Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to the accompanying consolidated financial statements and notes to help provide an understanding of our financial condition, changes in financial condition, and results of operations. The following should be read in conjunction with Item 1 “Business,” Item 1A “Risk Factors,” Item 2 “Properties,” and Item 8 “Consolidated Financial Statements and Supplementary Data,” included in this Annual Report on Form 10-K.
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future developments and/or otherwise are not statements of historical fact. See Item 1 at the beginning of this Annual Report.
Overview of 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: Inspection and Heat Treating (“IHT”) and Mechanical Services (“MS”). Through the capabilities and resources in these two segments, we believe that we are uniquely qualified to provide integrated solutions involving: inspection to assess condition; engineering assessment to determine fitness for purpose in the context of industry standards and regulatory codes; and mechanical services to repair, rerate or replace based upon the 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.
Significant Factors Impacting Results and Recent Developments
Our revenues, gross margins and other results of operations can be influenced by a variety of factors in any given period, including those described in Cautionary Note Regarding Forward-Looking Statements above and Part 1, Item 1A. “Risk Factors” included in this report, and have caused fluctuations in our results in the past and are expected to cause fluctuations in our results in the future. Additional information with respect to certain factors are described below.
Financing Transactions. 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
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, Favorable (Unfavorable)
2024 2023 $ %
Revenues by business segment:
IHT $ 426,722 $ 429,559 $ (2,837) (0.7) %
MS 425,550 433,056 (7,506) (1.7) %
Total revenues $ 852,272 $ 862,615 $ (10,343) (1.2) %
Operating income (loss):
IHT 37,012 24,220 12,792 52.8 %
MS 27,287 27,759 (472) (1.7) %
Corporate and shared support services (54,163) (65,255) 11,092 17.0 %
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 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 $ (38,266) $ (75,722) $ 37,456 49.5 %
Revenues. 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 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 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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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, Favorable
(Unfavorable)
2024 2023 $ %
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
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, 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.
Interest expense, net . 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 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 . 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.
Taxes. 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.
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, 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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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 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.
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:
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TEAM, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands except per share data)
Twelve Months Ended
December 31,
2024 2023
Adjusted Net Loss:
Net loss $ (38,266) $ (75,722)
Professional fees and other 1
4,111 9,121
Legal costs and other 2
124 5,635
Severance charges, net 3
1,323 1,564
Loss on debt extinguishment 4
— 1,585
Write-off of other assets 5
— 1,295
Tax impact of adjustments and other net tax items 6
(210) (159)
Adjusted Net Loss $ (32,918) $ (56,681)
Adjusted Net Loss per common share:
Basic and Diluted $ (7.43) $ (12.97)
Consolidated Adjusted EBIT and Adjusted EBITDA:
Net loss $ (38,266) $ (75,722)
Provision for income taxes
3,276 4,578
Interest expense, net 47,808 55,181
Foreign currency loss (gain) (2,231) 734
Gain on sale of assets (5) (291)
Professional fees and other 1
4,111 9,121
Legal costs and other 2
124 5,635
Severance charges, net 3
1,323 1,564
Loss on debt extinguishment 4
— 1,585
Write-off of other assets 5
— 1,295
Pension credit 7
(446) (640)
Consolidated Adjusted EBIT 15,694 3,040
Depreciation and amortization
Amount included in operating expenses 13,730 14,555
Amount included in SG&A expenses 22,565 23,317
Total depreciation and amortization 36,295 37,872
Non-cash share-based compensation costs 2,273 1,590
Consolidated Adjusted EBITDA $ 54,262 $ 42,502
Free Cash Flow:
Cash provided by (used in) operating activities
$ 22,767 $ (10,986)
Capital expenditures (9,465) (10,430)
Free Cash Flow $ 13,302 $ (21,416)
____________________________________
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.
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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TEAM, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued)
(unaudited, in thousands)
Twelve Months Ended
December 31,
2024 2023
IHT
Operating income $ 37,012 $ 24,220
Professional fees and other 1
162 941
Severance charges, net 3
551 492
Adjusted EBIT 37,725 25,653
Depreciation and amortization 11,778 12,402
Adjusted EBITDA $ 49,503 $ 38,055
MS
Operating income $ 27,287 $ 27,759
Professional fees and other 1
140 147
Legal costs and other 2
41 —
Severance charges, net 3
588 792
Adjusted EBIT 28,056 28,698
Depreciation and amortization 18,061 18,755
Adjusted EBITDA $ 46,117 $ 47,453
Corporate and shared support services
Net loss $ (102,565) $ (127,701)
Provision for income taxes 3,276 4,578
Gain on sale of assets (5) (291)
Interest expense, net 47,808 55,181
Foreign currency loss (gain) (2,231) 734
Professional fees and other 1
3,809 8,033
Legal costs and other 2
83 5,635
Severance charges, net 3
184 280
Loss on debt extinguishment 4
— 1,585
Write-off of other assets 5
— 1,295
Pension credit 6
(446) (640)
Adjusted EBIT (50,087) (51,311)
Depreciation and amortization 6,456 6,715
Non-cash share-based compensation costs 2,273 1,590
Adjusted EBITDA $ (41,358) $ (43,006)
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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 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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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. In the 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. 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 for the next twelve months, and based on current expectations, the long-term. 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 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 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 credit agreements. 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 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 discussed 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 this Annual Report on Form 10-K for additional information.
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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 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.
Cash Flows
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 . Our cash and cash equivalents as of December 31, 2024 totaled $35.5 million, of which $5.1 million was in foreign accounts, primarily in Europe, Canada and Australia, including $1.1 million of cash located in countries where currency restrictions exist.
Our cash and cash equivalents as of December 31, 2023 totaled $35.4 million, of which $12.0 million was in foreign accounts, primarily in Europe, Canada and Australia, including $0.6 million of cash located in countries where currency restrictions exist.
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.
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, 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, 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, 2024, the effect of foreign exchange rate changes on cash was a negative impact of $0.6 million.
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
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 11 - Debt for additional details on our off-balance sheet arrangements.
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Critical Accounting Policies
The process of preparing financial statements in accordance with GAAP requires us to make estimates and judgments. It is possible that materially different amounts could be recorded if these estimates and judgments change or if actual results differ from these estimates and judgments. We believe that the following critical accounting policies comprise the more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Income taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted rates in effect for the year in which the differences are expected to reverse. The effect of the change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be unable to realize our deferred tax assets, we would make an adjustment to the deferred tax asset valuation allowance.
We establish reserves for uncertain tax positions when it is not more likely than not that the position will be sustained upon challenge. When facts and circumstances change, we adjust these reserves through our provision for income taxes. To the extent interest and penalties may be assessed by taxing authorities on any related underpayment of income tax, such amounts have been accrued and are classified as a component of income tax expense.
New Accounting Principles
For information about newly adopted accounting principles as well as information about new accounting principles pending adoption, see Note 1 - Summary of Significant Accounting Policies and practices to the consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item 7A.
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