APSC Term Loan in June 2023 and loss on payoff of $225.0 million of the APSC Term Loan in November 2022. The 2022 loss consists of $12.4 million of cash fees and premium, and $17.7 million of noncash expense related to the write off of the related unamortized balance of deferred issuance cost and warrant and debt discounts.
3 Represents pension credit for the U.K. pension plan based on the difference between the expected return on plan assets and the amount of the discounted pension liability. The pension plan was frozen in 1994 and no new participants have been added since that date.
4 Includes $0.7 million for the loss on settlement of a note receivable and, for the full year 2023, an additional $0.6 million for the write-off of software related costs.
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5 The three and twelve months ended December 31, 2023, includes $2.2 million and $6.7 million, respectively, related to costs associated with debt financing, and $1.1 million and $2.4 million, respectively, for lease extinguishment charges, support and other costs. The three and twelve months ended December 31, 2022, includes $1.8 million and $10.2 million, respectively, related to costs associated with debt financing, and $1.5 million and $3.7 million of corporate support and other costs.
6 Primarily relates to accrued legal matters, adjustments to legal reserves and other legal fees related to debt restructuring and other non-routine matters. These amounts include $3.9 million for 2023 and $1.6 million for 2022 related to accruals for repayment of pandemic related subsidies in foreign jurisdiction.
7 Represents the insurance recovery received during the year for hurricane damage incurred in 2021.
Liquidity and Capital Resources.
We have evaluated our liquidity within one year after the date of issuance of the accompanying audited consolidated financial statements to assess the Company’s ability to fund its operations. 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. Based upon such liquidity assessment, we believe that the Company’s current working capital, forecasted cash flows from operations, expected availability under our existing debt arrangements and capital expenditure financing is sufficient to fund our operations, service our indebtedness, and maintain compliance with our debt covenants. We based this assessment on assumptions that may prove to be inaccurate, and we could exhaust our available capital resources sooner than we expect in the event that we fail to meet our current projections. See Note 11 - Debt to the consolidated financial statements for a further discussion of our liquidity.
We closely monitor the amounts and timing of our sources and uses of funds. Our ability to maintain a sufficient level of liquidity to fund our operations and meet our financial obligations will be dependent upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. For example, the threat of recession and related economic repercussions could have a significant adverse effect on our financial position and business condition, as well as that of 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, service our indebtedness, maintain compliance with the financial covenants contained in our various credit agreements and affect our future need or ability to borrow under our 2022 ABL Credit Facility and our A&R Term Loan Credit Agreement. Our ability to access the capital markets will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us, or at all. In addition, we may seek to engage in one or more of the following, such as refinancing and/or extending the maturities of all or part of our existing indebtedness, seeking covenant relief from our lenders, entering into a strategic partnership with one or more parties, or the sale or divestiture of assets, but there can be no assurance that we would be able to enter into such a transaction or transactions on a timely basis or on terms favorable to us, or at all. Our failure to raise capital through our operations, refinancings or strategic alternatives as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. In addition to impacting our current sources of funding, the effects of such events may also impact our liquidity or require us to revise our allocation or sources of capital, reduce capital expenditures, implement further cost reduction measures and/or change our business strategy. Political economic repercussions could also have a broad range of effects on our liquidity sources and will depend on future developments that cannot be predicted at this time.
Our ability to generate operating cash flow, sell assets, access capital markets or take any other action to improve our liquidity and manage our debt is subject to the risks discussed herein and other risks and uncertainties that exist in our industry, some of which we may not be able to anticipate at this time or control. Such risks include the following:
• loss of customers or other unforeseen deterioration in demand for our services;
• seasonal fluctuations, such as severe weather and other variations in our clients’ industries that may impede or delay the timing of client orders and the delivery of our services;
• rapid increases in raw materials and labor costs that may hinder our ability to meet our forecasted operating expenses;
• persisting or increasing levels of inflation domestically and internationally and the impact of such inflation on our ability to meet our current forecast;
• changes in regulations governing our operations and unplanned costs to comply with such regulatory changes;
• counterparty credit risk related to our ability to collect our receivables; and
• unexpected or prolonged fluctuations in interest rates and their impact on our forecasted costs of raising additional capital.
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See Item 1A “Risk Factors” in this Annual Report on Form 10-K for additional information.
On June 19, 2023, we announced the successful closing of a series of refinancing transactions (the “June 2023 Refinancing”) that raised $87.4 million of new funding (approximately $82.0 million following deductions for transaction related fees, expenses and original issue discounts) which consisted of the following:
• A new $57.5 million, 12% senior secured first lien term loan provided by funds managed by Corre that matures in December 2026, and is comprised of a $37.5 million term loan tranche and a $20.0 million delayed draw term loan tranche (the “Incremental Term Loan”), and
• A new $27.4 million term loan secured by certain real estate and machinery and equipment of the Company provided by Eclipse Business Capital LLC (the “ME/RE Loans”), that matures in August 2025. Our 2022 ABL Credit Facility was also amended to extend the maturity date to August 2025, and to increase availability under that facility by an additional $2.5 million.
We used the proceeds from the ME/RE Loan, together with advances under the 2022 ABL Facility, to repay in full our existing senior secured term loan with Atlantic Park Strategic Capital Fund, L.P. We used the proceeds from the Incremental Term Loan to repay in full our remaining $41.0 million of the Notes and for general corporate purposes.
Subsequent to the June 2023 Refinancing, financing for our operations consists primarily of our 2022 ABL Credit Agreement, which includes our 2022 ABL Credit Facility and the ME/RE Loans; the A&R Term Loan Credit Agreement, which includes the Uptiered Loan and the Incremental Term Loan; and cash flows from our operations. As of December 31, 2023, we had approximately $31.3 million of available borrowing capacity under our various credit facilities, consisting of $21.3 million available under the 2022 ABL Credit Facility and $10.0 million available under the A&R Term Loan Credit Agreement. Our principal uses of cash and liquidity are for working capital needs, capital expenditures and operations.
As of December 31, 2023 we are in compliance with our debt covenants. Our ability to maintain compliance with the financial covenants contained in the 2022 ABL Credit Agreement and A&R 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.
As of March 5, 2024, we had consolidated cash and cash equivalents of $24.0 million, excluding $4.9 million restricted mainly as collateral for outstanding letters of credit, and approximately $12.1 million of undrawn availability under our various credit facilities, resulting in total liquidity of $36.1 million.
Refer to Note 11 - Debt for information on our debt instruments.
Cash and cash equivalents . Our cash and cash equivalents as of December 31, 2023 totaled $35.4 million, of which $12.0 million was in foreign accounts, primarily in Europe, Canada and Australia, including $0.6 million of cash located in countries where currency restrictions exist.
Our cash and cash equivalents as of December 31, 2022 totaled $58.1 million of which $16.3 million was in foreign accounts, primarily in Europe, Canada and Australia, including $1.4 million of cash located in countries where currency restrictions exist.
Cash flows attributable to our operating activities. For the year ended December 31, 2023, net cash used in operating activities was $11.0 million. We incurred a net loss of $75.7 million, further adjusted for a decrease in net working capital of $7.5 million, partially offset by the effect of depreciation and amortization of $37.9 million, non-cash amortization of debt issuance costs and debt discount of $18.7 million and paid-in-kind interest of $14.5 million.
For the year ended December 31, 2022, net cash used in operating activities was $57.9 million. We had net income of $70.1 million, further adjusted for the gain on sale of our Quest Integrity segment (“Quest Integrity”) of $203.4 million and a decrease in net working capital of $30.2 million, partially offset by the effect of depreciation and amortization of $37.6 million, loss on debt extinguishment of $17.7 million, amortization of non-cash debt issuance costs and debt discount of $35.5 million and paid- in-kind interest of $18.2 million.
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Cash flows attributable to our investing activities . For the year ended December 31, 2023, net cash used in investing activities was $10.0 million, consisting of $10.4 million of capital expenditures offset by net proceeds from asset disposals of $0.4 million.
For the year ended December 31, 2022, net cash provided by investing activities was $243.4 million, consisting primarily of net proceeds from the sale of Quest Integrity of $260.8 million and net proceeds from asset disposals of $7.2 million, partially offset by $24.7 million of capital expenditures.
Cash flows attributable to our financing activities. For the year ended December 31, 2023, net cash used in financing activities was $1.9 million, consisting primarily of the $37.1 million payoff of the APSC Term Loan, $41.2 million payoff of the Notes, and $9.1 million of term loan debt issuance costs, partially offset by $47.2 million of borrowings under the Corre Incremental Term Loan, $27.4 million of borrowings under the ME/RE loans and net borrowings on our 2022 ABL Credit Facility of $13.5 million.
For the year ended December 31, 2022, net cash used in financing activities was $192.0 million, consisting primarily of the $224.9 million payoff on the APSC term loan, $62.0 million of net payments under the 2020 ABL Credit Facility and $13.7 million of term loan debt issuance costs, partially offset by net borrowings on our 2022 ABL Credit Facility of $64.9 million and borrowings of $35.0 million under the Corre Delayed Draw Term Loan.
Effect of exchange rate changes on cash . For the year ended December 31, 2023, the effect of foreign exchange rate changes on cash was a positive impact of $0.3 million.
For the year ended December 31, 2022, the effect of foreign exchange rate changes on cash was a negative impact of $0.7 million. The negative impact in 2022 is primarily attributable to unfavorable fluctuations in U.S. dollar exchange rates with the Canadian dollar, the euro, the British pound, the Australian dollar and Mexican peso.
Off-Balance Sheet Arrangements
From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations. See Note 11 - Debt for additional details on our off-balance sheet arrangements.
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Critical Accounting Policies
The process of preparing financial statements in accordance with GAAP requires us to make estimates and judgments. It is possible that materially different amounts could be recorded if these estimates and judgments change or if actual results differ from these estimates and judgments. We believe that the following critical accounting policies comprise the more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Income taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted rates in effect for the year in which the differences are expected to reverse. The effect of the change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be unable to realize our deferred tax assets, we would make an adjustment to the deferred tax asset valuation allowance.
We establish reserves for uncertain tax positions when it is not more likely than not that the position will be sustained upon challenge. When facts and circumstances change, we adjust these reserves through our provision for income taxes. To the extent interest and penalties may be assessed by taxing authorities on any related underpayment of income tax, such amounts have been accrued and are classified as a component of income tax expense.
New Accounting Principles
For information about newly adopted accounting principles as well as information about new accounting principles pending adoption, see Note 1 - Summary of Significant Accounting Policies and practices to the consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item 7A.
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