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,” “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. 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. 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 credit facilities or amounts available under our term loans to support our operations, or maintain our compliance with covenants under our debt arrangements; • our ability to manage inflationary pressures in our operating costs; • negative market conditions, including domestic and global inflationary pressures, impact of tariffs, 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, affecting the timing of new contracts and termination of existing contracts may result in unpredictable fluctuations in our cash flows and financial results; • our significant debt and high leverage which could have a negative impact on our ability to access capital markets, liquidity position and ability to manage increases in interest rates; • risk of non-payment and/or delays in payment of receivables from our customers; • our ability to maintain compliance with the NYSE’s continued listing requirements and rules; • 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; 22 Table of Contents • 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 domestic and 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: 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) callout 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 and other industries 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, 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); • Infrastructure (construction and building, roads, dams, amusement parks, bridges, ports, and railways); and • Aerospace and Defense. 23 Table of Contents Results of Operations The following is a comparison of our results of operations for the three and six months ended June 30, 2025 to the three and six months ended June 30, 2024. Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 The following is a comparison of our results of operations for the three months ended June 30, 2025 to the three months ended June 30, 2024 (in thousands): Three Months Ended June 30, Favorable (Unfavorable) 2025 2024 $ % (unaudited) (unaudited) Revenues by business segment: IHT $ 130,396 $ 113,234 $ 17,162 15.2 % MS 117,630 115,384 2,246 1.9 % Total revenues $ 248,026 $ 228,618 $ 19,408 8.5 % Operating income (loss): IHT $ 15,780 $ 12,459 $ 3,321 26.7 % MS 10,137 10,637 (500) (4.7) % Corporate and shared support services (13,814) (11,937) (1,877) (15.7) % Total operating income $ 12,103 $ 11,159 $ 944 8.5 % Interest expense, net $ (11,896) $ (11,909) $ 13 0.1 % Other expense, net (3,490) (541) (2,949) (545.1) % Loss before income taxes $ (3,283) $ (1,291) $ (1,992) (154.3) % Provision for income taxes (983) (1,472) 489 33.2 % Net loss $ (4,266) $ (2,763) $ (1,503) (54.4) % Revenues. Total revenues increased by $19.4 million or 8.5% from the prior year quarter and were positively impacted by $1.1 million in favorable foreign exchange movement. IHT revenues increased by $17.2 million or 15.2% primarily driven by higher turnaround and callout activity in the U.S. of $13.3 million and a $3.6 million revenue increase in Canada. This increase in activity for IHT represented services performed this quarter on large projects from existing customers in both the U.S. and Canada. MS revenues increased by $2.2 million or 1.9%, primarily driven by a $4.5 million increase in U.S. turnaround activities, partially offset by a $2.3 million revenue decrease in Canada and other international locations such as the United Kingdom and Trinidad, all of which had customer project scope conclude in 2024 and did not repeat through this quarter. Operating income (loss). Overall operating income was $12.1 million in the current year quarter, a $0.9 million increase compared to the prior year quarter. IHT operating income increased by $3.3 million or 26.7% reflecting the contributions from revenue growth for the quarter, with the U.S. increasing by $2.7 million primarily due to lower costs and improved margins, and improved operating income from Canada of $0.6 million driven mainly by higher customer project activity. MS operating income decreased by $0.5 million or 4.7% as compared to the prior year quarter, with higher U.S. operating income of $2.1 million offset by lower operating income from Canada and other international regions of $1.8 million and $0.8 million, respectively, driven by lower customer project activity as compared to the prior year quarter. Corporate operating loss increased by $1.9 million primarily due to higher nonrecurring professional fees, see details noted in the table below. 24 Table of Contents For the three months ended June 30, 2025 and 2024, operating income includes net expenses totaling $3.5 million and $0.8 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 June 30, 2025 2024 Operating income $ 12,103 $ 11,159 Professional fees and other 2,301 516 Legal costs 799 41 Severance charges, net 375 225 Total non-core expenses 3,475 782 Operating income, excluding non-core expenses $ 15,578 $ 11,941 Excluding the impact of these identified non-core items in both periods, operating income increased by $3.7 million or 30.5%, from $11.9 million in the three months ended June 30, 2024 to $15.6 million for the three months ended June 30, 2025. See our non-GAAP reconciliation for additional details of our non-core expenses. Interest expense, net. Interest expense remained consistent in the current quarter as compared to the prior year quarter. Cash interest paid during the quarter ended June 30, 2025 and 2024 was $3.9 million and $6.5 million, respectively. The decrease in cash interest was driven by all the interest expense on the 2025 Second Lien Term Loans being PIK, as well as the timing of interest payments on the First Lien Term Loan. Other (expense) income, net. Overall change in other (expense) income, net of $2.9 million, is primarily due to the impact of a loss on unfavorable foreign currency fluctuations during the current quarter. Taxes. The provision for income tax was $1.0 million on the pre-tax loss of $3.3 million in the current year quarter, compared to a $1.5 million income tax provision on a pre-tax loss of $1.3 million in the prior year quarter. The effective tax rate, inclusive of discrete items, was a provision of 29.9% for the three months ended June 30, 2025, compared to a provision of 114.0% for the three months ended June 30, 2024. The decrease in effective tax rate for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 is due to the mix of pretax income in non-valuation allowance jurisdictions and pretax losses in valuation allowance jurisdictions. The impact is a larger decrease in income tax expense as compared to pretax income, resulting in a decrease of effective tax rate. 25 Table of Contents Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 The following is a comparison of our results of operations for the six months ended June 30, 2025 to the six months ended June 30, 2024 (in thousands): Six Months Ended June 30, Favorable (Unfavorable) 2025 2024 $ % (unaudited) (unaudited) Revenues by business segment: IHT $ 236,611 $ 212,682 $ 23,929 11.3 % MS 210,070 215,536 (5,466) (2.5) % Total revenues $ 446,681 $ 428,218 $ 18,463 4.3 % Operating income (loss): IHT $ 24,473 $ 17,644 $ 6,829 38.7 % MS 9,026 14,728 (5,702) (38.7) % Corporate and shared support services (27,399) (27,599) 200 0.7 % Total operating income $ 6,100 $ 4,773 $ 1,327 27.8 % Interest expense, net $ (23,332) $ (24,007) $ 675 2.8 % Loss on debt extinguishment (11,853) — $ (11,853) (100)% Other (expense) income, net (3,694) 821 (4,515) (549.9) % Loss before income taxes $ (32,779) $ (18,413) $ (14,366) (78.0) % Provision for income taxes (1,205) (1,545) 340 22.0 % Net loss $ (33,984) $ (19,958) $ (14,026) (70.3) % Revenues. Total revenues increased by $18.5 million or 4.3% from the prior year period. IHT segment year-to-date revenue increased by $23.9 million or 11.3% compared to the prior year period, primarily driven by an increase in U.S. revenue of $18.6 million attributable to large turnaround projects for our existing customers, and expanded support in established nested activities. In addition, increased enhanced non-destructive evaluation and testing services demand generated $2.5 million year over year growth from our Aerospace facility, as well as greater turnaround and callout services, especially in eastern Canada, that contributed to a $3.0 million revenue increase in Canada. MS segment revenue decreased by $5.5 million or 2.5% compared to the prior year period, with a $1.1 million U.S. revenue increase offset by a $6.6 million revenue decrease in Canada and other international areas due to the conclusion of prior year projects related to plant shutdowns in Trinidad, the United Kingdom and Latin America that did not repeat in 2025. Operating income (loss). Overall operating income was $6.1 million in the 2025 period, a $1.3 million or 27.8% improvement over operating income of $4.8 million in the prior year period. IHT operating income increased by $6.8 million or 38.7%, primarily driven by the increase in large turnaround projects from our existing customers for the year and the impact of our focus on field cost rationalization. MS operating income decreased by $5.7 million or 38.7% as compared to the prior year period. MS operating income from international operations, excluding Canada, decreased by $3.0 million, reflecting the impact of prior year project activity that did not repeat this year, and MS operating income from the U.S. and Canada which decreased by $0.9 million and $1.8 million, respectively, driven mainly by lower mechanical services activity in certain locations that had turnaround projects in the prior year. Corporate operating loss decreased by $0.2 million compared to the prior year period, primarily due to lower personnel and support cost partially offset by increased nonrecurring professional fees in the current period, see details noted in the table below . For the six months ended June 30, 2025 and 2024, operating income includes net expenses totaling $6.4 million and $3.4 million, respectively, that we believe are not indicative of our core operating activities, as detailed in the table below (in thousands): 26 Table of Contents Six Months Ended June 30, 2025 2024 Operating income $ 6,100 $ 4,773 Professional fees and other 4,308 2,597 Legal costs 1,289 123 Severance charges, net 842 650 Total non-core expenses 6,439 3,370 Operating income, excluding non-core expenses $ 12,539 $ 8,143 Excluding the impact of these identified non-core items in both periods, operating income improved by $4.4 million, or 54.0% from $8.1 million in the six months ended June 30, 2024 to $12.5 million in the six months ended June 30, 2025. See our non-GAAP reconciliation for additional details of our non-core expenses. Interest expense, net. Interest expense, net decreased by $0.7 million from the prior year period. The decrease was primarily attributable to lower interest rates on our Revolving Credit Loans and other facilities. Cash interest paid for the six months ended June 30, 2025 and 2024 was $12.8 million and $12.4 million, respectively. Loss on debt extinguishment. On March 12, 2025, pursuant to the debt refinancing transactions executed with our existing and new lenders, we repaid the total outstanding balances under the ME/RE Loans, Corre Delayed Draw Term Loan and Corre Incremental Term Loan, and made a partial payment on the Corre Uptiered Loan, together with any applicable prepayment premiums and related accrued interest, resulting in a loss on debt extinguishment of $11.9 million. The loss on debt extinguishment includes $7.4 million of unamortized debt issuance cost (noncash) written off as part of the debt payoffs. Other income (expense), net . The overall change in other income (expense), net of $4.5 million, was primarily driven by foreign currency transaction losses in the current year period reflecting the effects of unfavorable 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 $1.2 million on the pre-tax loss of $32.8 million in the current year-to-date period compared to income tax expense o f $1.5 million o n the pre-tax loss of $18.4 million in the prior year-to-date period. The effective tax rate was a provision of 3.7% for the six months ended June 30, 2025, compared to a provision of 8.4% for the six months ended June 30, 2024. The effective tax rate differs from the prior year period due to changes in the valuation allowance. 27 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, 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 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: 28 Table of Contents TEAM, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited, in thousands except per share data) Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Adjusted Net Loss: Net loss $ (4,266) $ (2,763) $ (33,984) $ (19,958) Professional fees and other 1 2,301 516 4,308 2,597 Write-off of software cost — — 45 — Legal costs 799 41 1,289 123 Severance charges 375 225 842 650 Loss on debt extinguishment — — 11,853 — Tax impact of adjustments and other net tax items (90) (26) (103) (138) Adjusted Net Loss $ (881) $ (2,007) $ (15,750) $ (16,726) Adjusted Net Loss per common share: Basic and Diluted $ (0.20) $ (0.45) $ (3.50) $ (3.79) Consolidated Adjusted EBIT and Adjusted EBITDA: Net loss $ (4,266) $ (2,763) $ (33,984) $ (19,958) Provision for income taxes 983 1,472 1,205 1,545 Loss on equipment sale — 28 5 18 Interest expense, net 11,896 11,909 23,332 24,007 Professional fees and other 1 2,301 516 4,308 2,597 Write-off of software cost — — 45 — Legal costs 799 41 1,289 123 Severance charges 375 225 842 650 Foreign currency loss (gain) 3,544 615 3,749 (624) Pension credit 2 (54) (102) (105) (215) Loss on debt extinguishment — — 11,853 — Consolidated Adjusted EBIT 15,578 11,941 12,539 8,143 Depreciation and amortization Amount included in operating expenses 3,112 3,508 6,214 7,091 Amount included in SG&A expenses 5,415 5,752 10,715 11,809 Total depreciation and amortization 8,527 9,260 16,929 18,900 Non-cash share-based compensation costs 366 612 313 1,277 Consolidated Adjusted EBITDA $ 24,471 $ 21,813 $ 29,781 $ 28,320 Free Cash Flow: Cash used in operating activities $ (3,344) $ (6,352) $ (32,005) $ (4,466) Capital expenditures (2,910) (2,743) (4,316) (5,759) Free Cash Flow $ (6,254) $ (9,095) $ (36,321) $ (10,225) ____________________________________ 1 For the six months ended June 30, 2025, includes $1.3 million related to debt financing and for the three and six months ended June 30, 2025, includes $2.3 million and $3.0 million, respectively, related to support costs. For the three and six months ended June 30, 2024, includes $0.5 million and $2.4 million, respectively, related to debt financing and for six months ended June 30, 2024, includes $0.2 million related to support costs. 2 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. 29 Table of Contents TEAM, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued) (unaudited, in thousands) Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Segment Adjusted EBIT and Adjusted EBITDA: IHT Operating income $ 15,780 $ 12,459 $ 24,473 $ 17,644 Professional fees and other 1 750 — 750 40 Severance charges 62 152 177 247 Adjusted EBIT 16,592 12,611 25,400 17,931 Depreciation and amortization 2,898 2,978 5,714 6,007 Adjusted EBITDA $ 19,490 $ 15,589 $ 31,114 $ 23,938 MS Operating income $ 10,137 $ 10,637 $ 9,026 $ 14,728 Professional fees and other 1 — 58 — 140 Legal costs 251 41 251 41 Severance charges 313 49 647 374 Adjusted EBIT 10,701 10,785 9,924 15,283 Depreciation and amortization 4,285 4,565 8,556 9,214 Adjusted EBITDA $ 14,986 $ 15,350 $ 18,480 $ 24,497 Corporate and shared support services Net loss $ (30,183) $ (25,859) $ (67,483) $ (52,330) Provision for income taxes 983 1,472 1,205 1,545 Loss on equipment sale — 28 5 18 Interest expense, net 11,896 11,909 23,332 24,007 Foreign currency loss (gain) 3,544 615 3,749 (624) Professional fees and other 1 1,551 458 3,558 2,417 Write-off of software cost — — 45 — Legal costs 548 — 1,038 82 Severance charges — 24 18 29 Pension credit 2 (54) (102) (105) (215) Loss on debt extinguishment — — 11,853 — Adjusted EBIT (11,715) (11,455) (22,785) (25,071) Depreciation and amortization 1,344 1,717 2,659 3,679 Non-cash share-based compensation costs 366 612 313 1,277 Adjusted EBITDA $ (10,005) $ (9,126) $ (19,813) $ (20,115) Consolidated Adjusted EBITDA $ 24,471 $ 21,813 $ 29,781 $ 28,320 ___________________ 1 For the six months ended June 30, 2025, includes $1.3 million related to debt financing and for the three and six months ended June 30, 2025, includes $2.3 million and $3.0 million, respectively, related to support costs. For the three and six months ended June 30, 2024, includes $0.5 million and $2.4 million, respectively, related to debt financing and for six months ended June 30, 2024, includes $0.2 million related to support costs. 2 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. 30 Table of Contents Liquidity and Capital Resources Financing for operations consists primarily of our 2022 ABL Credit Agreement, First Lien Term Loan Agreement, Second A&R Second Lien Term Loan Credit Agreement , 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 for the next twelve months, and based on current expectations, the long-term. 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 concerning 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 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, 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: • our ability to generate sufficient cash from operations, access our credit facilities or amounts available under our term loans to support our operations, or maintain our compliance with covenants under our debt arrangements; • our ability to manage inflationary pressures, including the impact of tariffs, in our operating costs; • 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, including impacts and uncertainty from trade disputes and tariffs, and labor costs that may hinder our ability to meet our forecasted operating expenses; • persisting or increasing levels of inflation domestically and internationally as well as increased costs due to tariffs 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; • 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; 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. 31 Table of Contents As of June 30, 2025, we had approximately $32.7 million of available borrowing capacity under our various credit facilities, consisting of $22.7 million available under the Revolving Credit Loans, and $10.0 million available under the Second Lien Delayed Draw Term Loans. Our principal uses of cash are for working capital needs, capital expenditures, and operations. As of June 30, 2025, we were in compliance with our debt covenants. Our ability to maintain compliance with the financial covenants contained in the 2022 ABL Credit Agreement, First Lien Term Loan Agreement and Second A&R Second Lien Term Loan Credit Agreement is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties. As of August 8, 2025, we had consolidated cash and cash equivalents of $8.8 million, excluding $4.5 million of restricted cash used mainly as collateral for letters of credit and commercial card programs, and approximately $37.7 million of undrawn availability under our various credit facilities, resulting in total liquidity of $46.5 million. Cash Flows The following table summarizes cash flows from Operating, Investing and Financing activities (in thousands): Six Months Ended June 30, Cash flows provided by (used in): 2025 2024 Favorable (Unfavorable) Operating activities $ (32,005) $ (4,466) $ (27,539) Investing activities (4,316) (5,620) 1,304 Financing activities 21,161 (2,500) 23,661 Effect of exchange rate changes on cash 324 (380) 704 Net decrease in cash and cash equivalents $ (14,836) $ (12,966) $ (1,870) Cash and cash equivalents. Our cash and cash equivalents as of June 30, 2025 totaled $20.7 million, consisting of $16.6 million of unrestricted cash on hand, and $4.1 million of restricted cash. International cash balances as of June 30, 2025 were $6.4 million, and approximately $1.1 million of such cash is located in countries where currency or regulatory restrictions exist. As of December 31, 2024, our cash and cash equivalents were $35.5 million, including $31.5 million of unrestricted cash on hand, and $4.0 million of restricted cash. International cash balances as of December 31, 2024 were $5.1 million, including $1.1 million of cash located in countries where currency or regulatory restrictions existed. Our total debt and finance obligations were $370.2 million (of which $3.8 million was classified as current at June 30, 2025), compared to total debt of $325.1 million at December 31, 2024. The increase of $45.1 million was driven by the $20.0 million increase in the Revolving Credit Loans borrowings and increases in other outstanding debt due to the recent refinancing transactions completed on March 12, 2025. Cash flows attributable to our operating activities. Our largest source of operating cash inflow is cash collection from customers for work performed. The primary use of operating cash is to pay our suppliers, employees, tax authorities, and others. Cash flows from operating activities are primarily generated from net income or loss adjusted for certain noncash items which include depreciation and amortization, PIK interest, and amortization of debt issuance costs. For the six months ended June 30, 2025, cash flows from operating activities also included an adjustment to net loss for noncash loss on debt extinguishment. For the six months ended June 30, 2025, net cash used in operating activities was $32.0 million, an increase of $27.5 million as compared to $4.5 million in the 2024 period. This was primarily driven by higher negative working capital impacts. Changes in working capital items such as collection of receivables, and payments of operating payables are significant factors affecting operating cash flows and can be highly volatile in periods of increasing or decreasing activity levels. Changes in working capital items used $40.0 million in cash flows during the six months ended June 30, 2025, a $26.0 million increase as compared to the $14.0 million in cash flows used by working capital in the corresponding 2024 period. Cash flows attributable to our investing activities. For the six months ended June 30, 2025, net cash used in investing activities consisted of capital expenditures of $4.3 million. For the six months ended June 30, 2024, net cash used in investing activities consisted primarily of capital expenditures of $5.8 million. Cash flows attributable to our financing activities. For the six months ended June 30, 2025, net cash provided by financing activities was $21.2 million, consisting primarily of the net borrowings under the Revolving Credit Loans of $20.0 32 Table of Contents million, borrowings under the new First Lien Term Loan and 2025 Second Lien Term Loan, partially offset by the payments of the total outstanding balances under the Corre Delayed Draw Term Loan, Corre Incremental Term Loan and ME/RE Loans, and a partial pay down of the Corre Uptiered Loan. In addition, we paid $8.9 million of debt issuance costs for the debt refinancing transactions executed with our existing and new lenders at March 12, 2025. For the six months ended June 30, 2024, net cash used in financing activities was $2.5 million, consisting primarily of the payments under the ME/RE Loans of $1.4 million, payments under the Corre Incremental Term Loan of $0.7 million, and payment of debt issuance costs of $2.8 million, partially offset by equipment financing of $1.8 million and net borrowings under the Revolving Credit Loans of $0.6 million. Effect of exchange rate changes on cash and cash equivalents. For the six months ended June 30, 2025 and 2024, the effect of foreign exchange rate changes on cash was $0.3 million and negative $0.4 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 Euro, the British Pound, the Canadian Dollar and the Brazilian Real. 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 six months ended June 30, 2025. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide the information required by this item 3.