TEAM INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FINANCIAL TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 185 ) 24 Consolidated Balance Sheets as of December 31, 2023 and 2022 26 Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022 27 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2023 and 2022 28 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 29 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 30 Notes to Consolidated Financial Statements 32 23 Table of Content Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Team, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Team, Inc. 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. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. 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 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. We conducted our audits in accordance with the standards of the PCAOB. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter 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) 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 As discussed in Note 1 and Note 10 to the consolidated financial statements, the Company recognized $4.5 million of deferred tax liabilities, net as of December 31, 2023. The Company’s provision for income taxes from continuing operations was $4.6 million for the year ended December 31, 2023. The Company conducts business globally and consequently is subject to U.S. federal, state, and foreign income taxes in the jurisdictions in which it operates. The Company exercises judgment in the application of complex tax regulations in multiple jurisdictions. 24 Table of Content We identified the evaluation of accounting for income taxes as a critical audit matter. Evaluating the Company’s application of current tax regulations and the impact of those regulations on the U.S. federal tax provision required complex auditor judgment and the use of tax professionals with specialized skills. The following are the primary procedures we performed to address this critical audit matter. We involved tax professionals with specialized skills and knowledge, who assisted in evaluating the Company’s analyses over the application of current tax regulations and the Company’s interpretation of tax regulations. /s/ KPMG LLP We have served as the Company’s auditor since 2002. Houston, Texas March 7, 2024 25 Table of Content TEAM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 35,427 $ 58,075 Accounts receivable, net of allowance of $ 3,738 and $ 5,262 , respectively 181,185 186,689 Inventory 38,853 36,331 Income tax receivable 644 779 Prepaid expenses and other current assets 65,992 65,679 Total current assets 322,101 347,553 Property, plant and equipment, net 127,057 138,099 Intangible assets, net 62,693 75,407 Operating lease right-of-use assets 40,498 48,462 Defined benefit pension asset 4,323 398 Other assets, net 7,847 6,351 Non-current deferred tax asset 1,225 375 Total assets $ 565,744 $ 616,645 LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt and finance lease obligations $ 5,212 $ 280,993 Current portion of operating lease obligations 14,232 13,823 Accounts payable 36,389 32,524 Other accrued liabilities 118,089 119,267 Income tax payable 1,016 2,257 Total current liabilities 174,938 448,864 Long-term debt and finance lease obligations 306,214 4,942 Operating lease obligations 29,962 38,819 Deferred tax liabilities 5,742 3,661 Other long-term liabilities 3,292 2,599 Total liabilities 520,148 498,885 Commitments and contingencies Shareholders' Equity: Preferred stock, 500,000 shares authorized, no ne issued — — Common stock, par value $ 0.30 per share, 12,000,000 shares authorized; 4,415,147 and 4,342,909 shares issued 1,315 1,303 Additional paid-in capital 458,614 457,133 Accumulated deficit ( 377,401 ) ( 301,679 ) Accumulated other comprehensive loss ( 36,932 ) ( 38,997 ) Total shareholders' equity 45,596 117,760 Total liabilities and shareholders' equity $ 565,744 $ 616,645 See accompanying notes to consolidated financial statements. Table of Content TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Twelve Months Ended December 31, 2023 2022 Revenues $ 862,615 $ 840,208 Operating expenses 651,461 638,597 Gross margin 211,154 201,611 Selling, general and administrative expenses 224,430 241,397 Restructuring and other related charges, net — 16 Operating loss ( 13,276 ) ( 39,802 ) Interest expense, net ( 55,181 ) ( 85,052 ) Loss on debt extinguishment ( 1,585 ) ( 30,083 ) Other income (expense), net ( 1,102 ) 8,156 Loss before income taxes ( 71,144 ) ( 146,781 ) Provision for income taxes (see Note 10) ( 4,578 ) ( 3,306 ) Net loss from continuing operations $ ( 75,722 ) $ ( 150,087 ) Discontinued operations: Net income from discontinued operations, net of income tax — 220,166 Net income (loss) $ ( 75,722 ) $ 70,079 Basic net income (loss) per common share: Loss from continuing operations ( 17.32 ) ( 35.85 ) Income from discontinued operations — 52.58 Total $ ( 17.32 ) $ 16.73 Weighted-average number of shares outstanding: Basic 4,371 4,187 See accompanying notes to consolidated financial statements. 27 Table of Content TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Twelve Months Ended December 31, 2023 2022 Net income (loss) $ ( 75,722 ) $ 70,079 Other comprehensive income (loss) before tax: Foreign currency translation adjustment 3,006 ( 6,589 ) Defined benefit pension plans: Net actuarial loss arising during period ( 883 ) ( 6,632 ) Amortization of prior service cost 31 31 Amortization of net actuarial loss 285 — Other comprehensive income (loss), before tax 2,439 ( 13,190 ) Tax benefit (provision) attributable to other comprehensive income (loss) ( 374 ) 925 Other comprehensive income (loss), net of tax 2,065 ( 12,265 ) Total comprehensive income (loss) $ ( 73,657 ) $ 57,814 See accompanying notes to consolidated financial statements. 28 Table of Content TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands) Common Shares Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive income (loss) Total Shareholders’ Equity Balance as of December 31, 2021 3,122 $ 936 $ 453,247 $ ( 375,584 ) $ ( 26,732 ) $ 51,867 Net income — — — 70,079 — 70,079 Foreign currency translation adjustment, net of tax — — — — ( 6,589 ) ( 6,589 ) Defined benefit pension plans, net of tax — — — — ( 5,676 ) ( 5,676 ) Non-cash compensation — — 247 — — 247 Net settlement of vested stock awards 1,221 367 9,289 — — 9,656 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 loss — — — ( 75,722 ) — ( 75,722 ) Foreign currency translation adjustment, net of tax — — — — 3,028 3,028 Defined benefit pension plans, net of tax — — — — ( 963 ) ( 963 ) Non-cash compensation — — 1,590 — — 1,590 Net settlement of vested stock awards 72 12 ( 109 ) — — ( 97 ) Balance as of December 31, 2023 4,415 $ 1,315 $ 458,614 $ ( 377,401 ) $ ( 36,932 ) $ 45,596 See accompanying notes to consolidated financial statements. 29 Table of Content TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 1 (in thousands) Twelve Months Ended December 31, 2023 2022 Cash flows from operating activities: Net income (loss) $ ( 75,722 ) $ 70,079 Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 37,872 37,595 Write-off of deferred loan costs — 2,748 Gain on sale of Quest Integrity — ( 203,351 ) Loss on debt extinguishment 1,585 17,719 Write-off of software cost 629 — Amortization of debt issuance costs and debt discounts 18,725 35,509 Paid-in-kind interest 14,526 18,227 Allowance for credit losses 267 402 Foreign currency loss 734 1,698 Deferred income taxes 906 653 Gain on asset disposal ( 231 ) ( 4,721 ) Non-cash compensation cost 1,590 247 Other, net ( 4,413 ) ( 4,569 ) Changes in operating assets and liabilities: Accounts receivable 7,335 ( 33,483 ) Inventory ( 2,058 ) ( 1,655 ) Prepaid expenses and other current assets ( 7,527 ) ( 3,201 ) Accounts payable 2,818 ( 13,291 ) Other accrued liabilities ( 6,877 ) 15,195 Income taxes ( 1,145 ) 6,264 Net cash used in operating activities ( 10,986 ) ( 57,935 ) Cash flows from investing activities: Capital expenditures ( 10,430 ) ( 24,690 ) Net proceeds from sale of discontinued operations — 260,841 Proceeds from disposal of assets 414 7,205 Net cash (used in) provided by investing activities ( 10,016 ) 243,356 Cash flows from financing activities: Borrowings under 2020 ABL Facility, gross — 10,300 Payments under 2020 ABL Facility, gross — ( 72,300 ) Borrowings under 2022 ABL Credit Facility, gross 39,792 108,638 Payments under 2022 ABL Credit Facility, gross ( 26,293 ) ( 43,722 ) Borrowings under Corre Delayed Draw Term Loan, gross — 35,000 Borrowings under Corre Incremental Term Loan 47,500 — Payments under Corre Incremental Term Loan ( 319 ) — 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 ) Payments for debt issuance costs ( 9,102 ) ( 13,709 ) Issuance of common stock, net of issuance costs — 9,639 Taxes paid related to net share settlement of share-based awards — 16 Other ( 1,047 ) ( 887 ) Net cash used in financing activities ( 1,899 ) ( 191,971 ) Effect of exchange rate changes on cash 253 ( 690 ) 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. See Note 2. 30 Table of Content Supplemental disclosure of cash flow information: Cash paid (refunded) during the year for: Interest $ 19,503 $ 29,187 Income taxes $ 3,921 $ ( 553 ) See accompanying notes to consolidated financial statements. 31 Table of Content TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES Description of Business . 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 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. 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. MS provides solutions designed to serve clients’ unique needs during both the operational (onstream) and off-line states of their assets. Our onstream services include our range of standard to custom-engineered leak repair and composite solutions; emissions control and compliance; hot tapping and line stopping; and on-line valve insertion solutions, which are delivered while assets are in an operational condition, which maximizes client production time. Asset shutdowns can be planned, such as a turnaround maintenance event, or unplanned, such as those due to component failure or equipment breakdowns. Our specialty maintenance, turnaround and outage services are designed to minimize client downtime and are primarily delivered while assets are off-line and often through the use of cross-certified technicians, whose multi-craft capabilities deliver the production needed to achieve tight time schedules. These critical services include on-site field machining; bolted-joint integrity; vapor barrier plug testing; and valve management solutions. We market our services to companies in a diverse array of heavy industries which include: • Energy (refining, power, renewables, nuclear, offshore oil and gas and liquefied natural gas); • Manufacturing and Process (chemical, petrochemical, pulp and paper industries, automotive and mining); • Midstream (valves, terminals and storage, and pipeline); • Public Infrastructure (construction and building, roads, dams, amusement parks, bridges, ports, and railways); and • Aerospace and Defense. 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. 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. 32 Table of Content Basis for presentation. These consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results for such periods. Consolidation. The consolidated financial statements include the accounts of our subsidiaries where we have control over operating and financial policies. All material intercompany accounts and transactions have been eliminated in consolidation. Related Party Transactions. A related party transaction is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including the incurrence or issuance of any indebtedness or the guarantee of indebtedness) in which (1) the Company or any of its subsidiaries is a participant, and (2) any Related Party (as defined herein) has or will have a direct or indirect material interest. 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 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 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. Estimates and judgments are based on information available at the time such estimates and judgments are made. Adjustments made with respect to the use of these estimates and judgments often relate to information not previously available. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements. Estimates and judgments are used in, among other things, (1) valuation of acquisition related tangible and intangible assets and assessments of all long-lived assets for possible impairment, (2) estimating various factors used to accrue liabilities for workers’ compensation, auto, medical and general liability, (3) establishing an allowance for uncollectible accounts receivable, (4) estimating the useful lives of our assets, (5) assessing future tax exposure and the realization of tax assets, (6) selecting assumptions used in the measurement of costs and liabilities associated with defined benefit pension plans, (7) assessments of fair value and (8) managing our foreign currency risk in foreign operations. 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 33 Table of Content 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 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. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations in which there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy such that “Level 1” measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, “Level 2” measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets, and “Level 3” measurements include those that are unobservable and of a highly subjective measure. 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 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, 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 . Cash and cash equivalents consist of all demand deposits and funds invested in highly liquid short-term investments with original maturities of three months or less. Inventory . Except for certain inventories that are valued based on standard cost, we use the first-in, first-out method to value our inventory. Inventory includes material, labor, and certain fixed overhead costs. 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 value for inventories for which their cost exceeds their utility. The cost of inventories consumed or products sold are included in operating expenses. 34 Table of Content Property, plant and equipment. Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Leasehold improvements are amortized over the shorter of their respective useful life or the lease term. Depreciation and amortization of assets are computed by the straight-line method over the following estimated useful lives of the assets: Classification Useful Life Buildings 20 - 40 years Enterprise Resource Planning (“ERP”) System 15 years Leasehold improvements 2 - 15 years Machinery and equipment 2 - 12 years Furniture and fixtures 2 - 10 years Computers and computer software 2 - 5 years Automobiles 2 - 5 years 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”). Impairment of Long-lived Assets. 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 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; and current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of the asset. 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 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. Income taxes. We follow the guidance of ASC 740 Income Taxes (“ASC 740”), which requires that we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax payable or receivable and related tax expense or benefit together with assessing temporary differences resulting from differing treatment of certain items such as depreciation for tax and accounting purposes. These differences can result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. In accordance with ASC 740, we are required to assess the likelihood that our deferred tax assets will be realized and, to the extent we believe it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized, we must establish a valuation allowance. 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 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. 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. While we have considered these factors in assessing the need for additional valuation allowance, there is no assurance that additional valuation allowance would not need to be established in the future if information about future years change. Any changes in valuation allowance would impact our income tax provision and net income (loss) in the period in which such a determination is made. As of December 31, 2023, our deferred tax assets were $ 111.5 million, less a valuation allowance of $ 93.7 million. As of December 31, 2023, our deferred tax liabilities were $ 22.4 million. Significant judgment is required in assessing the timing and amounts of deductible and taxable items for tax purposes. In accordance with ASC 740-10, we establish reserves for uncertain tax positions when, despite our belief that our tax return positions are supportable, we believe that 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 35 Table of Content 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. Workers’ compensation, auto, medical and general liability accruals. 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 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. employees. 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. 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 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. 36 Table of Content 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. No single customer accounted for more than 10% of consolidated revenues during the year ended December 31, 2023 or 2022. Accounting for Warrants . 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. 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) 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, 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. Non-cash investing and financing activities. Non-cash investing and financing activities are excluded from the consolidated statements of cash flows and are as follows (in thousands): Twelve Months Ended December 31, 2023 2022 Assets acquired under finance lease $ 1,371 $ 1,270 Also, we had $ 2.4 million, and $ 2.4 million, of accrued capital expenditures as of December 31, 2023, and 2022 respectively, which are excluded from the consolidated statements of cash flows until paid. Foreign currency . For subsidiaries whose functional currency is not the U.S. 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. Defined benefit pension plans . Pension benefit costs and liabilities are dependent on assumptions used in calculating such amounts. 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 and are determined based on reference to yields. The expected return on plan assets is derived from detailed periodic studies, which 37 Table of Content 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. Mortality and retirement rates are based on actual and anticipated plan experience. In accordance with GAAP, actual results that differ from the assumptions are accumulated and are subject to amortization over future periods and, therefore, generally affect recognized expense in future periods. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the pension obligation and future expense. Reclassifications . Certain amounts in prior periods have been reclassified to conform to the current year presentation, including the separate presentation and reporting of discontinued operations. Such reclassifications did not have any effect on our financial condition or results of operations as previously reported. Newly Adopted Accounting Standards ASU No. 2020-04 . In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, (“ASU 2020-04”). The guidance in ASU 2020-04 and ASU 2021-01, Reference Rate Reform (Topic 848) : Scope , which was issued in January 2021, provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference the London Interbank Offered Rate, (“LIBOR”), or another rate that is expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. 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. 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 . 2. DISCONTINUED OPERATIONS On November 1, 2022, we completed the Quest Integrity Transaction with Baker Hughes for an aggregate purchase price of approximately $ 279.0 million, after certain post-closing adjustments, in accordance with the Sale Agreement. We used approximately $ 238.0 million of the net proceeds from the sale of Quest Integrity to pay down $ 225.0 million of our term loan debt, and to pay certain fees associated with that repayment and related accrued interest, with the remainder reserved for general corporate purposes, thereby reducing our future debt service obligations and leverage, and improving our liquidity. Quest Integrity previously represented a reportable segment. Following the completion of the Quest Integrity Transaction, we now operate in two segments, IHT and MS. Our consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations. Our consolidated statements of comprehensive income (loss), statements of shareholders’ equity and statements of cash flows combine continuing and discontinued operations. A summary of financial information related to our discontinued operations is presented in the tables below. The table below represents major line items constituting net income (loss) from discontinued operations to the after-tax income from discontinued operations (in thousands): 38 Table of Content Twelve Months Ended December 31, 2022 Major classes of line items constituting net income (loss) from discontinued operations Revenues $ 101,418 Operating expenses ( 45,044 ) Selling, general and administrative expenses ( 32,230 ) Interest expense, net ( 108 ) Other expense, net ( 4,390 ) Income before income taxes 19,646 Gain on sale of Quest transaction 203,351 Income before income taxes 222,997 Provision for income taxes ( 2,831 ) Net income from discontinued operations $ 220,166 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 December 31, 2022 Cash flows provided by operating activities of discontinued operations: Depreciation and amortization $ 1,141 Cash flows provided by investing activities of discontinued operations: Capital expenditures $ 4,146 3. REVENUE Disaggregation of revenue. Essentially all of our revenues are associated with contracts with customers. A disaggregation of our revenue from contracts with customers by geographic region, by reportable operating segment and by service type is presented below (in thousands): Twelve Months Ended December 31, 2023 United States and Canada Other Countries Total Revenue: IHT $ 414,515 $ 15,044 $ 429,559 MS 294,118 138,938 433,056 Total $ 708,633 $ 153,982 $ 862,615 39 Table of Content Twelve Months Ended December 31, 2022 United States and Canada Other Countries Total Revenue: IHT $ 412,661 $ 9,901 $ 422,562 MS 296,151 121,495 417,646 Total $ 708,812 $ 131,396 $ 840,208 Twelve Months Ended December 31, 2023 Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: IHT $ 343,713 $ 275 $ 59,399 $ 26,172 $ 429,559 MS — 429,480 702 2,874 433,056 Total $ 343,713 $ 429,755 $ 60,101 $ 29,046 $ 862,615 Twelve Months Ended December 31, 2022 Non-Destructive Evaluation and Testing Services Repair and Maintenance Services Heat Treating Other Total Revenue: IHT $ 336,821 $ 180 $ 61,526 $ 24,035 $ 422,562 MS — 413,424 276 3,946 417,646 Total $ 336,821 $ 413,604 $ 61,802 $ 27,981 $ 840,208 For additional information on our reportable operating segments and geographic information, refer to Note 17 - Segment and Geographic Disclosures. Remaining performance obligations . As permitted by ASC 606, Revenue from Contracts with Customers , we have elected not to disclose information about remaining performance obligations where (i) the performance obligation is part of a contract that has an original expected duration of one year or less or (ii) when we recognize revenue from the satisfaction of the performance obligation in accordance with the right-to-invoice practical expedient, which permits us to recognize revenue in the amount to which we have a right to invoice the customer if that amount corresponds directly with the value to the customer of our performance completed to date. As most of our contracts with customers are short-term in nature and billed on a time and material basis, there were no material amounts of remaining performance obligations as of December 31, 2023 and 2022. 4. ACCOUNTS RECEIVABLE A summary of accounts receivable as of December 31, 2023 and 2022 is as follows (in thousands): December 31, 2023 2022 Trade accounts receivable $ 151,316 $ 160,572 Unbilled revenues 33,607 31,379 Allowance for credit losses ( 3,738 ) ( 5,262 ) Accounts receivable, net $ 181,185 $ 186,689 40 Table of Content The following table shows a rollforward of the allowance for credit losses (in thousands): Twelve Months Ended December 31, 2023 2022 Balance at beginning of period $ 5,262 $ 7,843 Provision for expected credit losses 1,680 1,059 Recoveries collected ( 1,638 ) ( 1,114 ) Write-offs ( 1,560 ) ( 2,479 ) Foreign exchange effects ( 6 ) ( 47 ) Balance at end of period $ 3,738 $ 5,262 5. INVENTORY A summary of inventory as of December 31, 2023 and 2022 is as follows (in thousands): December 31, 2023 2022 Raw materials $ 9,958 $ 8,978 Work-in-progress 2,326 2,945 Finished goods 26,569 24,408 Inventory $ 38,853 $ 36,331 6. PREPAID AND OTHER CURRENT ASSETS A summary of prepaid expenses and other current assets as of December 31, 2023 and 2022 is as follows (in thousands): December 31, 2023 2022 Insurance receivables $ 39,000 $ 39,000 Prepaid expenses 18,398 15,238 Other current assets 8,594 11,441 Prepaid and other current assets $ 65,992 $ 65,679 The insurance receivables relate to receivables from our third-party insurance providers for legal claims that are recorded in other accrued liabilities, refer to Note 9 - Other Accrued Liabilities . These receivables will be covered from our third-party insurance providers for litigation matters that have been settled or are pending settlements and where the deductibles have been satisfied. The prepaid expenses primarily relate to prepaid insurance and other expenses that have been paid in advance of the coverage period. As of December 31, 2023 and 2022, other current assets include deferred financing fees of $ 1.8 million each in connection with that certain Substitute Insurance Reimbursement Facility Agreement (as amended); other accounts receivable of $ 4.4 million and $ 2.4 million, respectively, primarily related to insurance rebates; and software implementation cost (net of amortization) of $ 1.7 million and $ 2.1 million, respectively. As of December 31, 2022, the other current assets also included deferred financing costs of $ 3.1 million due to all long-term debt then being classified as current. 41 Table of Content 7. PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment as of December 31, 2023 and 2022 is as follows (in thousands): December 31, 2023 2022 Land $ 4,006 $ 4,006 Buildings and leasehold improvements 60,827 50,833 Machinery and equipment 286,376 277,852 Furniture and fixtures 10,804 10,558 Capitalized ERP system development costs 45,903 45,917 Computers and computer software 20,067 19,457 Automobiles 3,215 3,536 Construction in progress 6,634 19,196 Total 437,832 431,355 Accumulated depreciation and amortization ( 310,775 ) ( 293,256 ) Property, plant, and equipment, net $ 127,057 $ 138,099 Included in the table above are assets under finance leases of $ 8.5 million and $ 7.4 million and related accumulated amortization of $ 3.3 million and $ 2.3 million as of December 31, 2023 and 2022, respectively. Depreciation expense for the years ended December 31, 2023 and 2022 was $ 21.8 million, and $ 22.9 million respectively. Assets sold and disposed of during the twelve months ended December 31, 2023 and 2022 had a carrying value of $ 0.2 million and $ 2.5 million, respectively, resulting in a gain on sale of $ 0.2 million and $ 4.2 million, respectively. The assets sold for the twelve months ended December 31, 2023 consisted of $ 0.1 million in machinery and equipment and $ 0.1 million primarily in leasehold improvements. The assets sold for the twelve months ended December 31, 2022 primarily consisted of $ 1.3 million in land, $ 0.9 million in buildings and $ 0.3 million in machinery and equipment. 42 Table of Content 8. INTANGIBLE ASSETS A summary of intangible assets as of December 31, 2023 and 2022 is as follows (in thousands): December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 164,305 $ ( 102,630 ) $ 61,675 Trade names 20,262 ( 19,742 ) 520 Technology 2,300 ( 1,802 ) 498 Licenses 683 ( 683 ) — Intangible assets $ 187,550 $ ( 124,857 ) $ 62,693 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 165,231 $ ( 91,296 ) $ 73,935 Non-compete agreements 4,281 ( 4,281 ) — Trade names 20,563 ( 19,830 ) 733 Technology 2,707 ( 1,978 ) 729 Licenses 840 ( 830 ) 10 Other 12,983 ( 12,983 ) — Intangible assets $ 206,605 $ ( 131,198 ) $ 75,407 Amortization expense on intangible assets for the years ended December 31, 2023 and 2022 was $ 12.7 million, and $ 12.9 million, respectively. Amortization expense for intangible assets is forecasted to be approximately $ 12.4 million, $ 12.4 million, $ 12.0 million, $ 11.3 million, and $ 6.4 million in 2024, 2025, 2026, 2027 and 2028, respectively. The weighted-average amortization period for intangible assets subject to amortization was 13.8 years and 13.7 years as of December 31, 2023 and 2022, respectively. The weighted-average amortization period as of December 31, 2023 is 13.8 years for customer relationships, 13.6 years for trade name and 10.0 years for technology . 9. OTHER ACCRUED LIABILITIES A summary of other accrued liabilities as of December 31, 2023 and 2022 is as follows (in thousands): December 31, 2023 2022 Payroll and other compensation expenses $ 39,943 $ 48,507 Legal and professional accruals 53,972 46,665 Insurance accruals 7,170 7,483 Property, sales and other non-income related taxes 7,248 7,348 Accrued interest 4,487 3,963 Volume discounts 2,479 2,050 Other accruals 2,790 3,251 Other accrued liabilities $ 118,089 $ 119,267 43 Table of Content 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. As of December 31, 2022, we had $ 6.5 million outstanding under this program, included in Payroll and other compensation expenses in the above table and paid in January 2023. We also deferred certain payroll related expenses and tax payments under other foreign government programs. We had $ 1.6 million and $ 2.1 million as of December 31, 2023 and 2022, respectively, related to these foreign deferrals. Legal and professional accruals include accruals for legal and professional fees as well as accrued legal claims, refer to Note 16 - Commitments and Contingencies for legal claims information. Certain legal claims are covered by our third-party insurance providers and the related insurance receivables for these claims are recorded in prepaid expenses and other current assets, refer to Note 6 - Prepaid and Other Current Asset s. Payroll and other compensation expenses include all payroll related accruals including, among others, accrued vacation, severance, and bonuses. Insurance accruals primarily relate to accrued medical and workers compensation costs. Property, sales and other non-income related taxes includes accruals for items such as sales and use tax, property tax and other related tax accruals. Accrued interest relates to the interest accrued on our long-term debt. Other accruals include various business accruals. 44 Table of Content 10. INCOME TAXES For the year ended December 31, 2023, our income tax provision resulted in an effective tax rate of 6.4 %. For the year ended December 31, 2022, our income tax provision resulted in an effective tax rate of 2.3 %. Our income tax provision for the year ended December 31, 2023 was $ 4.6 million, our income tax provision for December 31, 2022 was $ 3.3 million and includes federal, state and foreign taxes. The components of our tax provision and benefit on continuing operations were as follows (in thousands): Current Deferred Total Twelve months ended December 31, 2023: U.S. Federal $ ( 145 ) $ 304 $ 159 State & local 338 — 338 Foreign jurisdictions 3,110 971 4,081 Tax provision $ 3,303 $ 1,275 $ 4,578 Twelve months ended December 31, 2022: U.S. Federal $ ( 211 ) $ — $ ( 211 ) State & local 513 — 513 Foreign jurisdictions 1,319 1,685 3,004 Tax provision $ 1,621 $ 1,685 $ 3,306 The components of pre-tax income (loss) from continuing operations for the years ended December 31, 2023 and 2022 were as follows (in thousands): Twelve Months Ended December 31, 2023 2022 Domestic $ ( 86,077 ) $ ( 156,001 ) Foreign 14,933 9,220 Pre-tax loss from continuing operations $ ( 71,144 ) $ ( 146,781 ) The income tax provision in 2023 and 2022 attributable to the loss from continuing operations, respectively, differed from the amounts computed by applying the U.S. federal income tax rate 21 % in 2023 and 2022, to pre-tax loss from continuing operations as a result of the following (in thousands): Twelve Months Ended December 31, 2023 2022 Pre-tax loss from continuing operations $ ( 71,144 ) $ ( 146,781 ) Computed income taxes at statutory rate ( 14,940 ) ( 30,824 ) State income taxes, net of federal benefit ( 200 ) 395 Foreign tax rate differential 1,229 701 Non-cash compensation 108 228 Deferred taxes on investment in foreign subsidiaries 305 — Non-deductible expenses 246 118 Foreign withholding 641 693 Prior year tax adjustments ( 299 ) 7 Valuation allowance 16,512 31,430 Other 976 558 Total expense for income tax on continuing operations $ 4,578 $ 3,306 45 Table of Content The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands): December 31, 2023 2022 Deferred tax assets: Accrued compensation and benefits $ 4,710 $ 7,630 Receivables 262 552 Inventory 311 296 Share based compensation 525 258 Other accrued liabilities 1,974 2,940 Tax credit carry forward 3,038 2,314 Interest expense limitation 41,477 28,137 Goodwill and intangible costs 9,110 10,143 Debt transactions 4,174 1,780 Net operating loss carry forwards 45,351 38,860 Other 611 1,770 Deferred tax assets 111,543 94,680 Less: Valuation allowance ( 93,677 ) ( 73,483 ) Deferred tax assets, net $ 17,866 $ 21,197 Deferred tax liabilities: Property, plant and equipment ( 15,947 ) ( 17,642 ) Unremitted earnings of foreign subsidiaries ( 2,960 ) ( 3,581 ) Other ( 3,476 ) ( 3,260 ) Deferred tax liabilities ( 22,383 ) ( 24,483 ) Net deferred tax liability $ ( 4,517 ) $ ( 3,286 ) We successfully negotiated amendments to existing debt instruments and entered into new agreements with lenders. These actions removed the substantial doubt about the Company's ability to continue as a going concern that previously existed and disclosed in prior periods. As of December 31, 2023, a valuation allowance of $ 93.7 million was recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized, primarily attributable to the domestic operations. However, on the basis of the Company's ability to continue as a going concern, we evaluated all available evidence, both positive and negative and determined that sufficient future taxable income will be generated to allow for the realization of the existing deferred tax assets in certain foreign jurisdictions in which the we operate. As a result, we were able to release $ 2.9 million of valuation allowance in the current year, primarily attributable to our UK and Australia subsidiaries. These benefits were offset by an increase in valuation allowance of $ 23.1 million on the expected realizability of our deferred tax assets for federal and state tax net operating loss carryforwards. A significant factor of negative evidence evaluated for the domestic jurisdiction was the cumulative pre-tax loss incurred over the three-year period ended December 31, 2023. As of December 31, 2023, we had net operating loss carryforwards for U.S. federal income tax purposes of $ 137.8 million, all of which have an indefinite carryforward period. These carryforwards are available, subject to certain limitations such as mentioned above, to offset future taxable income. Further, we have state net operating loss carryforwards of $ 210.8 million with $ 177.2 million expiring on various dates through 2043 and $ 33.5 million with an indefinite carryforward period. As of December 31, 2023, we had interest expense carryforward for U.S. income tax purposes of $ 174.9 million. The entire $ 174.9 million has an indefinite carryforward period. These carryforwards are available, subject to certain limitations, to offset future taxable income. As of December 31, 2023, we had $ 2.9 million of tax credits that will expire on various dates through 2037 if not utilized. As of December 31, 2023, we had foreign net operating loss carryforwards totaling $ 16.7 million. Of this amount, $ 0.2 million will expire in various dates through 2033 and $ 16.5 million has an unlimited carryforward period. As of December 31, 2023, none of our undistributed earnings of foreign operations were considered to be permanently reinvested overseas. As of December 31, 2023, the deferred tax liability related to undistributed earnings of foreign subsidiaries was $ 2.9 million. 46 Table of Content As of December 31, 2023, $ 2.3 million of unrecognized tax benefits would affect our effective tax rate. We estimate the uncertain tax benefits that may be recognized within the next twelve months will not be material. Our policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. We file income tax returns in the U.S. federal and state jurisdictions as well as various foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years prior to 2016. We are currently under audit in one of the states in which we do substantial business. As of December 31, 2023, we recorded a $ 0.9 million tax liability in our uncertain positions related to this audit due to retroactive changes included in final regulations issued by the state. Certain Dutch entities were also under audit. We did not anticipate any material adjustments related to these examinations. Periodic examinations of our tax filings occur by the taxing authorities for the jurisdictions in which we conduct business. These examinations review the significant positions taken on our returns, including the timing and amount of income and deductions reported, as well as the allocation of income among multiple taxing jurisdictions. We do not expect any material adjustments to result from positions taken on our income tax returns. The following table summarizes reconciliation of gross unrecognized tax benefits, excluding penalties and interest, for the year ended December 31, 2023 and 2022 (in thousands): Twelve Months Ended December 31, 2023 2022 Unrecognized tax benefits - January 1 $ 1,097 $ 1,285 Additions based on tax positions related to prior years 399 350 Disposition of uncertain tax positions of discontinued operations — ( 426 ) Reductions resulting from a lapse of the applicable statute of limitations ( 44 ) ( 112 ) Unrecognized tax benefits - December 31 $ 1,452 $ 1,097 We have recorded the unrecognized tax benefits in other long-term liabilities in the consolidated balance sheets. As of December 31, 2023 and 2022, the total amount of accrued interest and penalties related to unrecognized tax benefits was $ 0.8 million and $ 0.6 million, respectively. There was approximately $ 0.2 million and $ 0.0 million , respectively, of interest and penalties related to unrecognized tax benefits that was recorded in income tax expense for the period ended December 31, 2023 and 2022 . 47 Table of Content 11. DEBT As of December 31, 2023 and 2022, our total long-term debt and finance lease obligations are summarized as follows (in thousands): December 31, 2023 2022 2022 ABL Credit Facility $ 113,415 $ 99,916 ME/RE Loans 1 24,061 — APSC Term Loan 1 — 31,562 Uptiered Loan / Subordinated Term Loan 1 129,436 107,905 Incremental Term Loan 1 38,758 — Total 305,670 239,383 Convertible Debt 1 — 40,650 Finance lease obligations 2 5,756 5,902 Total debt and finance lease obligations 311,426 285,935 Current portion of long-term debt and finance lease obligations ( 5,212 ) ( 280,993 ) Total long-term debt and finance lease obligations, less current portion $ 306,214 $ 4,942 _________________ 1 Comprised of principal amount outstanding, less unamortized discount and issuance costs. See below for additional information. 2 For information on our finance lease obligations, see Note 12 - Leases . The following table summarizes scheduled maturities of our debt for the years succeeding December 31, 2023 (in thousands): December 31 2024 $ 4,267 2025 137,821 2026 125,290 2027 50,000 2028 — Thereafter — Total $ 317,378 2022 ABL Credit Facility On February 11, 2022, we entered into a credit agreement, with the lender parties thereto, and Eclipse Business Capital, LLC, a Delaware limited liability company, as agent, (the “ABL Agent”) (such agreement, as amended by Amendment No. 1 dated as of May 6, 2022, Amendment No. 2 dated as of November 1, 2022, Amendment No.3 dated June 16, 2023, and Amendment No.4 dated March 6, 2024, and as further amended from time to time, the “2022 ABL Credit Agreement”). Available funding commitments to us under the 2022 ABL Credit Agreement, subject to certain conditions, include a revolving credit line in an amount of up to $ 130.0 million to be provided by certain affiliates of the ABL Agent (the “Revolving Credit Loans”), with a $ 35.0 million sublimit for swingline borrowings, a $ 26.0 million sublimit for issuances of letters of credit, and an incremental delayed draw term loan of up to $ 35.0 million (the “Delayed Draw Term Loan”) provided by Corre Partners Management, LLC and certain of its affiliates (collectively, the “2022 ABL Credit Facility”). The proceeds from the 2022 ABL Credit Facility were used to, among other things, pay off and terminate the 2020 ABL Facility (asset-based credit agreement with Citibank, N.A. for available borrowings up to $ 150.0 million entered on December 18, 2020). Our obligations under the 2022 ABL Credit Agreement are guaranteed by certain of our direct and indirect subsidiaries referenced below as the “ABL Guarantors” and, together with the Company, the “ABL Loan Parties.” Our obligations under the 2022 ABL Credit Facility are secured on a first priority basis by, among other things, accounts receivable, deposit accounts, securities accounts and inventory of the ABL Loan Parties (collectively, the “ABL Priority Collateral”) and are secured on a lower priority basis by substantially all of the other assets of the ABL Loan Parties, subject to the terms of the Intercreditor Agreement (as defined below). Availability under the revolving credit line is based on a percentage of the value of qualifying accounts receivable and inventory, reduced by certain reserves. The terms of the 2022 ABL Credit Facility are described in the table below (dollar amounts are presented in thousands): 48 Table of Content Revolving Credit Loans Delayed Draw Term Loan Original maturity date 2/11/2025 2/11/2025 Amended maturity date 8/11/2025 8/11/2025 Original stated interest rate LIBOR + applicable margin (base + applicable margin) LIBOR+ 10 % (Base+ 9 %) Amended interest rate SOFR + applicable margin (base + applicable margin) SOFR + 10 % (Base + 9 %) Actual interest rate: 12/31/2023 10.11 % 15.46 % 12/31/2022 8.77 % 14.12 % Interest payments monthly monthly Cash paid for interest 12/31/2023 $ 6,984 $ 5,317 12/31/2022 $ 5,388 $ 2,847 Unamortized balance of deferred financing cost 12/31/2023 $ 267 $ — 12/31/2022 $ 2,312 $ 798 Available amount at 12/31/2023 $ 21,271 $ — The “applicable margin” in the table above is defined as a rate of 3.15 %, 3.40 % or 3.65 % for Base Rate Loans with a 2.00 % base rate floor and a rate of 4.15 %, 4.40 % or 4.65 % for Adjusted Term SOFR Loans with a 1.00 % SOFR floor, in each case depending on the amount of EBITDA (as defined in ABL Amendment No. 3 to the 2022 ABL Credit Agreement) as of the most recent measurement period as reported in a monthly compliance certificate. Base rate is used when SOFR (or LIBOR previously) is not available. The fee for undrawn revolving amounts is 0.50 %. We may make voluntary prepayments of the loans under the 2022 ABL Credit Facility from time to time, subject, in the case of the Delayed Draw Term Loan, to certain conditions. Mandatory prepayments are also required in certain circumstances, including with respect to the Delayed Draw Term Loan, if the ratio of aggregate value of the collateral under the 2022 ABL Credit Facility to the sum of the Delayed Draw Term Loan plus revolving facility usage outstanding is less than 130 %. In addition, mandatory prepayments are required for the Delayed Draw Term Loan, equal to 100 % of all net cash proceeds attributable to certain European collateral realized in connection with the assets disposition. Amounts repaid under the Revolving Credit Loans may be re-borrowed, subject to compliance with the borrowing base and the other conditions set forth in the 2022 ABL Credit Agreement. Amounts repaid under the Delayed Draw Term Loan cannot be re-borrowed. Certain permanent repayments of the 2022 ABL Credit Facility loans are subject to the payment of a premium of 1.00 % from June 16, 2023 until August 11, 2024, and 0.50 % after August 11, 2024 until August 11, 2025. The 2022 ABL Credit Agreement contains customary conditions to borrowings and covenants, including covenants that restrict our ability to sell assets, make changes to the nature of our business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of certain debt. The 2022 ABL Credit Agreement following the execution of Amendment No. 3 also requires that we will not exceed $ 15.0 million in unfinanced capital expenditures in any CapEx Test Period (as defined therein); provided we shall be permitted to make up to $ 25.0 million in unfinanced capital expenditures in any CapEx Test Period (as defined therein) if we maintain a total leverage ratio of less than or equal to 2.00 to 1.00 on a pro forma basis immediately after giving effect to each such unfinanced capital expenditure in excess of the capital expenditure limit. In addition, the 2022 ABL Credit Agreement includes customary events of default, the occurrence of which may require that we pay an additional 2.0 % interest on the outstanding loans under the 2022 ABL Credit Facility and that the debt becomes payable immediately. As of December 31, 2023, we are in compliance with the covenants. Direct and incremental costs associated with the issuance of the 2022 ABL Credit Facility were approximately $ 8.4 million and were capitalized as deferred financing costs. These costs were fully amortized as of June 16, 2023 due to the Maturity Reserve Trigger Date provision that was previously applicable. We incurred an additional $ 0.4 million of financing cost related to the existing ABL Credit Facility in connection with the ABL Amendment No. 3. These costs were capitalized and amortized on a straight-line basis over the amended term of the 2022 ABL Credit Facility. 49 Table of Content As of December 31, 2023, we had $ 78.4 million outstanding under the Revolving Credit Loans and $ 35.0 million outstanding under the Delayed Draw Term Loans. There were $ 10.2 million in outstanding letters of credit secured by these instruments, which are off-balance sheet. ME/RE Loans The ABL Amendment No. 3, in addition to making certain other changes to the 2022 ABL Credit Facility, provided us with $ 27.4 million of new term loans (the “ME/RE Loans”). Our obligations in respect of the ME/RE Loans are guaranteed by certain direct and indirect material subsidiaries of the Company (the “ABL Guarantors” and, together with the Company, the “ABL Loan Parties”). The ME/RE Loans under the 2022 ABL Credit Agreement are secured on a first priority basis by, among other things, certain real estate and machinery and equipment (the “Specified ME/RE Collateral”) and are secured on a lower priority basis by substantially all of the other assets of the ABL Loan Parties. The ME/RE Loans were drawn in full on June 16, 2023 and were used to pay off the amounts owed under the existing APSC Term Loan, discussed below. The terms of ME/RE Loans are described in the table below (dollar amounts are presented in thousands): Original maturity date 8/11/2025 Original stated interest rate SOFR + 5.75 % + 0.11 % credit spread adjustment Principal payments $ 237 monthly Effective interest rate 12/31/2023 1 17.40 % 12/31/2022 N/A Actual interest rate 12/31/2023 11.21 % 12/31/2022 N/A Interest payments monthly Cash paid for interest 12/31/2023 $ 1,384 12/31/2022 N/A Balances at 12/31/2023 Principal balance $ 25,823 Unamortized balance of debt issuance cost $( 1,762 ) Net carrying balance $ 24,061 Available amount at 12/31/2023 $ — _________________ 1 The effective interest rate as of December 31, 2023, consisted of a 11.21 % variable interest rate paid in cash and an additional 6.19 % due to amortization of the related debt issuance costs. We may make voluntary prepayments of the ME/RE Loans from time to time. Mandatory prepayments are required in certain instances when sales of assets are completed that are related to the Specified ME/RE Collateral, and with annual excess cash flow (as defined in the 2022 ABL Credit Agreement), subject to certain prepayment premiums (subject to certain exceptions), plus accrued and unpaid interest. The remaining unpaid principal balance of the ME/RE loans at maturity will be $ 21.3 million. The ME/RE Loans are governed by the 2022 ABL Credit Agreement and the same restrictive covenants described above under 2022 ABL Credit Facility apply. Direct and incremental costs associated with the issuance of the ME/RE Loans in connection with ABL Amendment No. 3 were approximately $ 2.2 million and were deferred and presented as a direct deduction from the carrying amount of the related debt and are amortized over the term of the ME/RE Loans. APSC Term Loan On June 16, 2023, we used the proceeds from the ME/RE Loans and borrowings under the 2022 ABL Credit Facility to repay the total outstanding APSC Term Loan (defined below) balance of $ 35.5 million plus the applicable prepayment premium, resulting in a loss on debt extinguishment of $ 1.6 million. In the previous years, we entered into that certain Term Loan Credit Agreement, dated December 18, 2020, (as amended, the “APSC Term Loan Credit Agreement”) with Atlantic Park Strategic Capital Fund, L.P., as agent (“APSC”), pursuant to which we borrowed $ 250.0 million (the “APSC Term Loan”). The terms of APSC Term Loan are described in the table below (dollar amounts are presented in thousands): 50 Table of Content Original maturity date 12/18/2026 Original stated interest rate variable Effective interest rate 1 06/16/2023 (date of extinguishment) 38.61 % 12/31/2022 37.99 % Actual interest rate: 06/16/2023 (date of extinguishment) 12.63 % 12/31/2022 11.73 % Interest payments Quarterly Cash paid for interest YTD 12/31/2023 $ 2,861 YTD 12/31/2022 $ 17,466 PIK interest added to principal YTD 12/31/2023 $ — YTD 12/31/2022 $ 6,627 Balances at 12/31/2022 Principal balance $ 35,510 Unamortized balance of debt issuance cost $( 3,948 ) Net carrying balance $ 31,562 1 The effective interest rate as of June 16, 2023, consisted of a 12.63 % variable interest rate paid in cash and an additional 25.98 % due to the acceleration of amortization of the related debt issuance costs. The effective interest rate as of December 31, 2022, consisted of a 11.73 % variable interest rate paid in cash and an additional 26.26 % due to the acceleration of amortization of the related debt issuance costs. Amended and Restated Term Loan Credit Agreement - Uptiered Loan / Subordinated Term Loan and Incremental Term Loan On November 9, 2021, we entered into a credit agreement (as amended by Amendment No. 1 dated as of November 30, 2021, Amendment No. 2 dated as of December 6, 2021, Amendment No. 3 dated as of December 7, 2021, Amendment No. 4 dated as of December 8, 2021, Amendment No. 5 dated as of February 11, 2022, Amendment No. 6 dated as of May 6, 2022, Amendment No. 7 dated as of June 28, 2022, Amendment No. 8 dated as of October 4, 2022, Amendment No. 9 dated as of November 1, 2022, Amendment No. 10 dated as of November 4, 2022, Amendment No. 11 dated as of November 21, 2022 and Amendment No. 12 dated as of March 29, 2023, the “Subordinated Term Loan Credit Agreement”) with Cantor Fitzgerald Securities, as agent, and the lenders party thereto providing for an unsecured approximately $ 123.1 million delayed draw subordinated term loan facility. Pursuant to the Subordinated Term Loan Credit Agreement, we borrowed $ 22.5 million on November 9, 2021, and an additional $ 27.5 million on December 8, 2021. On October 4, 2022, an additional approximately $ 57.0 million was added to the outstanding principal amount under the Subordinated Term Loan Credit Agreement in exchange for an equivalent amount of the Company’s senior unsecured 5.00 % Convertible Senior Notes due 2023 (the “Notes”) held by Corre. On June 16, 2023, we entered into an amendment and restatement of that certain subordinated term loan credit agreement dated as of November 9, 2021 (such agreement, as amended and restated, and as further amended by Amendment No.1 dated March 6, 2024, the “A&R Term Loan Credit Agreement”) among the Company, as borrower, the guarantors party thereto, the lenders from time-to-time party thereto and Cantor Fitzgerald Securities, as agent (the “A&R Term Loan Agent”). Additional funding commitments under the A&R Term Loan Credit Agreement, subject to certain conditions, included a $ 57.5 million senior secured first lien term loan (the “Incremental Term Loan”) provided by Corre and certain of its affiliates, consisting of a $ 37.5 million term loan tranche and a $ 20.0 million delayed draw tranche. Amounts outstanding under the existing subordinated term loan credit agreement (the “Uptiered Loan”) have become senior secured obligations of the Company and the A&R Term Loan Guarantors (as defined below) and are secured on a pari passu basis with the Incremental Term Loan, on the terms described below. On July 31, 2023, $ 42.5 million, made up of $ 37.5 million of the term loan tranche and $ 5.0 million of the delayed draw tranche, of the $ 57.5 million Incremental Term Loan under the A&R Term Loan Credit Agreement was drawn down and the proceeds thereof were used to repay the Notes that matured on August 1, 2023. We borrowed an additional $ 5.0 million on October 6, 2023. The remaining availability of the delayed draw tranche of $ 10.0 million will be used, subject to certain maximum liquidity conditions, for working capital purposes. 51 Table of Content The Company’s obligations under the A&R Term Loan Credit Agreement are guaranteed by certain direct and indirect material subsidiaries of the Company (the “A&R Term Loan Guarantors” and, together with the Company, the “A&R Term Loan Parties”). The obligations of the A&R Term Loan Parties are secured on a second or lower priority basis by the ABL Priority Collateral and the Specified ME/RE Collateral, and on a first priority basis by substantially all of the other assets of the A&R Term Loan Parties, subject to the terms of an intercreditor agreement (the “Intercreditor Agreement”) between the A&R Term Loan Agent, the ABL Agent and the A&R Term Loan Parties, that sets forth the priorities in respect of the collateral and certain related agreements with respect thereto. We may make voluntary prepayments of the loans under the A&R Term Loan Credit Agreement from time to time, and we are required in certain instances related to change of control, asset sales, equity issuances, non-permitted debt issuances and with annual excess cash flow (as defined in the A&R Term Loan Credit Agreement), to make mandatory prepayments of the loans under the A&R Term Loan Credit Agreement, subject to certain prepayment premiums as specified in the A&R Term Loan Credit Agreement (subject to certain exceptions), plus accrued and unpaid interest. The A&R Term Loan Credit Agreement contains certain customary conditions to borrowings, events of default and affirmative, negative, and financial covenants (including a net leverage ratio and maximum annual capital expenditures covenant, all as described in the A&R Term Loan Credit Agreement). As of December 31, 2023, we were in compliance with the covenants. Further, the A&R Term Loan Credit Agreement includes certain customary events of default, the occurrence of which may require an additional 2.00 % interest on the outstanding loans and other obligations under the A&R Term Loan Credit Agreement and the debt may become payable immediately. The terms of Uptiered Loan / Subordinated Term Loan and Incremental Term Loan are described in the table below (dollar amounts are presented in thousands): Uptiered Loan / Subordinated Term Loan Incremental Term Loan Maturity date 12/31/2027 (12/31/2026 if outstanding balance is greater than $ 50 million) 12/31/2026 Stated interest rate 12 % PIK through 12/31/2023, then cash and PIK split as described below 12 % paid in cash Principal payments at maturity $ 356 quarterly Effective interest rate 12/31/2023 12.86 % 1 22.96 % 2 12/31/2022 29.23 % 1 N/A Interest payments cash quarterly/PIK monthly quarterly Cash paid for interest 12/31/2023 $ — $ 898 12/31/2022 $ — N/A PIK interest added to principal 12/31/2023 $ 14,644 $ 8 12/31/2022 $ 7,359 N/A Balances at 12/31/2023 Principal balance 3 $ 130,088 $ 48,052 Unamortized balance of debt issuance cost $( 651 ) $( 9,294 ) Net carrying balance $ 129,436 $ 38,758 Balances at 12/31/2022 Principal balance 3 $ 115,443 N/A Unamortized balance of debt issuance cost $( 7,538 ) N/A Net carrying balance $ 107,905 N/A Available amount at 12/31/2023 $ — $ 10,000 52 Table of Content ___________ 1 The effective interest rate on the Uptiered Loan/Subordinated Term Loan as of December 31, 2023, consisted of a 12.00 % stated interest rate paid in PIK and an additional 0.86 % due to the amortization of the related debt issuance costs. The effective interest rate on the Uptiered Loan/Subordinated Term Loan as of December 31, 2022 consisted of a 12.00 % stated interest rate paid in PIK and an additional 17.23 % due to the acceleration of the amortization of the related debt issuance costs. 2 The effective interest rate on the Incremental Term Loan as of December 31, 2023, consisted of a 12.00 % stated interest rate paid in cash and an additional 10.96 % due to the amortization of the related debt issuance costs. 3 The principal balance of the Uptiered Loan / Subordinated Term Loan is made up of $ 22.5 million drawn on November 9, 2021, $ 27.5 million drawn on December 8, 2021, and $ 57.0 million added as part of the exchange agreement on October 4, 2022. In addition, the principal balance includes PIK interest recorded of $ 22.2 million and $ 7.4 million as of December 31, 2023 and December 31, 2022 respectively, and PIK fees of $ 0.9 million. The Uptiered Loan under the A&R Term Loan Credit Agreement bears interest at an annual rate of 12.00 %, PIK from June 16, 2023 through December 31, 2023, and thereafter a split between cash and PIK, with the cash portion ranging from 2.50 % per annum to 12.00 % per annum, and the PIK portion ranging from 9.50 % per annum to 0.00 % per annum, depending on the Company’s Net Leverage Ratio (as defined in the A&R Term Loan Credit Agreement). In addition, if certain minimum liquidity thresholds set forth in the A&R Term Loan Credit Agreement are not met for an applicable interest payment date, all interest in respect of the Uptiered Loan payable on such interest payment date will be PIK, irrespective of the Net Leverage Ratio at such time. In addition, if certain conditions related to repayments in respect of the Incremental Term Loan are not met, certain additional quarterly fees (not to exceed 4 such fees) plus a 150 basis point increase to the applicable interest rate will be payable to the lenders under the A&R Term Loan Credit Agreement in cash or common stock of the Company, at the Company’s option. Direct and incremental costs associated with the issuance of the Incremental Term Loan in connection with the A&R Term Loan Credit Agreement were approximately $ 10.1 million and were deferred and presented as a direct deduction from the carrying amount of the related debt and are amortized over the term of the Incremental Term Loan. Warrants As of December 31, 2023 and December 31, 2022, APSC Holdco II, L.P. held 500,000 warrants and certain Corre holders collectively held 500,000 warrants in each case providing for the purchase of one share of the Company’s common stock per warrant at an exercise price of $ 15.00 . The warrants will expire on December 8, 2028. See table below for further details. Original After 1 for 10 Reverse Stock Split (Effective date December 22, 2022) Holder Date Number of shares Exercise price Expiration date Number of shares Exercise price Expiration date APSC Holdco II, LP Original 12/18/2020 3,582,949 $ 7.75 6/14/2028 Amended 11/9/2021 500,000 $ 1.50 6/14/2028 Amended 12/8/2021 917,051 $ 1.50 12/8/2028 Total APSC 5,000,000 $ 1.50 12/8/2028 500,000 $ 15.00 12/8/2028 Corre 12/8/2021 5,000,000 $ 1.50 12/8/2028 500,000 $ 15.00 12/8/2028 Total warrants 10,000,000 1,000,000 The exercise price and the number of shares of our common stock issuable on exercise of the warrants are subject to certain antidilution adjustments, including for stock dividends, stock splits, reclassifications, noncash distributions, cash dividends, certain equity issuances and business combination transactions. In connection with the transactions contemplated by the 2022 ABL Credit Agreement, on February 11, 2022 we entered into a common stock subscription agreement with the Corre holders, pursuant to which we issued and sold the common stock to the Corre holders. The Company, the Corre holders and APSC Holdco entered into those certain Team, Inc. Waivers of Anti-Dilution Adjustments and Cash Transaction Exercise (collectively, the “Warrant Waivers”) and agreed, among other things, (i) to irrevocably waive certain anti-dilution adjustments set forth in such Warrant in connection with the Proposed Equity Financing (as defined in the Warrant Waivers); (ii) to not exercise such Warrant, in whole or in part, if the Company determines that such exercise will cause an ownership change within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (assuming, among other things, that the ownership change threshold is 47% rather than 50%); and (iii) to only exercise such Warrant in a “cashless” or “net-issue” exercise. 53 Table of Content Convertible Debt On July 31, 2023, $ 42.5 million of the $ 57.5 million under the Incremental Term Loan was drawn down and the proceeds thereof were used to repay in full the remaining principal and accrued interest of the outstanding Notes on their maturity date of August 1, 2023. Previously, on July 31, 2017, we had issued $ 230.0 million principal amount of Notes in a private offering to qualified institutional buyers (as defined in the Securities Act of 1933) pursuant to Rule 144A under the Securities Act (the “Offering”). Net proceeds received from the Offering were approximately $ 222.3 million after deducting discounts, commissions and expenses and were used to repay outstanding borrowings under a previous credit facility. In December 2020, we retired $ 136.9 million par value of our Notes, and on October 4, 2022, we had entered into an exchange agreement (the “Exchange Agreement”) with certain holders to exchange approximately $ 57.0 million of aggregate principal amount, plus accrued and unpaid PIK Interest, of the Notes for an equivalent increased principal amount of term loan under the Subordinated Term Loan Credit Agreement. Following the closing of the Exchange Agreement and Amendment No.8 to the Subordinated Term Loan Credit Agreement, we had approximately $ 41.2 million in aggregate principal amount of Notes outstanding. The Notes bore interest at a rate of 5.0 % per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2018. The Notes were originally scheduled to mature on August 1, 2023. Effective interest rate as of December 31, 2022 was 7.84 %. Amortization of discount and debt issuance cost for the years ended December 31, 2023 and 2022 amounted to $ 0.5 million and $ 2.4 million, respectively. As of December 31, 2022, the outstanding net carrying balance of the Notes was $ 40.7 million consisting of the principal balance of $ 41.2 million and unamortized discount and debt issuance cost of $ 0.5 million. Cash interest paid for the years ended December 31, 2023 and 2022 amounted to $ 2.1 million and $ 2.1 million, respectively. PIK interest of $ 4.2 million was added to principal during 2022. There was no PIK interest in 2023. Fair Value of Debt The fair value of our 2022 ABL Credit Facility, Uptiered Loan, Incremental Term Loan and ME/RE Loans are representative of the carrying value based upon the respective interest rate terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the debt. The fair value of the Notes as of December 31, 2022 was $ 37.5 million, (inclusive of the fair value of the conversion option) and a “Level 2” measurement, determined based on the observed trading price of these instruments. The Notes were fully paid off on August 1, 2023. 1970 Group Substitute Insurance Reimbursement Facility On September 29, 2022, we entered into the Substitute Insurance Reimbursement Facility Agreement with 1970 Group Inc. (“1970 Group’) (as amended by that certain first amendment thereto dated August 29, 2023, the “Substitute Insurance Reimbursement Facility Agreement”). Under this agreement, the 1970 Group extended us credit in the form of a substitute reimbursement facility (the “Substitute Reimbursement Facility”) to initially provide up to approximately $ 21.4 million of letters of credit on our behalf in support of our workers’ compensation, commercial automotive and general liability insurance carriers for workers’ compensation, commercial automotive and/or general liability policies (the “Insurance Policies”). Such letters of credit arranged by the 1970 Group permitted the return of certain existing letters of credit for our account that were outstanding for the purpose of supporting the Insurance Policies and that are required to be collateralized, thereby providing us increased liquidity. Under the Substitute Insurance Reimbursement Facility Agreement, we are required to reimburse the 1970 Group for any draws made under the letters of credit within five business days of notice of any such draw. The Substitute Insurance Reimbursement Facility Agreement terminates upon the earlier of (i) the expiration or termination of our Insurance Policies or (ii) September 29, 2024 (as amended). The Substitute Insurance Reimbursement Facility Agreement contains certain affirmative covenants regarding our insurance contracts, and certain events of default. Our obligations under the Substitute Insurance Reimbursement Facility Agreement are not guaranteed by any of our subsidiaries, are unsecured and are subordinated to our debt obligations. As of December 31, 2023 we have $ 21.3 million of letters of credit outstanding under the Substitute Reimbursement Facility. According to the provisions of ASC 470 – Debt, the arrangement is a Substitute Insurance Reimbursement Facility limited to the amounts drawn under the letters of credit. Therefore, until we use or draw on the Substitute Insurance Reimbursement Facility, the letters of credit are treated as an off-balance sheet credit arrangement. Fees in the amount of $ 2.9 million and $ 2.9 million, respectively, were paid by us during the years ended December 31, 2023 and 2022 and were deferred and amortized over the term of the arrangement. As of December 31, 2023 and 2022, the unamortized balance of $ 1.8 million was included in other current assets. 54 Table of Content Liquidity As of December 31, 2023, we had $ 30.4 million of unrestricted cash and cash equivalents and $ 5.0 million of restricted cash including $ 3.4 million of restricted cash held as collateral for letters of credit and commercial card programs. International cash balances as of December 31, 2023 were $ 12.0 million, and approximately $ 0.6 million of such cash is located in countries where currency or regulatory restrictions exist. As of December 31, 2023, we had approximately $ 31.3 million of availability under our various credit facilities, consisting of $ 21.3 million available under the Revolving Credit Loans and $ 10.0 million available under the Incremental Delayed Draw Term Loan under the A&R Term Loan Credit Agreement. We had $ 35.7 million in letters of credit and $ 2.5 million in surety bonds outstanding and an additional $ 2.1 million in miscellaneous cash deposits securing leases or other required obligations. Our cash and cash equivalents as of December 31, 2022 totaled $ 58.1 million, of which $ 7.0 million was restricted, including $ 4.6 million of restricted cash held as collateral for letters of credit and commercial card programs. Additionally, $ 16.3 million of the $ 58.1 million of cash and cash equivalents was in foreign accounts, primarily in Europe, Canada and Australia including $ 1.4 million of cash located in countries where currency or regulatory restrictions exist. 12. LEASES We determine if an arrangement is a lease at inception. Operating leases are included in “Operating lease right-of-use (‘ROU’) assets”, “current portion of operating lease obligations” and “operating lease obligations” on our consolidated balance sheets. Finance leases are included in “property, plant and equipment, net”, “current portion of long-term debt and finance lease obligations” and “long-term debt and finance lease obligations” on our consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments and short-term lease payments (leases with initial terms less than twelve months) are expensed as incurred. We have lease agreements with lease and non-lease components for certain equipment, office, and vehicle leases. We have elected the practical expedient to not separate lease and non-lease components and account for both as a single lease component. We have operating and finance leases primarily for equipment, real estate, and vehicles. Some of our leases include options to extend the leases for up to 10 years, and some may include options to terminate the leases within 1 year. The components of lease expense are as follows (in thousands): December 31, 2023 2022 Operating lease costs $ 24,605 $ 25,116 Variable lease costs 5,198 5,346 Finance lease costs: Amortization of right-of-use assets 1,182 765 Interest on lease liabilities 462 421 Total lease cost $ 31,447 $ 31,648 Lease cost - discontinued operations $ — $ 841 Lease cost - continuing operations $ 31,447 $ 30,807 55 Table of Content Other information related to leases is as follows (in thousands): December 31, 2023 2022 Supplemental cash flow information: Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 18,823 $ 19,032 Operating cash flows from finance leases 446 316 Financing cash flows from finance leases 1,039 885 Right-of-use assets obtained in exchange for lease obligations Operating leases $ 3,402 $ 3,455 Finance leases $ 1,371 $ 1,270 Amounts recognized in the consolidated balance sheet are as follows (in thousands): December 31, 2023 2022 Operating Leases: Operating lease right-of-use assets $ 40,498 $ 48,462 Current portion of operating lease obligations 14,232 13,823 Operating lease obligations (non-current) 29,962 38,819 Finance Leases: Property, plant and equipment, net $ 5,258 $ 5,107 Current portion of long-term debt and finance lease obligations 945 960 Long-term debt and finance lease obligations 4,811 4,942 Weighted average remaining lease term Operating leases 5 years 6 years Finance leases 8 years 9 years Weighted average discount rate Operating leases 8.1 % 7.5 % Finance lease 8.0 % 7.3 % As of December 31, 2023, we have no material additional operating and finance leases that have not yet commenced. As of December 31, 2023, future minimum lease payments under non-cancellable (excluding short-term leases) are as follows (in thousands): Twelve Months Ended December 31, Operating Leases Finance Leases 2024 $ 16,519 $ 1,307 2025 11,389 1,011 2026 7,426 903 2027 5,855 753 2028 3,091 646 Thereafter 9,138 2,866 Total future minimum lease payments $ 53,418 $ 7,486 Less: Interest 9,224 1,730 Present value of lease liabilities $ 44,194 $ 5,756 56 Table of Content Total rent expense resulting from operating leases, including short-term leases, for the years ended December 31, 2023 and 2022 were $ 36.4 million and $ 37.3 million, respectively. 13. SHARE-BASED COMPENSATION We have adopted stock incentive plans and other arrangements pursuant to which our Board of Directors may grant stock options, restricted stock, stock units, stock appreciation rights, common stock or performance awards to officers, directors and key employees. As of December 31, 2023, there were approximately 707,595 restricted stock units, performance awards and stock options outstanding to officers, directors, and key employees. The exercise price, terms and other conditions applicable to each form of share-based compensation under our plans are generally determined by the Compensation Committee of our Board at the time of grant and may vary. In May 2021, our shareholders approved the amendment and restatement to the 2018 Team, Inc. Equity Incentive Plan (the “2018 Plan”). The 2018 Plan authorized issuance of share-based awards representing 420,000 shares, after giving effect of the reverse stock split discussed below. As of December 31, 2023, the 2018 Plan had 86,772 shares available for issuance, not including 445,136 performance awards granted in 2023, which can be settled in shares, cash or a combination thereof when vested. These performance awards are discussed in further detail below. Shares issued in connection with our share-based compensation are issued out of authorized but unissued common stock. On December 21, 2022, we completed a reverse stock split of our outstanding common stock at a ratio of one-for-ten (the “Reverse Stock Split”) that effected a proportionate reduction in shares available for issuance under the 2018 Plan. We have made proportionate adjustments to the number of stock units outstanding and issuable upon exercise or vesting of our outstanding awards as well as the applicable exercise prices and weighted average fair value. No fractional shares were issued in connection with the Reverse Stock Split. Compensation expense related to share-based compensation totaled $ 1.6 million, consisting of $ 1.4 million of stock units related expense and $ 0.2 million of performance units related expense, and $ 0.2 million, consisting of $ 1.5 million of stock units related expense and $ 1.3 million of credit related to performance units, for the years ended December 31, 2023 and 2022, respectively. Share-based compensation expense reflects an estimate of expected forfeitures. As of December 31, 2023, $ 3.7 million of unrecognized compensation expense related to share-based compensation is expected to be recognized over a remaining weighted-average period of 2.0 years. There was no income tax benefit recognized for the years ended December 31, 2023 or 2022. Stock units are settled with common stock upon vesting unless it is not legally feasible to issue shares, in which case the value of the award is settled in cash. We determine the fair value of each stock unit based on the market price on the date of grant. Stock units generally vest in annual installments over three or four years and the expense associated with the units is recognized over the same vesting period. Compensation expense related to stock units totaled $ 1.4 million and $ 1.5 million for the years ended December 31, 2023 and 2022, respectively. Transactions involving our stock units grants for the twelve months ended December 31, 2023 are summarized below: Twelve Months Ended December 31, 2023 No. of Stock Units Weighted Average Fair Value at Date of Grant (in thousands) Stock and stock units, beginning of year 98 $ 19.55 Changes during the year: Granted 253 $ 8.22 Vested and settled ( 87 ) $ 19.81 Cancelled ( 2 ) $ 44.04 Stock and stock units, end of year 262 $ 8.36 The intrinsic value of stock units vested during the years ended December 31, 2023 and 2022 was $ 0.6 million and $ 0.5 million, respectively. We have a performance stock unit award program whereby we grant Long-Term Performance Stock Unit (“LTPSU”) awards to our executive officers. Under this program, we communicate “target awards” to the executive officers during the first year of a performance period. LTPSU awards vest with the achievement of the performance goals and completion of the required service period. Settlement occurs with common stock as soon as practicable following the vesting date. 57 Table of Content We granted 445,136 LTPSUs during 2023 to certain executives with a milestone factor related to our adjusted EBITDA. This milestone factor is considered a non-market condition under GAAP. For performance units not subject to market conditions, we determine the fair value of each performance unit based on the market price of our common stock on the date of grant. For these awards, we recognize compensation expense over the vesting term on a straight-line basis based upon the performance target that is probable of being met, subject to adjustment for changes in the expected or actual performance outcome. For performance awards, we recorded an expense of $ 0.2 million and income of $ 1.3 million for the years ended December 31, 2023 and 2022, respectively. Transactions involving our performance awards during the twelve months ended December 31, 2023 are summarized below: Twelve Months Ended December 31, 2023 Performance Units Not Subject to Market Conditions No. of Stock Units 1 Weighted Average Fair Value at Date of Grant (in thousands) Performance stock units, beginning of period 2 $ 116.90 Changes during the period: Granted 445 $ 8.22 Cancelled and forfeited ( 2 ) $ 116.90 Performance stock units, end of period 445 $ 8.22 __________________________ 1 Performance units with variable payouts are shown at target level of performance. There were no performance stock units vested during the years ended December 31, 2023 and 2022. We determine the fair value of each stock option at the grant date using a Black-Scholes model and recognize the resulting expense of our stock option awards over the period during which an employee is required to provide services in exchange for the awards, usually the vesting period. There was no compensation expense related to stock options for the years ended December 31, 2023 and 2022. Our options typically vest in equal annual installments over a four-year service period. Expense related to an option grant is recognized on a straight-line basis over the specified vesting period for those options. Stock options generally have a ten-year term. No stock options were granted during the years ended December 31, 2023 and 2022. There were a small number of options remaining as of December 31, 2023 that had a weighted-average remaining contractual life of 0.4 years, and an exercise price of $ 504.70 . There were no stock option awards exercised during the years ended December 31, 2023 and 2022 . 58 Table of Content 14. SHAREHOLDERS’ EQUITY Shareholders’ Equity and Preferred Stock On December 21, 2022, we completed a reverse stock split of our outstanding common stock at a ratio of one-for-ten. The Reverse Stock Split effected a proportionate reduction in our authorized shares of common stock from 120,000,000 shares to 12,000,000 shares and reduced the number of shares of common stock outstanding from approximately 43,429,089 shares to approximately 4,342,909 shares. We have made proportionate adjustments to the number of common shares issuable upon exercise or conversion of our outstanding warrants and equity awards, as well as the applicable exercise prices and weighted average fair value of the equity awards. No fractional shares were issued in connection with the Reverse Stock Split. As of December 31, 2023 there were 4,415,147 shares of our common stock outstanding and 12,000,000 shares authorized with a par value of $ 0.30 per share. As of December 31, 2023 we had 500,000 authorized shares of preferred stock, none of which had been issued. Warrants In connection with the APSC Term Loan Credit Agreement and the Subordinated Term Loan Credit Agreement, we entered into Warrant Agreements and Waivers related to our common stock. A discussion of these transactions can be found in Note 11 - Debt. Accumulated Other Comprehensive Income (loss) A summary of changes in accumulated other comprehensive loss included within shareholders’ equity is as follows (in thousands): Twelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022 Foreign Currency Translation Adjustments Foreign Currency Hedge Defined benefit pension plans Tax Provision Total Foreign Currency Translation Adjustments Foreign Currency Hedge Defined benefit pension plans Tax Provision Total Balance at beginning of year $ ( 31,847 ) $ 2,988 $ ( 10,474 ) $ 336 $ ( 38,997 ) $ ( 25,258 ) $ 2,988 $ ( 3,873 ) $ ( 589 ) $ ( 26,732 ) Other comprehensive income (loss) 3,006 — ( 567 ) ( 374 ) 2,065 ( 6,589 ) — ( 6,601 ) 925 ( 12,265 ) Balance at end of year $ ( 28,841 ) $ 2,988 $ ( 11,041 ) $ ( 38 ) $ ( 36,932 ) $ ( 31,847 ) $ 2,988 $ ( 10,474 ) $ 336 $ ( 38,997 ) The following table represents the related tax effects allocated to each component of other comprehensive income (loss) (in thousands): Twelve Months Ended December 31, 2023 2022 Gross Amount Tax Effect Net Amount Gross Amount Tax Effect Net Amount Foreign currency translation adjustments $ 3,006 $ 22 $ 3,028 $ ( 6,589 ) $ — $ ( 6,589 ) Defined benefit pension plans ( 567 ) ( 396 ) ( 963 ) ( 6,601 ) 925 ( 5,676 ) Total $ 2,439 $ ( 374 ) $ 2,065 $ ( 13,190 ) $ 925 $ ( 12,265 ) 59 Table of Content 15. EMPLOYEE BENEFIT PLANS Defined contribution plan. Under the Team, Inc. Salary Deferral Plan (the “Plan”), contributions are made to the Plan by qualified employees at their election and our matching contributions to the Plan are made at specified rates. Our contribution for the plan year ended December 31, 2023 and 2022 was approximately $ 7.2 million and $ 3.3 million, respectively. Defined benefit plans. In connection with our acquisition of Furmanite, we assumed liabilities associated with the defined benefit pension plans of two foreign subsidiaries, one plan covering certain United Kingdom employees (the “U.K. Plan”) and the other covering certain Norwegian employees (the “Norwegian Plan”). In connection with the sale of our Norwegian operations in 2018, all assets and liabilities associated with the Norwegian Plan were transferred to the buyer. Benefits for the U.K. Plan are based on the average of the employee’s salary for the last three years of employment. The U.K. Plan has had no new participants added since the plan was frozen in 1994 and accruals for future benefits ceased in connection with a plan curtailment in 2013. Plan assets are primarily invested in unitized pension funds managed by U.K. registered fund managers. The most recent valuation of the U.K. Plan was performed as of December 31, 2023. Pension benefit costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions include factors such as discount rates, expected investment return on plan assets, mortality rates and retirement rates. The discount rate assumption used to determine end of year benefit obligations was 4.6 % as of December 31, 2023. These rates are reviewed annually and adjusted to reflect current conditions. These rates are determined appropriate based on reference to yields. The expected return on plan assets of 6.4 % for 2023 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. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return. Mortality and retirement rates are based on actual and anticipated plan experience. In accordance with GAAP, actual results that differ from the assumptions are accumulated and are subject to amortization over future periods and, therefore, generally affect recognized expense in future periods. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the pension obligation and future expense. Net pension cost (credit) included the following components (in thousands): Twelve Months Ended December 31, 2023 2022 Interest cost $ 2,763 $ 1,586 Expected return on plan assets ( 3,719 ) ( 2,362 ) Amortization of prior service cost 31 31 Amortization of net actuarial loss 285 — Net pension credit $ ( 640 ) $ ( 745 ) The weighted-average assumptions used to determine benefit obligations as of December 31, 2023 and 2022 are as follows: December 31, 2023 2022 Discount rate 4.6 % 5.0 % Rate of compensation increase 1 Not applicable Not applicable Inflation 3.1 % 3.2 % ______________ 1 Not applicable due to plan curtailment. 60 Table of Content The weighted-average assumptions used to determine net periodic benefit cost (credit) for the years ended December 31, 2023 and 2022 are as follows: Twelve Months Ended December 31, 2023 2022 Discount rate 5.0 % 2.0 % Expected long-term return on plan assets 6.4 % 2.8 % Rate of compensation increase 1 Not applicable Not applicable Inflation 3.2 % 3.3 % _______________ 1 Not applicable due to plan curtailment. The plan actuary determines the expected return on plan assets based on a combination of expected yields on equity securities and corporate bonds and considering historical returns. The expected long-term rate of return on invested assets for 2023 is determined based on the weighted average of expected returns on asset investment categories as follows: 5.5 % overall, 8.5 % for equities and 5.0 % for debt securities. The following table sets forth the changes in the benefit obligation and plan assets for the years ended December 31, 2023 and 2022 (in thousands): Twelve Months Ended December 31, 2023 2022 Projected benefit obligation: Beginning of year $ 56,170 $ 91,262 Interest cost 2,763 1,586 Actuarial (gain) loss 1,059 ( 22,444 ) Benefits paid ( 3,646 ) ( 5,028 ) Foreign currency translation adjustment and other 2,981 ( 9,206 ) End of year $ 59,327 $ 56,170 Fair value of plan assets: Beginning of year 56,568 94,164 Actual gain (loss) on plan assets 3,908 ( 26,919 ) Employer contributions 3,729 3,699 Benefits paid ( 3,646 ) ( 5,028 ) Foreign currency translation adjustment and other 3,091 ( 9,348 ) End of year 63,650 56,568 Excess projected obligation under fair value of plan assets at end of year $ 4,323 $ 398 Amounts recognized in accumulated other comprehensive loss: Net actuarial loss $ ( 12,020 ) $ ( 10,980 ) Prior service cost ( 509 ) ( 520 ) Total $ ( 12,529 ) $ ( 11,500 ) The accumulated benefit obligation for the U.K. Plan was $ 59.3 million and $ 56.2 million as of December 31, 2023 and 2022, respectively. 61 Table of Content As of December 31, 2023, expected future benefit payments are as follows for the years ended December 31, (in thousands): 2024 $ 3,838 2025 4,010 2026 3,955 2027 4,039 2028 4,044 2029-2033 20,432 Total $ 40,318 The following tables summarize the plan assets of the U.K. Plan measured at fair value on a recurring basis (at least annually) as of December 31, 2023 and 2022 (in thousands): December 31, 2023 Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash $ 2,992 $ 2,992 $ — $ — Equity securities: Diversified growth fund (a) 9,426 — 3,297 6,129 Fixed income securities: U.K. government fixed income securities (b) 9,369 — 9,369 — U.K. government index-linked securities (c) 9,255 — 9,255 — Corporate bonds (d) 32,608 — 32,608 — Total $ 63,650 $ 2,992 $ 54,529 $ 6,129 December 31, 2022 Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) (a) Significant Unobservable Inputs (Level 3) Cash $ 1,861 $ 1,861 $ — $ — Equity securities: Diversified growth fund (a) 15,285 — 4,848 10,437 Fixed income securities: U.K. government fixed income securities (b) 6,471 — 6,471 — U.K. government index-linked securities (c) 7,942 — 7,942 — Corporate bonds (d) 25,009 — 25,009 — Total $ 56,568 $ 1,861 $ 44,270 $ 10,437 a. This category includes investments in a diversified portfolio of equity, alternatives and cash markets that aims to achieve capital growth returns. b. This category includes investments in funds with the objective to provide a leveraged return to U.K. government fixed income securities (bonds) that have maturity periods ranging from 2030 to 2060. c. This category includes investments in funds with the objective to provide a leveraged return to various U.K. government indexed-linked securities (gilts), with maturity periods ranging from 2027 to 2062. The funds invest in U.K. government bonds and derivatives. d. This category includes investments in a diversified pool of debt and debt like assets to generate capital and income returns. Investment objectives for the U.K. Plan, as of December 31, 2023, are to: • optimize the long-term return on plan assets at an acceptable level of risk • maintain a broad diversification across asset classes 62 Table of Content • maintain careful control of the risk level within each asset class The trustees of the U.K. Plan have established a long-term investment strategy comprising global investment weightings targeted at 27.5 % (range of 25 % to 30 %) for equity securities/diversified growth funds and 72.5 % (range of 70 % to 75 %) for debt securities. Diversified growth funds are actively managed absolute return funds that hold a combination of debt and equity securities. Selection of the targeted asset allocation was based upon a review of the expected return and risk characteristics of each asset class, as well as the correlation of returns among asset classes. Actual allocations to each asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations and the timing of benefit payments and contributions. The following table sets forth the weighted-average asset allocation and target asset allocations as of December 31, 2023 and 2022 by asset category: Asset Allocations Target Asset Allocations 2023 2022 2023 2022 Equity securities and diversified growth funds 1 14.8 % 27.0 % 27.5 % 27.5 % Debt securities 2 80.5 % 69.7 % 72.5 % 72.5 % Other 4.7 % 3.3 % — % — % Total 100 % 100 % 100 % 100 % ______________________________ 1 Diversified growth funds refer to actively managed absolute return funds that hold a combination of equity and debt securities. 2 Includes investments in funds with the objective to provide leveraged returns to U.K. government fixed income securities, U.K. government indexed-linked securities, global bonds, and corporate bonds. The following table summarizes the changes in the fair value measurements of Level 3 investments for the pension plans (in thousands): December 31, 2023 December 31, 2022 Balance at beginning of year $ 10,437 $ 11,443 Actual return on plan assets 232 195 Purchases/ sales/ settlements ( 4,971 ) — Transfer in/out of level 3 — — Changes due to foreign exchange 431 ( 1,201 ) Balance at end of year $ 6,129 $ 10,437 The following is a description of the valuation methodologies used to measure plan assets at fair value. For equity securities and fixed income securities, fair value is based on observable inputs of comparable market transactions. The valuation of certain alternative investments, such as limited partnerships, may require significant management judgment and involves a level of uncertainty. The valuation is generally based on fair value as reported by the asset manager and adjusted for cash flows, if necessary. In making such an assessment, a variety of factors are reviewed by us, including, but are not limited to, the timeliness of fair value as reported by the asset manager and changes in general economic and market conditions subsequent to the last fair value reported by the asset manager. The use of different techniques or assumptions to estimate fair value could result in a different fair value measurement at the reporting date. Cash and cash equivalents are valued based on cost, which approximates fair value. Other than those assets that have quoted prices from an active market, investments are generally classified in Level 2 or Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value measure in its entirety. 63 Table of Content 16. COMMITMENTS AND CONTINGENCIES Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, which will only be resolved when one or more future events occur or fail to occur. Team’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, Team’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed. We accrue for contingencies where the occurrence of a material loss is probable and can be reasonably estimated, based on our best estimate of the expected liability. We may increase or decrease our legal accruals in the future, on a matter-by-matter basis, to account for developments in such matter. Because such matters are inherently unpredictable and unfavorable developments or outcomes can occur, assessing contingencies is highly subjective and requires judgments about future events. Notwithstanding the uncertainty as to the outcome and while our insurance coverage might not be available or adequate to cover these claims, based upon the information currently available, we do not believe that any uninsured losses that might arise from these lawsuits and proceedings will have a materially adverse effect on our consolidated financial statements. California Wage and Hour Litigation - We were a defendant in a consolidated class and collective action, Michael Thai v. Team Industrial Services, Inc., et al, pending in the U.S. District Court for the Central District of California, originally filed by two separate plaintiffs as separate cases in the Superior Court for the County of Los Angeles, California in June 2019 and August 2020, respectively. We settled the consolidated class and collective action in 2022 that resulted in us recording a pre-tax charge of $ 3.0 million in the third quarter of fiscal year 2022, and we paid the settlement in January 2023. Notice of Potential Environmental Violation - On April 20, 2021, Team Industrial Services, Inc. received Notices of Potential Violation from the U.S. Environmental Protection Agency alleging noncompliance with various waste determination, reporting, training, and planning obligations under the Resource Conservation and Recovery Act at seven of our facilities located in Texas and Louisiana. The allegations largely related to spent film developing solutions generated through our mobile radiographic inspection services and related to the characterization and quantities of those wastes and related notices, reporting, training, and planning. On February 9, 2022, TEAM and the EPA agreed to settle all the claims related to this matter and the formal settlement agreement was finalized in April 2022 with our agreement to pay penalties totaling $ 0.2 million. As of December 31, 2023, we had $ 0.1 million of penalties outstanding. Kelli Most Litigation - On November 13, 2018, Kelli Most filed a lawsuit against Team Industrial Services, Inc., individually and as a personal representative of the estate of Jesse Henson, in the 268th District Court of Fort Bend County, Texas (the “Most litigation”). The complaint asserted claims against Team for negligence resulting in the wrongful death of Jesse Henson. A jury trial commenced on this matter on May 4, 2021. On June 1, 2021, the jury rendered a verdict against Team for $ 222.0 million in compensatory damages. On January 25, 2022, the trial court signed a final judgment in favor of the plaintiff and against Team Industrial Services, Inc. Post-judgment motions challenging the judgment were filed on February 24, 2022 and were denied by the court on April 22, 2022. A notice of appeal was filed on April 25, 2022, and this case is currently pending in the Court of Appeals for the First District of Texas, in Houston. We believe that the likelihood that the amount of the judgment will be affirmed is not probable. We have taken into consideration the events that have occurred after the reporting period and before the financial statements were issued. We currently estimate a range of possible outcomes between $ 13.0 million and approximately $ 51.0 million, and we have accrued a liability as of December 31, 2023 which is the amount we believe is the most likely estimate for a probable loss on this matter. We have also recorded a related receivable from our third-party insurance providers in other current assets with the corresponding liability of the same amount in other accrued liabilities. Such amounts are treated as non-cash operating activities. The Most litigation is covered by our general liability and excess insurance policies which are occurrence based and subject to an aggregate $ 3.0 million self-insured retention and deductible. All retentions and deductibles have been met, accordingly, we believe pending the final settlement, all further claims will be fully funded by our insurance policies. We will 64 Table of Content continue to evaluate the possible outcomes of this case in light of future developments and their potential impact on factors relevant to our assessment of any possible loss. Notice of repayment of pandemic related government subsidies - In response to widespread health crises, epidemics and pandemics, certain of our entities based in foreign jurisdictions, received governmental funding assistance to compensate for a portion of employee wages between March 2020 and March 2022. Following ongoing compliance reviews of these funding assistance programs, we received notices stating noncompliance with the requirements of these funding assistance programs. Accordingly, based on the assessments completed by the government appointed administrative authority, we have accrued $ 5.5 million, to be repaid over an extended period, as of December 31, 2023. We believe there are grounds for appeal and intend to challenge the decisions passed by the administrative authority to repay the funds through appropriate legal means. Accordingly, for all matters discussed above, we have accrued in the aggregate approximately $ 45.1 million as of December 31, 2023, of which approximately $ 6.1 million is not covered by our various insurance policies. In addition to legal matters discussed above, we are subject to various lawsuits, claims and proceedings encountered in the normal conduct of business (“Other Proceedings”). We believe that based on our current knowledge and after consultation with legal counsel that the Other Proceedings, individually or in the aggregate, will not have a material effect on our consolidated financial statements. 65 Table of Content 17. SEGMENT AND GEOGRAPHIC DISCLOSURES ASC 280, Segment Reporting , requires us to disclose certain information about our operating segments. Operating segments are defined as “components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.” We conduct operations in two segments: IHT and MS. Segment data for our two operating segments are as follows (in thousands): Twelve Months Ended December 31, 2023 2022 Revenues: IHT $ 429,559 $ 422,562 MS 433,056 417,646 Total Revenues $ 862,615 $ 840,208 Twelve Months Ended December 31, 2023 2022 Operating income (loss): IHT $ 24,220 $ 17,093 MS 27,759 20,930 Corporate and shared support services ( 65,255 ) ( 77,825 ) Total Operating income (loss) $ ( 13,276 ) $ ( 39,802 ) Twelve Months Ended December 31, 2023 2022 Capital expenditures 1 : IHT $ 5,373 $ 13,939 MS 5,052 5,013 Corporate and shared support services 9 84 Total Capital expenditures $ 10,434 $ 19,036 ______________ 1 Excludes finance leases. Totals may vary from amounts presented in the consolidated statements of cash flows due to the timing of cash payments. Twelve Months Ended December 31, 2023 2022 Depreciation and amortization: IHT $ 12,402 $ 12,391 MS 18,755 19,021 Corporate and shared support services 6,715 5,041 Total Depreciation and amortization $ 37,872 $ 36,453 Separate measures of our assets by operating segment are not produced or utilized by management to evaluate segment performance. 66 Table of Content A geographic breakdown of our revenues for the years ended December 31, 2023 and 2022 and our total long-lived assets as of December 31, 2023 and 2022 are as follows (in thousands): Total Revenues 1 Total Long-lived Assets 2 Twelve months ended December 31, 2023 United States $ 623,763 $ 210,427 Canada 84,870 4,755 Europe 73,295 13,080 Other foreign countries 80,687 1,986 Total $ 862,615 $ 230,248 Twelve months ended December 31, 2022 United States $ 613,021 $ 240,088 Canada 95,791 4,708 Europe 61,713 14,591 Other foreign countries 69,683 2,581 Total $ 840,208 $ 261,968 ______________ 1 Revenues attributable to individual countries/geographic areas are based on the country of domicile of the legal entity that performs the work. 2 Excludes financial instruments and deferred tax assets. 18. RELATED PARTY TRANSACTIONS Alvarez & Marsal provided certain consulting services to us in connection with our former Interim Chief Financial Officer position and other corporate support costs. Effective June 12, 2022 the Interim Chief Financial Officer position ended, as we named a permanent Chief Financial Officer. We paid $ 8.1 million in consulting fees to Alvarez & Marsal for the year ended December 31, 2022. In connection with our debt transactions, we engaged in transactions with Corre and APSC to provide funding as described in Note 11 - Debt . 19. SUBSEQUENT EVENTS As of March 7, 2024, the filing date of this Annual Report on Form 10-K, we evaluated the existence of events occurring subsequent to the end of fiscal year 2023 and determined that there were no events or transactions that would have a material impact on our results of operations or financial position, except for the execution of Amendment No.1 to the A&R Term Loan Credit Agreement (“Amendment No.1”), and Amendment No.4 to the 2022 ABL Credit Agreement (“Amendment No.4”), each dated March 6, 2024. Amendment No.1 and Amendment No.4 modified certain terms and covenants defined in the respective debt agreements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements concerning accounting and financial disclosures with our independent accountants during any of the periods presented. 67 Table of Content