What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-08 · 123 added, 99 removed, 288 unchanged (44% of the section changed)

18 unchanged sentences

Such risks, uncertainties and other important factors include, among others, risks related to:

• our ability to generate sufficient cash from operations, access our 2022 ABL Credit Facility or amounts available under our Delayed Draw Term Loan to support our operations, or maintain our compliance with covenants under our debt arrangements including our 2022 ABL Credit Agreement and A&R Term Loan Credit Agreement;

• our ability to generate sufficient cash from operations, access our 2022 ABL Credit Facility to support our operations, or maintain our compliance with covenants under our debt arrangements including our 2022 ABL Credit Agreement and A&R Term Loan Credit Agreement;

• our ability to manage inflationary pressures in our operating costs;

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• delays in the commencement of major projects;

• seasonal and other variations, such as severe weather conditions (including conditions influenced by climate change) and the nature of our client s’ industry;

• our ability to expand into new markets (including low carbon energy transition) and attract clients in new industries may be limited due to our competition’s breadth of service offerings and intellectual property;

• seasonal and other variations, such as severe weather conditions (including conditions influenced by climate change) and the nature of our customers’ industry;

• our ability to expand into new markets (including low carbon energy transition) and attract customers in new industries may be limited due to our competition’s breadth of service offerings and intellectual property;

• our significant debt and high leverage which could have a negative impact on our financing options, liquidity position and ability to manage increases in interest rates;

• our ability to access capital and liquidity provided by the financial and capital markets;

• the timing of new client contracts and termination of existing contracts may result in unpredictable fluctuations in our cash flows and financial results;

• risk of non-payment and/or delays in payment of receivables from our clients;

• the timing of new customer contracts and termination of existing contracts may result in unpredictable fluctuations in our cash flows and financial results;

• risk of non-payment and/or delays in payment of receivables from our customers;

• our ability to regain compliance with the NYSE’s continued listing requirements and rules, and the risk that the NYSE may delist our common stock, which could negatively affect our company, the price of our common stock and our shareholders’ ability to sell our common stock in the event we are unable to list our common stock on another exchange;

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GENERAL OVERVIEW

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

We conduct operations in two segments:

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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:

and mechanical services to repair, rerate or replace based upon the customers’ election.

In addition, we are capable of escalating with the customer’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 customer demand profiles:

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

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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.

MS provides solutions designed to serve customers’ 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;

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hot tapping and line stopping;

and online 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 customer 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.

Our specialty maintenance, turnaround and outage services are designed to minimize customer 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;

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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.

As required by the NYSE, we notified the NYSE of our intent to cure the market capitalization and/or shareholders’ 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.

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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.

In the event we are unable to maintain the listing of our shares on the NYSE, we may look to list our shares on alternative exchanges.

Recent Financing Amendments .

On September 30, 2024, we entered into certain amendments with our lenders.

Refer to Note 10 - Debt to the unaudited condensed consolidated financial statements for additional details.

Results of Operations

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)

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

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

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

Three Months Ended September 30, Favorable (Unfavorable)

2024 2023 $ %

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Corporate and shared support services (11,162) (14,152) 2,990 21.1 %

Total operating income

Total operating income (loss)

$ 3,158 $ (1,258) $ 4,416 351.0 %

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Other (expense) income, net

(541) 13 (554) NM

(2,010) 266 (2,276) (855.6) %

Loss before income taxes $ (10,622) $ (11,062) $ 440 4.0 %

1 unchanged sentence

Net loss $ (11,126) $ (12,134) $ 1,008 8.3 %

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.

Total revenues increased $4.0 million or 2.0% from the prior year quarter.

IHT revenues increased by $3.7 million or 3.6% primarily due to an increase in U.S.

revenue of $6.7 million driven by higher activity in nested and turnaround services, partially offset by lower Canada operations revenue of $3.0 million due to lower activity in nested and turnaround services.

MS revenue increased by $0.3 million or 0.3%, comprised of a $2.3 million increase in U.S.

operations due to higher turnaround activity and valve services, partially offset by a $1.2 million decrease in Canada operations due to less project work and a $0.8 million decrease in other international regions revenue caused by lower overall activity.

Operating income (loss).

Overall operating income was $3.2 million in the current year quarter, a $4.4 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,

IHT operating income increased by $3.4 million or 53.8%, with the U.S.

increasing by $4.7 million primarily due to higher gross margin and lower costs, partially offset by a decrease in operating income from Canada of $1.2 million driven mainly by lower revenue for the period.

MS operating income decreased by $2.0 million or 31.2% as compared to the prior year quarter primarily due to a $2.2 million decrease in operating income from international regions and a $0.4 million decrease from Canada operations, driven mainly by lower revenue and project mix, partially offset by an increase in U.S.

operating income of $0.6 million.

Corporate operating loss decreased by $3.0 million due to lower professional fees and the reversal of a legal reserve in the current period as further described in Note 13 - Commitments and Contingencies.

For the three months ended September 30, 2024 and 2023, operating income (loss) includes net expenses (credits) totaling $1.3 million and $2.8 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 September 30,

Operating income (loss) $ 3,158 $ (1,258)

Professional fees and other 318 1,452

Legal costs 41 200

Legal costs (credits)

Severance charges, net 309 655

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.

Total non-core items

(1,348) 2,757

Operating income, excluding non-core items

$ 1,810 $ 1,499

Excluding the impact of these identified non-core items in both periods, operating income increased by $0.3 million from $1.5 million in the three months ended September 30, 2023 to $1.8 million in the three months ended September 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.

Interest expense increased by $1.7 million compared to the prior year quarter.

This was primarily attributable to increased interest rates on our various debt arrangements and higher debt balances.

Cash interest paid during the quarter ended September 30, 2024 and 2023 was $7.1 million and $5.0 million, respectively.

Other (expense) income, net.

Overall change in other (expense) income is primarily due to the negative impact of a loss on foreign currency fluctuation of $2.9 million.

The provision for income tax was $0.5 million on the pre-tax loss of $10.6 million in the current year quarter, compared to a $1.1 million income tax provision on a pre-tax loss of $11.1 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)

The effective tax rate, inclusive of discrete items, was a provision of 4.7% for the three months ended September 30, 2024, compared to a provision of 9.7% for the three months ended September 30, 2023.

The decrease in effective tax rate for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 is due to the mix of pretax income in non-valuation allowance jurisdictions and pretax losses in valuation allowance jurisdictions, along with changes in valuation allowances in 2023.

The impact is a larger decrease in income tax expense as compared to pretax income, resulting in a decrease of effective tax rate.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

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

Nine Months Ended September 30, Favorable (Unfavorable)

2024 2023 $ %

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Loss on debt extinguishment — (1,585) 1,585 100.0 %

Other income, net 821 648 173 26.7 %

Other (expense) income, net

(1,189) 914 (2,103) (230.1) %

Loss before income taxes $ (29,035) $ (48,578) $ 19,543 40.2 %

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Total revenues decreased $9.5 million or 1.5% from the prior year period.

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.

IHT segment year-to-date revenue decreased by $2.1 million or 0.7% compared to the prior year period, primarily driven by decreased call out and turnaround activities in Canada and other international regions of $10.5 million, partially offset by an increase in U.S.

operations revenue of $8.4 million.

MS segment revenue decreased by $7.4 million or 2.3% compared to the prior year period, mainly due to a $7.6 million decrease in Canada attributable to projects from the 2023 period that did not repeat in the 2024 period.

Operating income (loss).

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.

Overall operating income was $7.9 million in the 2024 period, a $12.3 million or 279.9% improvement as compared to an operating loss of $4.4 million in the prior year period.

IHT operating income increased by $9.8 million or 55.5%, primarily driven by improved gross margins and lower costs.

MS operating income decreased by $3.2 million or 14.3% 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.

MS operating income from other international operations and Canada decreased by $3.5 million and $2.5 million, respectively, primarily driven by lower year over year revenue due to 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 $2.8 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 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,

Corporate operating loss decreased by $5.7 million compared to the prior year period primarily due to lower professional fees and the reversal of a legal reserve in the current period as further described in Note 13 - Commitments and Contingencies.

For the nine months ended September 30, 2024 and 2023, operating income (loss) includes net expenses totaling $2.0 million and $7.8 million, respectively, that we do not believe are indicative of our core operating activities, as detailed in the table below (in thousands):

Nine Months Ended September 30,

Operating income (loss)

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Professional fees and other 2,915 5,820

Legal costs 123 200

Legal costs (credits)

Severance charges, net 959 1,177

Total non-core expenses 2,022 7,847

Operating income (loss), excluding non-core expenses

$ 8,143 $ 1,940

Operating income, excluding non-core expenses $ 9,953 $ 3,439

Excluding the impact of these identified non-core items in both periods, operating income increased by $6.5 million, from $3.4 million to $9.9 million.

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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 $0.2 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.

This decrease was partially offset by higher interest expense on our various debt arrangements due to increased interest rates and higher debt balances.

Cash interest paid for the nine months ended September 30, 2024 and 2023 was $19.5 million and $14.5 million, respectively.

Other (expense) income, net .

Overall change in other (expense) income, net is primarily due to the negative impact of loss on foreign currency fluctuations of $2.3 million.

T he provision for income tax was $2.0 million on the pre-tax loss of $29.0 million in the current year-to-date period compared to income tax expense o f $4.0 million o n the pre-tax loss of $48.6 million in the prior year-to-date period.

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 was a provision of 7.1% for the nine months ended September 30, 2024, compared to a provision of 8.3% for the nine months ended September 30, 2023.

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

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We define adjusted net income (loss) and adjusted net income (loss) per share to exclude the following items:

non-routine legal costs and settlements, non-routine professional fees, (gain) loss on debt extinguishment, certain severance charges, non-routine write-off of assets and certain other items that we believe are not indicative of core operating activities.

non-routine legal costs and settlements, non-routine professional fees, (gain) loss on debt extinguishment, severance charges, non-routine write-off of assets and certain other items that we believe are not indicative of core operating activities.

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

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

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

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(unaudited, in thousands except per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

3 unchanged sentences

318 1,452 2,915 5,820

Write-off of software cost

Legal costs (credits) 2

(1,975) 650 (1,852) 850

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318 1,452 2,915 5,820

Write-off of software cost

Legal costs (credits) 2

(1,975) 650 (1,852) 850

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Free Cash Flow:

Cash used in operating activities

Cash provided by (used in) operating activities

$ 5,609 $ 1,548 $ 1,143 $ (22,069)

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____________________________________

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.

1 For the three and nine months ended September 30, 2024, includes $0.3 million and $2.7 million, respectively, related to debt financing, and for the nine months ended September 30, 2024, includes $0.2 million related to support costs.

For the three and nine months ended September 30, 2023, includes $1.5 million and $4.7 million, respectively, related to debt financing, and for the nine months ended September 30, 2023, $1.1 million related to lease extinguishment charges and other project costs.

2 Primarily relates to accrued legal matters and legal fees.

Legal credits during the three and nine months ended September 30, 2024 relate to a $2.0 million reduction in the legal accrual.

See Note 13 - Commitments and contingencies for additional information.

3 Represents customary severance costs associated with staff reductions.

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(unaudited, in thousands)

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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318 1,452 2,735 4,925

Write-off of software cost — 629 — 629

Legal costs (credits) 3

(1,975) 650 (1,893) 850

Severance charges, net 1

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1 Represents customary severance costs associated with staff reductions.

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.

2 For the three and nine months ended September 30, 2024, includes $0.3 million and $2.7 million, respectively, related to debt financing, and for the nine months ended September 30, 2024, includes $0.2 million related to support costs.

3 Primarily relates to accrued legal matters and legal fees.

Legal credits during the three and nine months ended September 30, 2024 relate to a $2.0 million reduction in the legal accrual.

See Note 13 - Commitments and contingencies for additional information.

4 Represents pension credits for the U.K.

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Our ability to maintain a sufficient level of liquidity to fund our operations and meet our financial obligations will be dependent upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control.

For example, the threat of recession and related economic repercussions could have a significant adverse effect on our financial position and business condition, as well as that of our clients and suppliers.

Additionally, these events may, among other factors, impact our ability to generate cash flows from operations, access the capital markets on acceptable terms or at all, service our indebtedness, maintain compliance with the financial covenants contained in our various credit agreements and affect our future need or ability to borrow under our 2022 ABL Credit Facility and our A&R Term Loan Credit Agreement.

Our ability to access the capital markets will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us, or at all.

In addition, we may seek to engage in one or more of the following, such as refinancing and/or extending the maturities of all or part of our existing indebtedness, seeking covenant relief from our lenders, entering into a strategic partnership with one or more parties, or the sale or divestiture of assets, but there can be no assurance that we would be able to enter into such a transaction or transactions on a timely basis or on terms favorable to us, or at all.

Our failure to raise capital through our operations, refinancings or strategic alternatives as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

In addition, we may seek to engage in one or more of the following, such as refinancing and/or extending the maturities of all or part of our existing indebtedness, amend existing debt to gain additional flexibility, entering into a strategic partnership with one or more parties, or the sale or divestiture of assets, but there can be no assurance that we would be able to enter into such a transaction or transactions on a timely basis or on terms favorable to us, or at all.

Our failure to raise capital through our operations, refinancing or strategic alternatives as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

In addition to impacting our current sources of funding, the effects of such events may also impact our liquidity or require us to revise our allocation or sources of capital, reduce capital expenditures, implement further cost reduction measures and/or change our business strategy.

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• loss of customers or other unforeseen deterioration in demand for our services;

• seasonal fluctuations, such as severe weather and other variations in our clients’ industries that may impede or delay the timing of client orders and the delivery of our services;

• seasonal fluctuations, such as severe weather and other variations in our customers’ industries that may impede or delay the timing of customer orders and the delivery of our services;

• rapid increases in raw materials and labor costs that may hinder our ability to meet our forecasted operating expenses;

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

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.

On September 30, 2024, we entered into Amendment No.5 to the 2022 ABL Credit Agreement.

ABL Amendment No.5 amended the 2022 ABL Credit Agreement to, among other things, to:

(i) extend the scheduled maturity date from August 11, 2025 to September 30, 2027;

(ii) amend the applicable margin for Delayed Draw Term Loans from a flat rate of 10.00% for SOFR Loans (as defined in the 2022 ABL Credit Agreement) and 9.00% for Base Rate Loans (as defined in the 2022 ABL Credit Agreement) to a rate based on EBITDA ranging from 8.50% to 10.00% for SOFR Loans and 7.50% to 9.00% for Base Rate Loans;

(iii) amend the applicable margin for Revolving Credit Loans from a rate based on EBITDA ranging from 4.15% to 4.65% for SOFR Loans and 3.15% to 3.65% for Base Rate Loans to a rate based on both EBITDA and Average Historical Excess Availability (as defined in the 2022 ABL Credit Agreement) ranging from 3.50% to 4.25% for SOFR Loans and 2.50% to 3.25% for Base Rate Loans;

(iv) amend the applicable margin for ME/RE Loans from a flat rate of 5.75% for SOFR Loans to a flat rate of 5.00% for SOFR Loans;

(v) amend the definitions of “Borrowing Base” and “Consolidated Fixed Charge Coverage Ratio” as well as related definitions in order to expand availability under the Revolving Credit Facility (as defined in the 2022 ABL Credit Agreement);

(vi) add a springing financial covenant requiring Excess Availability (as defined in the 2022 ABL Credit Agreement) to be above $7,500,000 only if the Consolidated Fixed Charge Coverage Ratio falls below 0.85x for twelve-month periods ending on or prior to December 31, 2024 and 1.00x for twelve month periods ending after December 31, 2024.

ABL Amendment No.5 significantly improved availability under our Revolving Credit Loans and as of September 30, 2024, we had approximately $28.0 million of borrowing capacity consisting of $18.0 million available under the Revolving Credit Loans, and $10.0 million available under the Incremental Term Loan.

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

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

As of September 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 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.

As of November 8, 2024, we had consolidated cash and cash equivalents of $9.9 million, excluding $4.1 million of restricted cash used mainly as collateral for letters of credit and commercial card programs, and approximately $30.5 million of undrawn availability under our various credit facilities, resulting in total liquidity of $40.4 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 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.

Our cash and cash equivalents as of September 30, 2024 totaled $19.1 million, consisting of $14.9 million of unrestricted cash on hand, and $4.2 million of restricted cash.

International cash balances as of September 30, 2024 were $6.2 million, and approximately $0.6 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 $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.

Our total debt and finance obligations were $321.2 million, of which $7.1 million was classified as current at September 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):

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows provided by (used in):

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Cash flows attributable to our operating activities.

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.

For the nine months ended September 30, 2024, net cash provided by operating activities was $1.1 million, an improvement of $23.2 million as compared to net cash used in operating activities of $22.1 million in the 2023 period.

Our improvement in net cash provided by operating activities was driven by reduced net loss due to improved operating income, and lower negative working capital impacts of $14.5 million primarily attributable to an increase in accounts receivable and lower accrued liabilities, partially offset by an increase in accounts payable.

Our net cash provided by operating activities were further impacted by amortization of debt issuance costs of $4.7 million, depreciation and amortization of $27.9 million, and PIK interest of $11.0 million.

For the nine months ended September 30, 2023, net cash used in operating activities was $22.1 million.

Our net cash used in operating activities was driven by our net loss for the period, which totaled $52.6 million, and negative working capital impacts of $26.2 million, partially offset by amortization of debt issuance costs of $16.9 million, depreciation and amortization of $28.5 million, and PIK interest of $10.9 million.

Cash flows attributable to our investing activities.

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.

For the nine months ended September 30, 2024, net cash used in investing activities was $7.3 million, consisting of capital expenditures of $7.4 million, partially offset by cash proceeds from asset sales of $0.1 million.

For the nine months ended September 30, 2023, net cash used in investing activities was $7.0 million, consisting primarily of capital expenditures of $7.4 million, partially offset by $0.4 million of cash proceeds from asset sales.

Cash flows attributable to our financing activities.

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.

For the nine months ended September 30, 2024, net cash used in financing activities was $9.9 million, consisting primarily of payment of debt issuance costs of $7.4 million, principal payments under the ME/RE loans of $2.1 million, and principal payments under the Incremental Term Loan of $1.1 million, partially offset by net borrowings under equipment finance loan of $1.9 million.

For the nine months ended September 30, 2023, net cash used in financing activities was $7.4 million, consisting primarily of net borrowings under our 2022 ABL Credit Facility of $11.0 million, borrowings under ME/RE loans of $27.4 million and borrowings under the Incremental Term Loan of $42.5 million, offset by the payoff of the APSC Term Loan of $37.1 million, payoff of the 5.00% Convertible Senior Notes of $41.2 million and payment of debt issuance cost of $8.4 million.

Effect of exchange rate changes on cash and cash equivalents.

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.

For the nine months ended September 30, 2024 and 2023, the effect of foreign exchange rate changes on cash was negative $0.3 million and negative $0.1 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 six months ended June 30, 2024.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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