TEAM INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Unless otherwise indicated, the terms “Team, Inc.,” “Team,” “the Company,” “we,” “our” and “us” are used in this report to refer to Team, Inc., to one or more of our consolidated subsidiaries, or to all of them taken as a whole. Our stock is traded on the New York Stock Exchange (the “NYSE”) under the symbol “TISI”. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this report, and in conjunction with our Annual Report on Form 10-K and other documents previously filed with the SEC. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those described in more detail under the heading “ Risk Factors ” included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. See also “ Cautionary Note Regarding Forward-Looking Statements ” below. Cautionary Note Regarding Forward-Looking Statements. This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf in other materials we release to the public including all statements, other than statements of historical facts, included or incorporated by reference in this Quarterly Report on Form 10-Q, that address activities, events or developments which we expect or anticipate will or may occur in the future. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “will,” “could,” “should,” “may” and similar expressions. We based our forward-looking statements on our reasonable beliefs and assumptions, and our current expectations, estimates and projections about ourselves and our industry. We caution that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions about events and circumstances that we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements, including, but not limited to the statements under “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this report. 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 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; • negative market conditions, including domestic and global inflationary pressures, future economic uncertainties, and impacts from epidemics and pandemics, particularly in industries in which we are heavily dependent; • 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 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; 21 Table of Contents • 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; • our financial forecasts being based upon estimates and assumptions that may materially differ from actual results; • our incurrence of liabilities and suffering of negative financial or reputational impacts relating to occupational health and safety matters; • our ability to continue as a going concern; • changes in laws or regulations in the local jurisdictions that we conduct our business; • the inherently uncertain outcome of current and future litigation; and • acts of terrorism, war or political or civil unrest in the United States or elsewhere, changes in laws and regulations, or the imposition of economic or trade sanctions affecting international commercial transactions. GENERAL OVERVIEW Business . 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 deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability, and operational efficiency for our customers’ most critical assets. We conduct operations in two segments: IHT and 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 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. 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 (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. IHT also provides advanced digital imaging including remote digital video imaging. 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; emissions control and compliance; hot tapping and line stopping; 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 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; 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. 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 22 Table of Contents requirements. 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. 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. 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 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 $ % (unaudited) (unaudited) Revenues by business segment: IHT $ 107,604 $ 103,857 $ 3,747 3.6 % MS 103,154 102,858 296 0.3 % Total revenues $ 210,758 $ 206,715 $ 4,043 2.0 % Operating income (loss): IHT $ 9,860 $ 6,412 $ 3,448 53.8 % MS 4,460 6,482 (2,022) (31.2) % Corporate and shared support services (11,162) (14,152) 2,990 21.1 % Total operating income (loss) $ 3,158 $ (1,258) $ 4,416 351.0 % Interest expense, net $ (11,770) $ (10,067) $ (1,703) (16.9) % Loss on debt extinguishment — (3) 3 100.0 % Other (expense) income, net (2,010) 266 (2,276) (855.6) % Loss before income taxes $ (10,622) $ (11,062) $ 440 4.0 % Provision for income taxes (504) (1,072) 568 53.0 % Net loss $ (11,126) $ (12,134) $ 1,008 8.3 % Revenues. 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. 23 Table of Contents 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 $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, 2024 2023 Operating income (loss) $ 3,158 $ (1,258) Professional fees and other 318 1,452 Legal costs (credits) (1,975) 650 Severance charges, net 309 655 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 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. Taxes. 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 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. 24 Table of Contents 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 $ % (unaudited) (unaudited) Revenues by business segment: IHT $ 320,286 $ 322,426 $ (2,140) (0.7) % MS 318,690 326,058 (7,368) (2.3) % Total revenues $ 638,976 $ 648,484 $ (9,508) (1.5) % Operating income (loss): IHT $ 27,504 $ 17,683 $ 9,821 55.5 % MS 19,188 22,395 (3,207) (14.3) % Corporate and shared support services (38,761) (44,486) 5,725 12.9 % Total operating income (loss) $ 7,931 $ (4,408) $ 12,339 279.9 % Interest expense, net $ (35,777) $ (43,499) $ 7,722 17.8 % Loss on debt extinguishment — (1,585) 1,585 100.0 % Other (expense) income, net (1,189) 914 (2,103) (230.1) % Loss before income taxes $ (29,035) $ (48,578) $ 19,543 40.2 % Provision for income taxes (2,049) (4,020) 1,971 49.0 % Net loss $ (31,084) $ (52,598) $ 21,514 40.9 % Revenues. Total revenues decreased $9.5 million or 1.5% from the prior year period. 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 $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 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 $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): 25 Table of Contents Nine Months Ended September 30, 2024 2023 Operating income (loss) $ 7,931 $ (4,408) Professional fees and other 2,915 5,820 Legal costs (credits) (1,852) 850 Severance charges, net 959 1,177 Total non-core expenses 2,022 7,847 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. See our non-GAAP reconciliation for additional details of our non-core expenses. Interest expense, net. Interest expense, net decreased by $7.7 million from the prior year period. 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 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. Taxes. 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 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. 26 Table of Contents Non-GAAP Financial Measures and Reconciliations We use supplemental non-GAAP financial measures which are derived from the consolidated financial information including adjusted net income (loss); adjusted net income (loss) per share; earnings before interest and taxes (“EBIT”); adjusted EBIT; adjusted earnings before interest, taxes, depreciation, and amortization (“adjusted EBITDA”) and free cash flow to supplement financial information presented on a GAAP basis. We define adjusted net income (loss) and adjusted net income (loss) per share to exclude the following items: non-routine legal costs and settlements, non-routine professional fees, (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, 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. Free cash flow is defined as net cash provided by (used in) operating activities minus capital expenditures. We believe these non-GAAP financial measures are useful to both management and investors in their analysis of our financial position and results of operations. In particular, adjusted net income (loss), adjusted net income (loss) per share, consolidated adjusted EBIT, and consolidated adjusted EBITDA are meaningful measures of performance which are commonly used by industry analysts, investors, lenders, and rating agencies to analyze operating performance in our industry, perform analytical comparisons, benchmark performance between periods, and measure our performance against externally communicated targets. Our segment adjusted EBIT and segment adjusted EBITDA are also used as a basis for the Chief Operating Decision Maker (Chief Executive Officer) to evaluate the performance of our reportable segments. Free cash flow is used by our management and investors to analyze our ability to service and repay debt and return value directly to stakeholders. Non-GAAP measures have important limitations as analytical tools because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures and should be read only in conjunction with financial information presented on a GAAP basis. Further, our non-GAAP financial measures may not be comparable to similarly titled measures of other companies who may calculate non-GAAP financial measures differently, limiting the usefulness of those measures for comparative purposes. The liquidity measure of free cash flow does not represent a precise calculation of residual cash flow available for discretionary expenditures. Reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure are presented below. The following tables set forth the reconciliation of Adjusted Net Income (Loss), EBIT and EBITDA to their most comparable GAAP financial measurements on a consolidated and segmented basis: 27 Table of Contents TEAM, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued) (unaudited, in thousands except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Adjusted Net Loss: Net loss $ (11,126) $ (12,134) $ (31,084) $ (52,598) Professional fees and other 1 318 1,452 2,915 5,820 Write-off of software cost — 629 — 629 Legal costs (credits) 2 (1,975) 650 (1,852) 850 Severance charges, net 3 309 655 959 1,177 Loss on debt extinguishment — 3 — 1,585 Tax impact of adjustments and other net tax items 4 (64) (37) (202) (122) Adjusted Net Loss $ (12,538) $ (8,782) $ (29,264) $ (42,659) Adjusted Net Loss per common share: Basic and Diluted $ (2.84) $ (2.01) $ (6.62) $ (9.79) Consolidated Adjusted EBIT and Adjusted EBITDA: Net loss $ (11,126) $ (12,134) $ (31,084) $ (52,598) Provision for income taxes 504 1,072 2,049 4,020 Loss (gain) on equipment sale (7) 10 11 (286) Interest expense, net 11,770 10,067 35,777 43,499 Professional fees and other 1 318 1,452 2,915 5,820 Write-off of software cost — 629 — 629 Legal costs (credits) 2 (1,975) 650 (1,852) 850 Severance charges, net 3 309 655 959 1,177 Foreign currency loss (gain) 2,128 (742) 1,504 (776) Pension credit 5 (111) (163) (326) (481) Loss on debt extinguishment — 3 — 1,585 Consolidated Adjusted EBIT 1,810 1,499 9,953 3,439 Depreciation and amortization Amount included in operating expenses 3,429 3,613 10,520 11,026 Amount included in SG&A expenses 5,605 5,783 17,414 17,455 Total depreciation and amortization 9,034 9,396 27,934 28,481 Non-cash share-based compensation costs 467 232 1,744 859 Consolidated Adjusted EBITDA $ 11,311 $ 11,127 $ 39,631 $ 32,779 Free Cash Flow: Cash provided by (used in) operating activities $ 5,609 $ 1,548 $ 1,143 $ (22,069) Capital expenditures (1,695) (2,360) (7,454) (7,433) Free Cash Flow $ 3,914 $ (812) $ (6,311) $ (29,502) ____________________________________ 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. 4 Represents the tax effect of the adjustments. 5 Represents pension credits for the U.K. pension plan based on the difference between the expected return on plan assets and the cost of the discounted pension liability. The pension plan was frozen in 1994 and no new participants have been added since that date. 28 Table of Contents TEAM, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued) (unaudited, in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Segment Adjusted EBIT and Adjusted EBITDA: IHT Operating income $ 9,860 $ 6,412 $ 27,504 $ 17,683 Severance charges, net 1 210 195 457 400 Professional fees and other 2 — — 40 828 Adjusted EBIT 10,070 6,607 28,001 18,911 Depreciation and amortization 2,928 3,148 8,935 9,390 Adjusted EBITDA $ 12,998 $ 9,755 $ 36,936 $ 28,301 MS Operating income $ 4,460 $ 6,482 $ 19,188 $ 22,395 Severance charges, net 1 92 287 466 595 Professional fees and other 2 — — 140 67 Legal costs — — 41 — Adjusted EBIT 4,552 6,769 19,835 23,057 Depreciation and amortization 4,504 4,656 13,718 14,113 Adjusted EBITDA $ 9,056 $ 11,425 $ 33,553 $ 37,170 Corporate and shared support services Net loss $ (25,446) $ (25,028) $ (77,776) $ (92,676) Provision for income taxes 504 1,072 2,049 4,020 Loss (gain) on equipment sale (7) 10 11 (286) Interest expense, net 11,770 10,067 35,777 43,499 Foreign currency loss (gain) 2,128 (742) 1,504 (776) Pension credit 4 (111) (163) (326) (481) Professional fees and other 2 318 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 7 173 36 182 Loss on debt extinguishment — 3 — 1,585 Adjusted EBIT (12,812) (11,877) (37,883) (38,529) Depreciation and amortization 1,602 1,592 5,281 4,978 Non-cash share-based compensation costs 467 232 1,744 859 Adjusted EBITDA $ (10,743) $ (10,053) $ (30,858) $ (32,692) ___________________ 1 Represents customary severance costs associated with staff reductions. 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. 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. 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. pension plan based on the difference between the expected return on plan assets and the cost of the discounted pension liability. The pension plan was frozen in 1994 and no new participants have been added since that date. 29 Table of Contents Liquidity and Capital Resources Financing for operations consists primarily of our 2022 ABL Credit Agreement (which includes the Revolving Credit Loans, the Delayed Draw Term Loan and the ME/RE Loans), the A&R Term Loan Credit Agreement (which includes the Uptiered Loan and the Incremental Term Loan), and cash flows from our operations. We have evaluated our liquidity within one year after the date of issuance of the accompanying condensed consolidated financial statements to assess the Company’s ability to fund its operations. 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 preparation of this liquidity assessment, we applied judgment to estimate the projected cash flows of the Company, including the following: (i) projected cash outflows, (ii) projected cash inflows, and (iii) projected availability under the Company’s existing debt arrangements. The cash flow projections were based on known or planned cash requirements for operating and financing costs and include management’s best estimate regarding future customer activity levels, pricing for its services and for its supplies and other factors. Actual results could vary significantly from those projections. We based this assessment on assumptions that may prove to be inaccurate, and we could exhaust our available capital resources sooner than we expect in the event that we fail to meet our current projections. See Note 10 - Debt in this Quarterly Report on Form 10-Q and Note 11 - Debt in our Annual Report on Form 10-K for additional details of our debt obligations. We closely monitor the amounts and timing of our sources and uses of funds. Our ability to maintain a sufficient level of liquidity to fund our operations and meet our financial obligations will be dependent upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. For example, the threat of recession and related economic repercussions could have a significant adverse effect on our financial position and business condition, as well as that of our customers 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, 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. Political economic repercussions could also have a broad range of effects on our liquidity sources and will depend on future developments that cannot be predicted at this time. Our ability to generate operating cash flow, sell assets, access capital markets or take any other action to improve our liquidity and manage our debt is subject to the risks described or referenced herein and other risks and uncertainties that exist in our industry, some of which we may not be able to anticipate at this time or control. Such risks include the following: • loss of customers or other unforeseen deterioration in demand for our services; • seasonal fluctuations, such as severe weather and other variations in our 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; • persisting or increasing levels of inflation domestically and internationally and the impact of such inflation on our ability to meet our current forecast; • changes in regulations governing our operations and unplanned costs to comply with such regulatory changes; • counterparty credit risk related to our ability to collect our receivables; and • unexpected or prolonged fluctuations in interest rates and their impact on our forecasted costs of raising additional capital. See Item 1A “Risk Factors” in our Annual Report on Form 10-K for additional information. 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: 30 Table of Contents (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); and (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 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 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 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 $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. 31 Table of Contents Cash Flows The following table summarizes cash flows from Operating, Investing and Financing activities (in thousands): Nine Months Ended September 30, Cash flows provided by (used in): 2024 2023 Favorable (Unfavorable) Operating activities $ 1,143 $ (22,069) 105 % Investing activities (7,305) (7,019) (4) % Financing activities (9,927) (7,395) (34) % Effect of exchange rate changes on cash (251) (109) (130) % Net change in cash and cash equivalents $ (16,340) $ (36,592) 55 % Cash flows attributable to our operating activities. 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 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 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 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. Dollar exchange rate against the Canadian Dollar, the Euro, the British Pound, the Australian Dollar and Mexican Peso. Off-Balance Sheet Arrangements From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations. See Note 10 - Debt in this Quarterly Report on Form 10-Q and Note 11 - Debt in our Annual Report on Form 10-K for additional details of our off-balance sheet arrangements. Critical Accounting Policies and Estimates 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 nine months ended September 30, 2024. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 32 Table of Contents As a smaller reporting company, we are not required to provide the information required by this item 3.