What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-19 compared with 2024-03-07 · 133 added, 162 removed, 189 unchanged (61% of the section changed)

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Overview of Business

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

We deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability and operational efficiency for our clients’ most critical assets.

We 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 customer’s 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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Financing Transactions.

During 2023, we entered into an amendment and restatement of that certain subordinated term loan credit agreement dated as of November 9, 2021 (as amended and restated, the “A&R Term Loan Credit Agreement”) among us, as borrower, the guarantors party thereto, the lenders from time to time party thereto and Cantor Fitzgerald Security, as agent;

we entered into ABL Amendment No.

we paid off the remaining balance on the APSC Term Loan (defined below) and our 5.00% Convertible Senior Notes due 2023 (the “Notes”);

and entered into an amendment of the Substitute Insurance Reimbursement Facility Agreement.

See Note 11 - Debt to the consolidated financial statements for additional details related to these transactions.

Market Conditions Update .

Fluctuations in oil and gas prices continued during 2023 with an overall decline in prices as compared to 2022.

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

Although oil and gas prices are expected to be relatively stable in 2024 given the current balance between oil and gas supply and demand, the future impacts to our business from potentially higher interest rates, persistent global and domestic inflation, geopolitical unrest especially in the Middle East, and volatility in global supply chains cannot be predicted.

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

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

Refer to Note 11 - Debt of the consolidated financial statements for additional details.

On March 12, 2025, we entered into certain debt refinancing transactions with our existing and new lenders (collectively, the “Refinancing Transactions”).

Refer to Note 19 - Subsequent Events of the consolidated financial statements for additional details about the transactions.

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 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 continued 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.

On March 14, 2025, we received notice from the NYSE that we had regained compliance with the NYSE listing standards.

We can provide no assurances that we will be able to 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.

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Results of Operations

The following is a comparison of our results of operations for the twelve months ended December 31, 2023 and December 31, 2022.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

The following table sets forth the components of revenue and operating income (loss) from our operations for the twelve months ended December 31, 2024 and 2023 (in thousands):

Twelve Months Ended December 31, Increase

Twelve Months Ended December 31, Favorable (Unfavorable)

2024 2023 $ %

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Corporate and shared support services (54,163) (65,255) 11,092 17.0 %

Total operating loss $ (13,276) $ (39,802) $ 26,526 66.6 %

Total operating income (loss)

$ 10,136 $ (13,276) $ 23,412 176.3 %

Interest expense, net (47,808) (55,181) 7,373 13.4 %

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

Other expense (income), net 1,102 (8,156) 9,258 (113.5) %

Other income (expense), net

2,682 (1,102) 3,784 343.4 %

Loss before income taxes $ (34,990) $ (71,144) $ 36,154 50.8 %

Provision for income taxes (3,276) (4,578) 1,302 28.4 %

Net loss from continuing operations

$ (75,722) $ (150,087) $ 74,365 49.5 %

Total revenues increased $22.4 million or 2.7% from the prior year.

Net loss $ (38,266) $ (75,722) $ 37,456 49.5 %

Total revenues decreased by $10.3 million or 1.2% from the prior year.

Total revenue was negatively impacted by $0.2 million of unfavorable foreign exchange rate movements during 2024.

IHT revenues increased by $7.0 million or 1.7%, driven by a $10.3 million increase in the U.S., primarily due to higher callout and turnaround activities in various districts due to higher demand for our non-destructive testing services, a $5.1 million increase in Europe due to higher turnaround activity primarily in the Netherlands, and a $1.5 million increase in our aerospace business as our new facility in Cincinnati experienced increased client interest.

These increases were partially offset by a $9.9 million decrease in Canada due to reduced scope in certain client turnaround projects.

MS revenues increased by $15.4 million or 3.7%, over prior year, driven by a $16.7 million increase across our international regions other than Canada due to higher activity related to leak repair, machining and bolting services, and hot tapping services primarily in the United Kingdom and Europe.

MS revenue in the U.S.

increased by $1.1 million, these increases were offset by decreases in valve sales and non-repeating turnaround work in Canada of $1.4 million, and $1.0 million, respectively.

IHT revenues decreased by $2.8 million or 0.7%, driven by a $10.3 million decrease in Canada operations revenue attributable to reduced scope in certain customer turnaround projects versus the prior year, and a $2.7 million decrease in international regions revenue, primarily in Europe and the United Kingdom.

These decreases were partially offset by a $7.1 million increase in U.S.

operations, primarily due to higher callout and turnaround activities in various locations attributable to higher demand for our non-destructive testing services, and a $3.0 million increase in revenue related to aerospace driven by improved utilization at our Cincinnati facility.

MS revenues decreased by $7.5 million or 1.7%, over prior year, driven by a $7.7 million decrease in Canada turnaround activity, and a $2.3 million decrease in revenue from our international operations attributable to lower activity in leak repair, machining and bolting, and hot tapping services primarily in Europe and the United Kingdom.

These decreases were offset by revenue increases in U.S.

operations of $2.5 million due to higher turnaround activities.

Operating income (loss) .

Overall operating loss decreased by $26.5 million to a loss of $13.3 million in 2023 as compared to a loss of $39.8 million in the prior year.

IHT’s operating income increased by $7.1 million, primarily driven by higher activity as described above.

MS operating income increased by $6.8 million year over year to $27.8 million for 2023, mainly due to increased activity levels from U.S.

and international operations;

partially offset by a decrease in operating income from our valve business.

Corporate operating loss decreased by $12.6 million year over year, mainly due to lower personnel and professional costs in the current year as compared to prior year and lower overall costs due to our ongoing cost reduction efforts.

The impact of our cost reduction efforts has been partially offset by continued cost inflation in several areas across all segments, such as raw materials, transportation, and labor costs.

Overall operating income improved by $23.4 million to $10.1 million in 2024 as compared to a loss of $13.3 million in the prior year.

IHT’s operating income increased by $12.8 million or 52.8%, primarily driven by lower costs and higher gross margins in U.S.

operations, partially offset by a decrease in operating income from Canada driven mainly by the factors described above.

MS operating income decreased by $0.5 million year over year to $27.3 million for 2024, mainly due to decreased revenue levels in Canada and other international locations, partially offset by a $5.3 million increase in operating income from U.S.

operations driven by higher margins.

Corporate operating loss decreased by $11.1 million year over year, mainly due to lower personnel and professional costs in the current year as compared to the prior year and lower overall costs due to our ongoing cost reduction program.

The impact of our cost reduction efforts has been partially offset by continued cost inflation in several areas across all segments, such as raw materials, transportation, and labor.

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Operating loss for the current year includes net expenses totaling $16.3 million that we do not believe are indicative of our core operating activities, while the same period in the prior year included $20.4 million of such items.

The operating income for the current year includes net expenses totaling $5.6 million which we do not believe are connected to our core operating activities, while the same period in the prior year included $16.3 million of such items.

The detail of operating income (loss) excluding non-core expenses is below (unaudited) (in thousands):

Twelve Months Ended December 31, Increase

Twelve Months Ended December 31, Favorable

(Unfavorable)

2024 2023 $ %

Operating loss $ (13,276) $ (39,802) $ 26,526 66.6 %

Operating income (loss)

$ 10,136 $ (13,276) $ 23,412 176.3 %

Professional fees and other 4,111 9,121 5,010 54.9 %

Legal costs 5,635 2,571 3,064 119.2 %

124 5,635 5,511 97.8 %

Severance charges, net 1,323 1,564 241 15.4 %

Total non-core expenses 5,558 16,320 10,762 65.9 %

Total operating income (loss), excluding non-core expenses $ 3,044 $ (19,355) $ 22,399 115.7 %

Excluding the impact of these identified non-core expenses in both periods, operating loss decreased by $22.4 million from a loss of $19.4 million to income of $3.0 million.

Total operating income, excluding non-core expenses $ 15,694 $ 3,044 $ 12,650 415.6 %

Excluding the impact of these identified non-core expenses in both periods, operating income increased by $12.7 million from $3.0 million to $15.7 million.

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

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Interest expense for 2024 was $47.8 million, a decrease of $7.4 million compared to the prior year.

The decrease was primarily attributable to lower interest expense and amortization of debt issuance costs on our APSC Term Loan in 2023 due to the pay down of $225.0 million of the balance in November 2022, full payoff of the remaining balance in June 2023, payoff of the Notes in August 2023, as well as decrease in accelerated amortization due to the “Maturity Reserve Trigger Date” provision that was previously applicable.

These effects were partially offset by a year over year increase in cash interest on the 2022 ABL Credit Facility due to higher balances outstanding related to the June 2023 Refinancing and an increase in the Secured Overnight Financing Rate (“SOFR”) rate, and the increase in amounts outstanding and paid-in-kind (noncash) (“PIK”) interest on the Uptiered Loan / Subordinated Term Loan and the Incremental Term Loan.

The decrease was primarily attributable to a decrease in accelerated amortization due to the “Maturity Reserve Trigger Date” provision that was previously applicable.

This effect was partially offset by increases in interest expense due to higher balances outstanding following the debt refinancing transactions, cash interest rate increases on the Uptiered Loan and paid-in-kind (“PIK”) interest increase due to the increased principal balance of the Uptiered Loan.

Cash interest paid for the years ended December 31, 2024 and 2023 amounted to $24.9 million and $19.5 million, respectively.

Loss on debt extinguishment .

Loss on debt extinguishment for the year ended December 31, 2023 was $1.6 million compared to $30.1 million in the prior year.

Loss on debt extinguishment during 2023 was due to the payoff of the remaining balance of the APSC Term Loan in June 2023 and consisted mainly of an early payment premium.

The prior year loss on debt extinguishment was due to the $225.0 million paydown of the APSC Term Loan in November 2022 and consisted of $12.4 million of cash fees and early payment premium and $17.7 million of noncash expense related to the write off of the related unamortized balance of deferred issuance costs and debt and warrant discounts.

Other expense (income), net .

Other expense (income), net decreased by $9.3 million, from income of $8.2 million in the prior year to expense of $1.1 million for 2023.

The decrease was primarily driven by a $4.6 million gain on disposal of assets and impairment in prior year as compared to current year, and $3.4 million foreign currency transaction gain in the prior year.

Foreign currency transaction losses in the current year period reflect the effects of negative fluctuations in the value of the U.S.

There was no loss on debt extinguishment for the year ended December 31, 2024.

The loss on debt extinguishment for the year ended December 31, 2023 of $1.6 million was mainly due to the early payment premium incurred as part of the payoff of the remaining balance of the APSC Term Loan in June 2023.

Other income (expense), net .

Other income (expense), net changed by $3.8 million, from an expense of $1.1 million in the prior year to income of $2.7 million in 2024.

This was primarily driven by the foreign currency transaction gains in the current year period reflecting the effects of positive fluctuations in the value of the U.S.

dollar relative to the foreign currencies to which we have exposure.

The provision for income tax was $4.6 million on the pre-tax loss from continuing operations of $71.1 million in the current year compared to the provision for income tax of $3.3 million on pre-tax loss from continuing operations of $146.8 million in the prior year.

The provision for income tax was $3.3 million on the pre-tax loss of $35.0 million in the current year compared to the provision for income tax of $4.6 million on pre-tax loss of $71.1 million in the prior year.

The provision for income tax was primarily driven by jurisdictions outside the United States.

The effective tax rate was a provision of 9.4% and 6.4% for years ended December 31, 2024 and 2023, respectively.

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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, loss on debt extinguishment, certain severance charges, non-routine

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.

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 management.

Segment adjusted EBITDA further excludes depreciation, amortization, and non-cash share-based compensation

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write off of assets and certain other items that we believe are not indicative of core operating activities.

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

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

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

costs from segment adjusted EBIT.

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

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.

Our segment adjusted EBITDA is 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.

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(unaudited, in thousands except per share data)

Three Months Ended

December 31, Twelve Months Ended

2023 2022 2023 2022

Adjusted Net Income (Loss):

Net loss from continuing operations

$ (23,124) $ (56,932) $ (75,722) $ (150,087)

Twelve Months Ended

Adjusted Net Loss:

Net loss $ (38,266) $ (75,722)

Professional fees and other 1

3,301 3,339 9,121 13,915

Legal costs (credit) and other 2

4,785 (700) 5,635 2,571

Legal costs and other 2

Severance charges, net 3

387 933 1,564 3,961

Natural disaster insurance recovery 4

— (324) — (1,196)

Loss on debt extinguishment 4

— 30,083 1,585 30,083

Write-off of other assets 5

666 — 1,295 —

Tax impact of adjustments and other net tax items 6

(37) (48) (159) (79)

Adjusted Net Loss $ (32,918) $ (56,681)

Adjusted Net Loss per common share:

Basic $ (3.18) $ (5.46) $ (12.97) $ (24.08)

Basic and Diluted $ (7.43) $ (12.97)

Consolidated Adjusted EBIT and Adjusted EBITDA:

Net loss from continuing operations

$ (23,124) $ (56,932) $ (75,722) $ (150,087)

Provision (benefit) for income taxes

558 (876) 4,578 3,306

Net loss $ (38,266) $ (75,722)

Provision for income taxes

Interest expense, net 47,808 55,181

Foreign currency loss (gain) (2,231) 734

Pension credit 8

(159) (178) (640) (749)

Loss (gain) on equipment sale (5) 69 (291) (4,200)

Loss on debt extinguishment 5

— 30,083 1,585 30,083

Gain on sale of assets (5) (291)

Professional fees and other 1

3,301 3,339 9,121 13,915

Legal costs (credit) and other 2

4,785 (700) 5,635 2,571

Legal costs and other 2

Severance charges, net 3

387 933 1,564 3,961

Natural disaster insurance recovery 4

— (324) — (1,196)

Loss on debt extinguishment 4

Write-off of other assets 5

666 — 1,295 —

Pension credit 7

Consolidated Adjusted EBIT 15,694 3,040

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1 The three and twelve months ended December 31, 2023, includes $2.2 million and $6.7 million, respectively, related to costs associated with debt financing, and $1.1 million and $2.4 million, respectively, for lease extinguishment charges, support and other costs.

The three and twelve months ended December 31, 2022, includes $1.8 million and $10.2 million, respectively, related to costs associated with debt financing, and $1.5 million and $3.7 million of corporate support and other costs.

2 Primarily relates to accrued legal matters, adjustments to legal reserves and other legal fees related to debt restructuring and other non-routine matters.

These amounts include $3.9 million for 2023 and $1.6 million for 2022 related to accruals for repayment of pandemic related subsidies in foreign jurisdiction.

3 For 2023, represents customary severance costs associated with staff reductions across multiple departments.

For 2022, severance charges represent costs associated with executive departures and our ongoing cost reduction efforts across multiple segments .

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4 Represents the insurance recovery received during the year for hurricane damage incurred in 2021.

5 Represents loss on payoff of remaining APSC Term Loan in June 2023 and loss on payoff of $225.0 million of the APSC Term Loan in November 2022.

The 2022 loss consists of $12.4 million of cash fees and premium, and $17.7 million of noncash expense related to the write off of the related unamortized balance of deferred issuance cost and warrant and debt discounts.

6 Includes $0.7 million for the loss on settlement of a note receivable and, for the full year 2023, an additional $0.6 million for the write-off of software related costs.

1 The twelve months ended December 31, 2024, includes $3.8 million related to costs associated with debt financing, and $0.3 million for lease extinguishment charges, support and other costs.

The twelve months ended December 31, 2023, includes $6.7 million related to costs associated with debt financing, and $2.4 million, for lease extinguishment charges, support and other costs.

2 Primarily relates to accrued legal matters, adjustments to legal reserves and other non-routine matters.

Twelve months ended December 31, 2024 includes $3.8 million of legal fees, partially offset by $3.7 million related to the reversal of a reserve established for the potential repayment of pandemic related subsidies (see N ote 16 - Commitments and Contingencies ).

Twelve months ended December 31, 2023 includes $3.9 million related to accruals for the potential repayment of pandemic related subsidies in foreign jurisdiction.

3 Represents customary severance costs associated with staff reductions across multiple departments.

4 Represents loss on the early payoff of the remaining APSC Term Loan in June 2023.

5 The twelve months ended December 31, 2023 represents $0.7 million loss on settlement of a note receivable and an additional $0.6 million for the write-off of software related costs.

6 Represents the tax effect of the adjustments.

8 Represents pension credit for the U.K.

7 Represents pension credits for the U.K.

pension plan based on the difference between the expected return on plan assets and the amount of the discounted pension liability.

The pension plan was frozen in 1994 and no new participants have been added since that date.

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AND SUBSIDIARIES

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(unaudited, in thousands)

Three Months Ended

December 31, Twelve Months Ended

2023 2022 2023 2022

Twelve Months Ended

Operating income $ 37,012 $ 24,220

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Severance charges, net 3

92 94 492 286

Adjusted EBIT 37,725 25,653

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Adjusted EBITDA $ 49,503 $ 38,055

Operating income (loss) $ 5,364 $ 5,778 $ 27,759 $ 20,930

Operating income $ 27,287 $ 27,759

Professional fees and other 1

Legal costs and other 2

Severance charges, net 3

197 596 792 685

Adjusted EBIT 28,056 28,698

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Net loss $ (102,565) $ (127,701)

Provision (benefit) for income taxes

558 (876) 4,578 3,306

Loss (gain) on equipment sale (5) 69 (291) (4,200)

Provision for income taxes 3,276 4,578

Gain on sale of assets (5) (291)

Interest expense, net 47,808 55,181

Loss on debt extinguishment 2

— 30,083 1,585 30,083

Foreign currency loss (gain) (2,231) 734

Pension credit 3

(159) (178) (640) (749)

Write-off of other assets 4

666 — 1,295 —

Professional fees and other 1

3,108 3,339 8,033 13,915

Legal costs (credit) and other 6

4,785 (700) 5,635 2,571

Legal costs and other 2

Severance charges, net 3

98 243 280 2,990

Natural disaster insurance recovery 7

— (324) — (1,196)

Loss on debt extinguishment 4

Write-off of other assets 5

Pension credit 6

Adjusted EBIT (50,087) (51,311)

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_________________

1 For 2023, represents customary severance costs associated with staff reductions across multiple departments.

For 2022, severance charges represent costs associated with executive departures and our ongoing cost reduction efforts across multiple segments .

2 Represents loss on payoff of remaining APSC Term Loan in June 2023 and loss on payoff of $225.0 million of the APSC Term Loan in November 2022.

3 Represents pension credit for the U.K.

1 The twelve months ended December 31, 2024, includes $3.8 million related to costs associated with debt financing, and $0.3 million for lease extinguishment charges, support and other costs.

The twelve months ended December 31, 2023, includes $6.7 million related to costs associated with debt financing, and $2.4 million, for lease extinguishment charges, support and other costs.

2 Primarily relates to accrued legal matters, adjustments to legal reserves and other non-routine matters.

Twelve months ended December 31, 2023 includes $3.9 million related to accruals for the potential repayment of pandemic related subsidies in foreign jurisdiction.

3 Represents customary severance costs associated with staff reductions across multiple departments.

4 Represents loss on the early payoff of the remaining APSC Term Loan in June 2023.

5 The twelve months ended December 31, 2023 represents $0.7 million loss on settlement of a note receivable and an additional $0.6 million for the write-off of software related costs.

6 Represents pension credits for the U.K.

pension plan based on the difference between the expected return on plan assets and the amount of the discounted pension liability.

The pension plan was frozen in 1994 and no new participants have been added since that date.

4 Includes $0.7 million for the loss on settlement of a note receivable and, for the full year 2023, an additional $0.6 million for the write-off of software related costs.

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5 The three and twelve months ended December 31, 2023, includes $2.2 million and $6.7 million, respectively, related to costs associated with debt financing, and $1.1 million and $2.4 million, respectively, for lease extinguishment charges, support and other costs.

6 Primarily relates to accrued legal matters, adjustments to legal reserves and other legal fees related to debt restructuring and other non-routine matters.

These amounts include $3.9 million for 2023 and $1.6 million for 2022 related to accruals for repayment of pandemic related subsidies in foreign jurisdiction.

7 Represents the insurance recovery received during the year for hurricane damage incurred in 2021.

Liquidity and Capital Resources

Prior to consummation of the Refinancing Transactions on March 12, 2025, financing for operations consisted primarily of our 2022 ABL Credit Agreement (which includes the Revolving Credit Loans, the Delayed Draw Term Loan and the ME/RE Loans (each as defined herein)), the A&R Term Loan Credit Agreement (which includes the Uptiered Loan and the Incremental Term Loan (each as defined herein)), and cash flows from our operations.

We have evaluated our liquidity within one year after the date of issuance of the accompanying audited consolidated financial statements to assess the Company’s ability to fund its operations.

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Actual results could vary significantly from those projections.

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

We based this assessment on assumptions that may prove to be inaccurate, and we could exhaust our available capital resources sooner than we expect in the event that we fail to meet our current projections.

See Note 11 - Debt to the consolidated financial statements for a further discussion of our liquidity.

See Note 11 - Debt of the consolidated financial statements for a further discussion of our liquidity.

We closely monitor the amounts and timing of our sources and uses of funds.

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

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

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

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

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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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• unexpected or prolonged fluctuations in interest rates and their impact on our forecasted costs of raising additional capital.

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

On June 19, 2023, we announced the successful closing of a series of refinancing transactions (the “June 2023 Refinancing”) that raised $87.4 million of new funding (approximately $82.0 million following deductions for transaction related fees, expenses and original issue discounts) which consisted of the following:

• A new $57.5 million, 12% senior secured first lien term loan provided by funds managed by Corre that matures in December 2026, and is comprised of a $37.5 million term loan tranche and a $20.0 million delayed draw term loan tranche (the “Incremental Term Loan”), and

• A new $27.4 million term loan secured by certain real estate and machinery and equipment of the Company provided by Eclipse Business Capital LLC (the “ME/RE Loans”), that matures in August 2025.

Our 2022 ABL Credit Facility was also amended to extend the maturity date to August 2025, and to increase availability under that facility by an additional $2.5 million.

We used the proceeds from the ME/RE Loan, together with advances under the 2022 ABL Facility, to repay in full our existing senior secured term loan with Atlantic Park Strategic Capital Fund, L.P.

We used the proceeds from the Incremental Term Loan to repay in full our remaining $41.0 million of the Notes and for general corporate purposes.

Subsequent to the June 2023 Refinancing, financing for our operations consists primarily of our 2022 ABL Credit Agreement, which includes our 2022 ABL Credit Facility and the ME/RE Loans;

the A&R Term Loan Credit Agreement, which includes the Uptiered Loan and the Incremental Term Loan;

and cash flows from our operations.

As of December 31, 2023, we had approximately $31.3 million of available borrowing capacity under our various credit facilities, consisting of $21.3 million available under the 2022 ABL Credit Facility and $10.0 million available under the A&R Term Loan Credit Agreement.

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

Refer to Note 11 - Debt of the consolidated financial statements for additional details about the amendments.

ABL Amendment No.5 significantly improved availability under our Revolving Credit Loans and as of December 31, 2024, we had approximately $45.9 million of available borrowing capacity under our various credit facilities, consisting of $35.9 million available under the 2022 ABL Credit Facility and $10.0 million available under the A&R Term Loan Credit Agreement.

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

As of December 31, 2024 we are in compliance with our debt covenants.

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

As of March 5, 2024, we had consolidated cash and cash equivalents of $24.0 million, excluding $4.9 million restricted mainly as collateral for outstanding letters of credit, and approximately $12.1 million of undrawn availability under our various credit facilities, resulting in total liquidity of $36.1 million.

Refer to Note 11 - Debt for information on our debt instruments.

Our ability to maintain compliance with the financial covenants contained in our credit agreements is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties.

On March 12, 2025, we entered into certain debt refinancing transactions with our existing and new lenders.

Refer to Note 19 - Subsequent Events of the consolidated financial statements for additional details about the transactions.

As of March 17, 2025, we had consolidated cash and cash equivalents of $10.1 million, excluding $4.3 million of restricted cash used mainly as collateral for outstanding letters of credit and commercial card programs, and approximately $16.1 million of undrawn availability under our various credit facilities, resulting in total liquidity of $26.2 million.

Refer to Note 11 - Debt and Note 19 - Subsequent Events for additional information about our debt instruments.

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

Twelve Months Ended December 31,

Cash flows provided by (used in):

2024 2023 Favorable

(Unfavorable)

Operating activities $ 22,767 $ (10,986) $ 33,753

Investing activities (9,298) (10,016) 718

Financing activities (12,747) (1,899) (10,848)

Effect of exchange rate changes on cash (604) 253 (857)

Net change in cash and cash equivalents $ 118 $ (22,648) $ 22,766

Cash and cash equivalents .

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Cash flows attributable to our operating activities.

For the year ended December 31, 2024, net cash provided by operating activities was $22.8 million.

We incurred a net loss of $38.3 million, further adjusted for a decrease in net working capital of $4.7 million, offset by the effect of depreciation and amortization of $36.3 million, non-cash amortization of debt issuance costs and debt discount of $6.2 million and paid-in-kind interest of $14.4 million.

For the year ended December 31, 2023, net cash used in operating activities was $11.0 million.

We incurred a net loss of $75.7 million, further adjusted for a decrease in net working capital of $7.5 million, partially offset by the effect of depreciation and amortization of $37.9 million, non-cash amortization of debt issuance costs and debt discount of $18.7 million and paid-in-kind interest of $14.5 million.

For the year ended December 31, 2022, net cash used in operating activities was $57.9 million.

We had net income of $70.1 million, further adjusted for the gain on sale of our Quest Integrity segment (“Quest Integrity”) of $203.4 million and a decrease in net working capital of $30.2 million, partially offset by the effect of depreciation and amortization of $37.6 million, loss on debt extinguishment of $17.7 million, amortization of non-cash debt issuance costs and debt discount of $35.5 million and paid- in-kind interest of $18.2 million.

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Cash flows attributable to our investing activities .

For the year ended December 31, 2024, net cash used in investing activities was $9.3 million, consisting of $9.5 million of capital expenditures offset by net proceeds from asset disposals of $0.2 million.

For the year ended December 31, 2022, net cash provided by investing activities was $243.4 million, consisting primarily of net proceeds from the sale of Quest Integrity of $260.8 million and net proceeds from asset disposals of $7.2 million, partially offset by $24.7 million of capital expenditures.

For the year ended December 31, 2023, net cash used in investing activities was $10.0 million, consisting of $10.4 million of capital expenditures offset by net proceeds from asset disposals of $0.4 million.

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Cash flows attributable to our financing activities.

For the year ended December 31, 2023, net cash used in financing activities was $1.9 million, consisting primarily of the $37.1 million payoff of the APSC Term Loan, $41.2 million payoff of the Notes, and $9.1 million of term loan debt issuance costs, partially offset by $47.2 million of borrowings under the Corre Incremental Term Loan, $27.4 million of borrowings under the ME/RE loans and net borrowings on our 2022 ABL Credit Facility of $13.5 million.

For the year ended December 31, 2022, net cash used in financing activities was $192.0 million, consisting primarily of the $224.9 million payoff on the APSC term loan, $62.0 million of net payments under the 2020 ABL Credit Facility and $13.7 million of term loan debt issuance costs, partially offset by net borrowings on our 2022 ABL Credit Facility of $64.9 million and borrowings of $35.0 million under the Corre Delayed Draw Term Loan.

For the year ended December 31, 2024, net cash used in financing activities was $12.7 million, consisting primarily of $8.5 million of debt issuance costs, $2.8 million of principal payments under the ME/RE Loans and $1.4 million of principal payments under the Incremental Term Loan, partially offset by the net borrowings on our 2022 ABL Credit Facility of $0.5 million.

For the year ended December 31, 2023, net cash used in financing activities was $1.9 million, consisting primarily of the $37.1 million payoff of the APSC Term Loan, $41.2 million payoff of the Notes (as defined herein), and $9.1 million of term loan debt issuance costs, partially offset by $47.2 million of borrowings under the Incremental Term Loan, $27.4 million of borrowings under the ME/RE Loans and net borrowings on our 2022 ABL Credit Facility of $13.5 million.

Effect of exchange rate changes on cash .

For the year ended December 31, 2023, the effect of foreign exchange rate changes on cash was a positive impact of $0.3 million.

For the year ended December 31, 2024, the effect of foreign exchange rate changes on cash was a negative impact of $0.6 million.

The negative impact in 2022 is primarily attributable to unfavorable fluctuations in U.S.

dollar exchange rates with the Canadian dollar, the euro, the British pound, the Australian dollar and Mexican peso.

For the year ended December 31, 2023, the effect of foreign exchange rate changes on cash was a positive impact of $0.3 million.

Off-Balance Sheet Arrangements

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What changed 10-K

Item 7. Management’s Discussion and Analysis