What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-14 · 150 added, 78 removed, 237 unchanged (49% of the section changed)

47 unchanged sentences

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.

These services can be offered while facilities are running (onstream), 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.

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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.

and online 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.

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• Aerospace and Defense.

Recent Developments.

On March 14, 2024, we received a written notice from the NYSE that we are not in compliance with the continued listing standards set forth in Rule 802.01B of the NYSE Listed Company Manual because our average global

market capitalization over a consecutive 30 trading-day period was less than $50.0 million and, at the same time, our last reported shareholders’ equity was less than $50.0 million.

As required by the NYSE, we timely notified the NYSE of our intent to cure the deficiency and restore our compliance with the NYSE continued listing standards.

In accordance with applicable NYSE procedures, we have 45 days from receipt of the notice to submit a plan advising the NYSE of the definitive action(s) we have taken, or are taking, that would bring us into compliance with the minimum global market capitalization listing standard within 12 months of receipt of the written notice.

On April 29, 2024, we submitted a plan to bring us into compliance with the NYSE continued listing standards within the required timeframe.

The NYSE will review the plan and, within 45 days of its receipt, determine whether we have made a reasonable demonstration of our ability to conform to the relevant standards in the 12-month period.

If the NYSE accepts the plan, our common stock will continue to be listed and traded on the NYSE during the 12-month period, subject to our compliance with other NYSE continued listing standards and continued periodic review by the NYSE of our progress with respect to the plan.

The notice has no immediate impact on the listing of the Company’s common stock, which will continue to trade on the NYSE during the applicable cure period, and does not result in a default under the Company's material debt or other agreements.

The Company is considering all available options to regain compliance with the NYSE continued listing standards.

The Company can provide no assurances that it will be able to satisfy any of the steps outlined above and maintain the listing of its shares on the NYSE.

Market Conditions Update.

Oil and gas prices trended upward toward the end of the first quarter of 2024, reflecting heightened geopolitical tensions amid supply-demand tightening, although slower demand growth is currently expected for the remainder of the year.

Oil and gas price volatility may impact the current and future spending on our services by our clients.

The future impacts to our business from potentially higher interest rates, persistent global and domestic inflation, geopolitical unrest especially in the Middle East, and volatility in global supply chains cannot be predicted.

See Item 1A “Risk Factors” in our Annual Report on Form 10-K for additional information.

Listing Notice from NYSE.

On March 14, 2024 , we were notified by the NYSE of our non-compliance with their continued listing standards, as our total market capitalization and shareholders’ equity had fallen below the NYSE listing

requirements.

As required by the NYSE, we notified the NYSE of our intent to cure the market capitalization and/or shareholder’ equity deficiency and restore our compliance with NYSE continued listing standards.

In accordance with applicable NYSE procedures, on April 29, 2024, we submitted a plan advising the NYSE of the definitive actions we have taken and are taking that would bring us into compliance with NYSE continued listing standards within 12 months of receipt of the written notice.

The NYSE accepted the plan and our common stock will continue to be listed and traded on the NYSE during the 12-month period beginning March 14, 2024, subject to our compliance with other NYSE continued listing standards and continued periodic review by the NYSE of our progress with respect to our plan.

We intend to regain compliance with the NYSE listing standards by pursuing measures that are in our best interest and the best interest of our shareholders.

We can provide no assurances that we will be able to satisfy any of the steps outlined in the plan approved by the NYSE and maintain the listing of our shares on the NYSE.

Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

The following is a comparison of our results of operations for the three months ended March 31, 2024 to the three months ended March 31, 2023 (in thousands).

Three Months Ended March 31, Increase

The following is a comparison of our results of operations for the three and six months ended June 30, 2024 to the three and six months ended June 30, 2023.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

The following table sets forth the components of revenue and operating loss from our operations for the three-month period ended June 30, 2024 and 2023 (in thousands):

Three Months Ended June 30, Favorable (Unfavorable)

2024 2023 $ %

8 unchanged sentences

Corporate and shared support services (11,937) (14,672) 2,735 18.6 %

Total operating loss $ (6,386) $ (7,746) $ 1,360 17.6 %

Total operating income

$ 11,159 $ 4,596 $ 6,563 142.8 %

Interest expense, net $ (11,909) $ (16,691) $ 4,782 28.7 %

Loss on debt extinguishment — (1,582) 1,582 100.0 %

Other (expense) income, net

(541) 13 (554) NM

Loss before income taxes $ (1,291) $ (13,664) $ 12,373 90.6 %

Provision for income taxes (1,472) (2,089) 617 29.5 %

Net loss $ (2,763) $ (15,753) $ 12,990 82.5 %

NM = Not meaningful

Total revenues decreased $10.9 million or 4.5% from the prior year quarter and were negatively impacted by $0.6 million from foreign exchange movement.

IHT revenues decreased by $3.5 million or 3.0% primarily due to lower IHT Canada operations revenue of $5.4 million due to lower activity in nested and turnaround services and lower revenue from other international regions of $0.7 million, partially offset by a $2.6 million increase in the U.S.

MS revenue decreased by $7.4 million or 6.0%, which was attributable to a $2.7 million decrease in MS U.S.

operations primarily due to project timing, a $2.1 million decrease in MS Canada operations due to less project work and a $2.5 million decrease in other international regions revenue primarily due to lower overall activity.

Operating income (loss).

Overall operating income was $11.2 million in the current year quarter, a $6.6 million improvement compared to the prior year quarter.

IHT operating income increased by $5.9 million or 90.3% due to lower costs and higher margins in the U.S.

mainly attributable to cost reduction actions.

MS operating income decreased by $2.1 million or 16.4% as compared to the prior year quarter primarily due to a $1.9 million decrease in operating income from international regions and a $0.5 million decrease from Canada operations, driven by lower revenue and project mix, partially offset by an increase in U.S.

operating income.

Corporate operating loss decreased by $2.7 million due to lower professional fees in the current quarter compared to the prior year quarter and lower overall costs due to the Company’s continuous cost reduction efforts.

We continue to experience cost inflation in several areas across all segments, such as raw materials, transportation, and labor costs.

For the three months ended June 30, 2024 and 2023, operating loss includes net expenses totaling $0.8 million and $3.1 million, respectively, that we do not believe are indicative of our core operating activities, as detailed in the table below (in thousands):

Three Months Ended June 30,

Operating income (loss) $ 11,159 $ 4,596

Professional fees and other 516 2,647

Legal costs 41 200

Severance charges, net 225 217

Total non-core expenses 782 3,064

Operating income, excluding non-core expenses $ 11,941 $ 7,660

Excluding the impact of these identified non-core items in both periods, operating income increased by $4.2 million from $7.7 million in the three months ended June 30, 2023 to $11.9 million in the three months ended June 30, 2024.

See our non-GAAP reconciliation for additional details of our non-core expenses.

Interest expense, net.

Interest expense decreased by $4.8 million compared to the prior year quarter.

The decrease was primarily attributable to the accelerated amortization of debt related deferred costs until June 16, 2023 in the prior year quarter.

This decrease was partially offset by higher interest expense on our various debt arrangements.

Cash interest paid during the quarter ended June 30, 2024 and 2023 was $6.5 million and $4.7 million, respectively.

Other income, net.

Other income, net decreased by $0.6 million, driven primarily by the impact of foreign currency fluctuations.

The provision for income tax was $1.5 million on the pre-tax loss of $1.3 million in the current year quarter, compared to a $2.1 million income tax provision on a pre-tax loss of $13.7 million in the prior year quarter.

The effective tax rate, inclusive of discrete items, was a provision of 114.0% for the three months ended June 30, 2024, compared to a provision of 15.3% for the three months ended June 30, 2023.

The increase in effective tax rate for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 is due to the mix of pretax income in non-valuation allowance jurisdictions and pretax losses in valuation allowance jurisdictions.

The impact is additional income tax expense with minimal corresponding pretax income/(loss) movement and increase in effective tax rate.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

The following is a comparison of our results of operations for the six months ended June 30, 2024 to the six months ended June 30, 2023 (in thousands).

Six Months Ended June 30, Favorable (Unfavorable)

2024 2023 $ %

(unaudited) (unaudited)

Revenues by business segment:

IHT $ 212,682 $ 218,569 $ (5,887) (2.7) %

MS 215,536 223,200 (7,664) (3.4) %

Total revenues $ 428,218 $ 441,769 $ (13,551) (3.1) %

Operating income (loss):

IHT $ 17,644 $ 11,271 $ 6,373 56.5 %

MS 14,728 15,913 (1,185) (7.4) %

Corporate and shared support services (27,599) (30,334) 2,735 9.0 %

Total operating income (loss)

$ 4,773 $ (3,150) $ 7,923 251.5 %

Interest expense, net $ (24,007) $ (33,432) $ 9,425 28.2 %

Loss on debt extinguishment — (1,582) 1,582 100.0 %

Other income, net 821 648 173 26.7 %

Loss before income taxes $ (18,413) $ (37,516) $ 19,103 50.9 %

2 unchanged sentences

Total revenues decreased $13.6 million or 3.1% from the prior year period.

Revenues were positively impacted by $0.6 million from favorable foreign exchange movements during the three-month period ended March 31, 2024.

IHT segment year-to-date revenue decreased 2.3%, compared to the prior year period, primarily driven by decreased call out and turnaround activities in the U.S.

and Canada regions, partially offset by an increase in Aerospace activity.

MS segment revenue decreased 0.3% compared to the prior year period, mainly due to a $4.3 million decrease in Canada operations attributable to projects from the 2023 period that did not repeat in the 2024 period;

mostly offset by a $1.2 million increase in U.S.

operations and a $2.8 million increase in other international operations primarily attributable to higher nested and turnaround activity.

Revenues had no impact from foreign exchange movements during the six-month period ended June 30, 2024.

IHT segment year-to-date revenue decreased 2.7% compared to the prior year period, primarily driven by decreased call out and turnaround activities in Canada and other international regions, partially offset by a $1.8 million increase in aerospace related revenue.

MS segment revenue decreased by $7.7 million or 3.4% compared to the prior year period, mainly due to a $6.5 million decrease in Canada operations attributable to projects from the 2023 period that did not repeat in the 2024 period, and a $1.4 million decrease in U.S.

Operating income (loss).

Overall operating loss was $6.4 million in the current year, a $1.4 million or 17.6% improvement as compared to an operating loss of $7.7 million in the prior year.

IHT operating income increased by $0.5 million or 9.8%, primarily driven by lower direct costs and improved margins.

MS operating income increased by $0.9 million or 28.1% as compared to the prior year period.

MS operating income from the U.S., and other international operations increased by $1.9 million, and $0.6 million, respectively, driven by higher activity and improved margins, partially offset by a decrease of $1.6 million in Canada, primarily driven by non-repeating projects in the prior year.

Corporate operating loss remained consistent with the prior year period.

Overall operating income was $4.8 million in the current year, a $7.9 million or 251.5% improvement as compared to an operating loss of $3.2 million in the prior year.

IHT operating income increased by $6.4 million or 56.5%, primarily driven by lower costs and improved margins.

MS operating income decreased by $1.2 million or 7.4% as compared to the prior year period.

MS operating income from Canada and other international operations decreased by $2.1 million and $1.3 million, respectively, primarily driven by projects from the prior year period that did not repeat in 2024.

This decrease in operating income was partially offset by an increase in operating income from U.S.

operations of $2.2 million driven by higher activity and improved margins.

Corporate operating loss decreased by $2.7 million compared to the prior year period due to lower overall costs resulting from the Company’s continuous cost reduction efforts.

We continue to experience cost inflation in several areas across all segments, such as raw materials, transportation, and labor costs.

For the three months ended March 31, 2024 and 2023, operating loss includes net expenses totaling $2.6 million and $2.0 million, respectively, that we do not believe are indicative of our core operating activities, as detailed in the table below (in thousands):

Three Months Ended March 31,

Operating loss $ (6,386) $ (7,746)

For the six months ended June 30, 2024 and 2023, operating loss includes net expenses totaling $3.4 million and $5.1 million, respectively, that we do not believe are indicative of our core operating activities, as detailed in the table below (in thousands):

Six Months Ended June 30,

Operating income (loss)

$ 4,773 $ (3,150)

Professional fees and other 2,597 4,368

2 unchanged sentences

Total non-core expenses 3,370 5,090

Operating loss, excluding non-core expenses

Operating income (loss), excluding non-core expenses

$ 8,143 $ 1,940

Excluding the impact of these identified non-core items in both periods, operating loss decreased by $1.9 million, from a loss of $5.7 million to a loss of $3.8 million.

Excluding the impact of these identified non-core items in both periods, operating income increased by $6.2 million, from $1.9 million to $8.1 million.

See our non-GAAP reconciliation for additional details of our non-core expenses.

1 unchanged sentence

Interest expense, net decreased by $9.4 million from the prior year period.

The decrease was primarily due to elimination of accelerated amortization of debt issuance costs, and reduction in outstanding debt balance due to payoff of the remaining balance on the Atlantic Park Strategic Capital Fund, L.P.

term loan in June 2023 and full payoff of the convertible debt in August 2023.

These decreases were partially offset by interest expense incurred on the ME/RE Loans and the Incremental Term Loan entered in June 2023, increase in interest expense on the 2022 ABL Credit Facility due to higher interest rates and increase in the paid-in-kind (“PIK”) interest on the Uptiered Loan.

Cash interest paid for the three months ended March 31, 2024 and 2023 was $5.9 million and $5.2 million, respectively.

The decrease was primarily attributable to the accelerated amortization of debt related deferred cost until June 16, 2023 which was not applicable during the current year period.

This decrease was partially offset by higher interest expense on our various debt arrangements.

Cash interest paid for the six months ended June 30, 2024 and 2023 was $12.4 million and $9.1 million, respectively.

Other income, net .

Other income increased by $0.7 million from the prior year period primarily due to a higher gain on foreign currency transactions in the current year period.

Other income increased by $0.2 million from the prior year period driven by a higher gain on foreign currency transactions in the current year period, offset by loss on asset disposals in the current year compared to gain in the prior year period.

T he provision for income tax was $1.5 million on the pre-tax loss of $18.4 million in the current year-to-date period compared to income tax expense o f $2.9 million o n the pre-tax loss of $37.5 million in the prior year-to-date period.

The effective tax rate was a provision of 0.4% for the three months ended March 31, 2024, compared to a provision of 3.6% for the three months ended March 31, 2023.

The effective tax rate differs from the prior year period due to changes in valuation allowance.

The effective tax rate was a provision of 8.4% for the six months ended June 30, 2024, compared to a provision of 7.7% for the six months ended June 30, 2023.

The effective tax rate differs from the prior year period due to changes in the valuation allowance.

Non-GAAP Financial Measures and Reconciliations

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Consolidated adjusted EBIT, as defined by us, excludes the costs excluded from adjusted net income (loss) as well as income tax expense (benefit), interest charges, foreign currency (gain) loss, pension credit, and items of other (income) expense.

Consolidated adjusted EBITDA further excludes from consolidated adjusted EBIT depreciation, amortization, and non-cash share-based compensation costs.

Consolidated adjusted EBITDA further excludes depreciation, amortization, and non-cash share-based compensation costs from consolidated adjusted EBIT.

Segment adjusted EBIT is equal to segment operating income (loss) excluding costs associated with non-routine legal costs and settlements, non-routine professional fees, certain severance charges, and certain other items as determined by us.

Segment adjusted EBITDA further excludes from segment adjusted EBIT depreciation, amortization, and non-cash share-based compensation costs.

Segment adjusted EBITDA further excludes depreciation, amortization, and non-cash share-based compensation costs from segment adjusted EBIT.

Free cash flow is defined as net cash provided by (used in) operating activities minus capital expenditures.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued)

(unaudited, in thousands)

Three Months Ended March 31,

(unaudited, in thousands except per share data)

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Adjusted Net Loss:

1 unchanged sentence

Professional fees and other 1

516 2,647 2,597 4,368

41 200 123 200

Severance charges, net 2

225 217 650 522

Loss on debt extinguishment — 1,582 — 1,582

Tax impact of adjustments and other net tax items 3

(26) (7) (138) (85)

Adjusted Net Loss $ (2,007) $ (11,114) $ (16,726) $ (33,877)

5 unchanged sentences

Provision for income taxes 1,472 2,089 1,545 2,948

Gain on equipment sale

Loss (gain) on equipment sale

28 7 18 (296)

Interest expense, net 11,909 16,691 24,007 33,432

Professional fees and other 1

516 2,647 2,597 4,368

41 200 123 200

Severance charges, net 2

Foreign currency gain (1,239) (177)

225 217 650 522

Foreign currency loss (gain)

615 143 (624) (34)

Pension credit 4

(102) (162) (215) (318)

Loss on debt extinguishment — 1,582 — 1,582

Consolidated Adjusted EBIT 11,941 7,661 8,143 1,940

6 unchanged sentences

Free Cash Flow:

Cash provided by (used in) operating activities $ 1,886 $ (17,763)

Cash used in operating activities

$ (6,352) $ (5,854) $ (4,466) $ (23,617)

Capital expenditures (2,743) (2,381) (5,759) (5,073)

1 unchanged sentence

____________________________________

1 For the three months ended March 31, 2024, includes $1.9 million related to debt financing, and $0.2 million related to support costs.

For the three months ended March 31, 2023, includes $1.7 million related to costs associated with corporate support.

1 For the three and six months ended June 30, 2024, includes $0.5 million and $2.4 million, respectively, related to debt financing, and for the six months ended June 30, 2024, includes $0.2 million related to support costs.

For the three and six months ended June 30, 2023, includes $1.6 million and $3.2 million, respectively, related to debt financing and $0.7 million and $0.8 million, respectively, related to lease extinguishment charges, and for the three and six months ended June 30, 2023, includes $0.3 million of support costs.

2 Represents customary severance costs associated with staff reductions.

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(unaudited, in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Segment Adjusted EBIT and Adjusted EBITDA:

1 unchanged sentence

Severance charges, net 1

152 165 247 205

Professional fees and other 2

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Severance charges, net 1

49 52 374 308

Professional fees and other 2

5 unchanged sentences

Provision for income taxes 1,472 2,089 1,545 2,948

Gain on equipment sale (10) (303)

Loss (gain) on equipment sale 28 7 18 (296)

Interest expense, net 11,909 16,691 24,007 33,432

Foreign currency gain (1,239) (177)

Foreign currency loss (gain) 615 143 (624) (34)

Pension credit 3

(102) (162) (215) (318)

Professional fees and other 2

458 1,772 2,417 3,473

Severance charges, net 1

Loss on debt extinguishment — 1,582 — 1,582

Adjusted EBIT (11,455) (12,699) (25,071) (26,652)

4 unchanged sentences

1 Represents customary severance costs associated with staff reductions.

2 For the three months ended March 31, 2024, includes $1.9 million related to debt financing, and $0.2 million related to support costs.

For the three months ended March 31, 2023, includes $1.7 million related to costs associated with corporate support.

2 For the three and six months ended June 30, 2024, includes $0.5 million and $2.4 million, respectively, related to debt financing, and for the six months ended June 30, 2024, includes $0.2 million related to support costs.

3 Represents pension credits for the U.K.

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Based upon such liquidity assessment, we believe that the Company’s current working capital, forecasted cash flows from operations, expected availability under our existing debt arrangements and capital expenditure financing is sufficient to fund our operations, service our indebtedness, and maintain compliance with our debt covenants.

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

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

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

22 unchanged sentences

See Item 1A “Risk Factors” in our Annual Report on Form 10-K for additional information.

As of March 31, 2024, we had approximately $16.7 million of borrowing capacity consisting of $6.7 million available under the 2022 ABL Credit Agreement, and $10.0 million available under the A&R Term Loan Agreement.

As of June 30, 2024, we had approximately $22.2 million of borrowing capacity consisting of $12.2 million available under the 2022 ABL Credit Agreement, and $10.0 million available under the A&R Term Loan Agreement.

Our principal uses of cash are for working capital, capital expenditures, and operations.

As of March 31, 2024, we were in compliance with our debt covenants.

As of June 30, 2024, we were in compliance with our debt covenants.

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

As of May 10, 2024, we had consolidated cash and cash equivalents of $15.4 million, excluding $5.1 million of restricted cash mainly as collateral for letters of credit and commercial card programs, and approximately $21.3 million of undrawn availability under our various credit facilities, resulting in total liquidity of $36.7 million.

As of August 6, 2024, we had consolidated cash and cash equivalents of $19.5 million, excluding $4.5 million of restricted cash used mainly as collateral for letters of credit and commercial card programs, and approximately $12.8 million of undrawn availability under our various credit facilities, resulting in total liquidity of $32.3 million.

Refer to Note 10 - Debt in this Quarterly Report on Form 10-Q and Note 11 - Debt in our Annual Report on Form 10-K for additional information on our debt instruments.

Cash and cash equivalents.

Our cash and cash equivalents as of March 31, 2024 totaled $24.2 million, consisting of $19.2 million of unrestricted cash on hand, and $5.0 million of restricted cash.

International cash balances as of March 31, 2024 were $8.2 million, and approximately $0.7 million of such cash is located in countries where currency or regulatory restrictions exist.

Our cash and cash equivalents as of June 30, 2024 totaled $22.5 million, consisting of $17.9 million of unrestricted cash on hand, and $4.6 million of restricted cash.

International cash balances as of June 30, 2024 were $6.1 million, and approximately $0.5 million of such cash is located in countries where currency or regulatory restrictions exist.

As of December 31, 2023, our cash and cash equivalents were $35.4 million, including $30.4 million of unrestricted cash on hand, and $5.0 million of restricted cash.

International cash balances as of December 31, 2023 were $12.0 million, including $0.6 million of cash located in countries where currency or regulatory restrictions existed.

Our total debt and finance obligations were $307.2 million, of which $7.1 million was classified as current at March 31, 2024, compared to total debt of $311.4 million at December 31, 2023.

Our total debt and finance obligations were $320.1 million, of which $7.1 million was classified as current at June 30, 2024, compared to total debt of $311.4 million at December 31, 2023.

The following table summarizes cash flows from Operating, Investing and Financing activities (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows provided by (used in):

2024 2023 Increase (Decrease)

2024 2023 Favorable

(Unfavorable)

Operating activities $ (4,466) $ (23,617) 81 %

4 unchanged sentences

Cash flows attributable to our operating activities.

For the three months ended March 31, 2024, net cash provided by operating activities was $1.9 million, an improvement of over 100% compared to cash used in operating activities of $17.8 million in the 2023 period.

Our net cash provided by operating activities was driven by positive working capital changes of $5.7 million, primarily attributable to lower accounts receivable and prepayment balances, partially offset by lower accrued liabilities driven by payments related to insurance, property taxes and legal claims.

For the three months ended March 31, 2023, net cash used in operating activities was $17.8 million.

Our net cash used in operating activities was driven by negative working capital changes of $13.3 million, primarily due to lower accrued liabilities driven by payments related to CARES Act deferred payments, payroll and severance payments, sales and use tax, and settlement of legal claims, which were partially offset by changes in accounts receivables and prepayments.

For the six months ended June 30, 2024, net cash used in operating activities was $4.5 million, an improvement of 81% as compared to $23.6 million in the 2023 period.

Our net cash used in operating activities was driven by negative working capital changes of $14.0 million, primarily attributable to an increase in accounts receivable and lower accrued liabilities, partially offset by an increase in accounts payable.

Our net cash used in operating activities were further impacted by a $12.6 million reduction in amortization of debt issuance costs, debt discounts, and deferred financing costs and no loss on debt extinguishment in the current year period compared to $1.6 million in the prior year period.

For the six months ended June 30, 2023, net cash used in operating activities was $23.6 million.

Our net cash used in operating activities was driven by our net loss for the period, which totaled $40.5 million, and negative working capital of $26.4 million, partially offset by amortization of debt issuance costs and debt discount of $16.2 million, depreciation and amortization of $19.1 million, and PIK interest on the Uptiered Loan of $7.1 million.

Cash flows attributable to our investing activities.

For the three months ended March 31, 2024, net cash used in investing activities was $3.0 million, consisting of capital expenditures of $3.0 million.

For the three months ended March 31, 2023, net cash used in investing activities was $2.4 million, consisting primarily of $2.7 million of capital expenditures, partially offset by $0.3 million of cash proceeds from asset sales.

For the six months ended June 30, 2024, net cash used in investing activities was $5.6 million, consisting of capital expenditures of $5.8 million, partially offset by cash proceeds from asset sales of $0.2 million.

For the six months ended June 30, 2023, net cash used in investing activities was $4.7 million, consisting primarily of capital expenditures (mainly related to the Company’s new aerospace inspection facility in Cincinnati), partially offset by $0.3 million of cash proceeds from asset sales.

Cash flows attributable to our financing activities.

For the three months ended March 31, 2024, net cash used in financing activities was $9.8 million, consisting primarily of net payments under our 2022 ABL Credit Facility of $9.9 million, payments under the ME/RE loans of $0.7 million, payments under the Incremental Term Loan of $0.4 million and payment of debt issuance costs of $1.4 million, partially offset by equipment financing of $2.5 million.

For the three months ended March 31, 2023, net cash used in financing activities was $6.2 million, consisting primarily of net payments under our ABL Credit Facility of $6.0 million.

For the six months ended June 30, 2024, net cash used in financing activities was $2.5 million, consisting primarily of payments under the ME/RE loans of $1.4 million, payments under the Incremental Term Loan of $0.7 million and payment of debt issuance costs of $2.8 million, partially offset by equipment financing of $1.8 million and net borrowings under our 2022 ABL Credit Facility of $0.6 million.

For the six months ended June 30, 2023, net cash provided by financing activities was $0.5 million, consisting primarily of net borrowings under our 2022 ABL Credit Facility of $16.0 million and borrowings under ME/RE loans of $27.4 million offset by the payoff of the APSC Term Loan of $37.1 million and payment of deferred financing cost of $5.3 million.

Effect of exchange rate changes on cash and cash equivalents.

For the three months ended March 31, 2024 and 2023, the effect of foreign exchange rate changes on cash was negative $0.3 million and positive $0.2 million, respectively.

For the six months ended June 30, 2024 and 2023, the effect of foreign exchange rate changes on cash was negative $0.4 million and positive $0.2 million, respectively.

The impact of exchange rates on cash and cash equivalents is primarily attributable to fluctuations in U.S.

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A discussion of our critical accounting policies and estimates is included in our Annual Report on Form 10-K.

There were no material changes to our critical accounting policies during the three months ended March 31, 2024.

There were no material changes to our critical accounting policies during the six months ended June 30, 2024.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis