Team Inc 10-Q for FY2023 Q2
Team Inc (TISI)
10-Q
2023-08-10
For: 2023-06-30
View Original
Added on
April 10, 2026
About this 10-Q
Team Inc filed this 10-Q on August 10, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $239.49M
- up 8.1% from $221.54M a year earlier
- Net loss
- $15.75M
- compared with a net loss of $21.55M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2023
OR
For the transition period from to
Commission file number 001-08604
| (Exact Name of Registrant as Specified in Its Charter) | ||||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
( | ||||||||
| (Registrant’s Telephone Number, Including Area Code) | ||||||||
None | ||||||||
| (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) | ||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| N/A | ||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
x | Smaller reporting company | |||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The Registrant had 4,368,422 shares of common stock, par value $0.30, outstanding as of August 8, 2023.
INDEX
| Page No. | ||||||||
1
PART I—FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS | ||||
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| June 30, 2023 | December 31, 2022 | ||||||||||
| ASSETS | (unaudited) | ||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance of $ | |||||||||||
| Inventory | |||||||||||
| Income tax receivable | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Defined benefit pension asset | |||||||||||
| Other assets, net | |||||||||||
| Deferred tax asset | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt and finance lease obligations | $ | $ | |||||||||
| Current portion of operating lease obligations | |||||||||||
| Accounts payable | |||||||||||
| Other accrued liabilities | |||||||||||
| Income tax payable | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt and finance lease obligations | |||||||||||
| Operating lease obligations | |||||||||||
| Deferred tax liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
Preferred stock, | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Restructuring and other related charges, net | |||||||||||||||||||||||
| Operating income (loss) | ( | ( | ( | ||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Loss on debt extinguishment | ( | ( | |||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Loss from continuing operations before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Provision for income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Net loss from continuing operations | ( | ( | ( | ( | |||||||||||||||||||
| Discontinued operations: | |||||||||||||||||||||||
| Net income from discontinued operations, net of income tax | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Basic net loss per common share: | |||||||||||||||||||||||
| Loss from continuing operations | ( | ( | ( | ( | |||||||||||||||||||
| Income from discontinued operations | |||||||||||||||||||||||
| Total | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average number of shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss) before tax: | |||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss), before tax | ( | ( | |||||||||||||||||||||
| Tax provision attributable to other comprehensive income | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | |||||||||||||||||||||
| Total comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Retained Earnings (Deficit) | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net settlement of vested stock awards | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | $ | ( | — | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net settlement of vested stock awards | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash compensation | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net settlement of vested stock awards | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | $ | ( | — | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS1
(in thousands)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Write-off of deferred loan costs | |||||||||||
| Loss on debt extinguishment | |||||||||||
| Amortization of debt issuance costs, debt discounts, and deferred financing costs | |||||||||||
| Paid-in-kind interest | |||||||||||
| Allowance for credit losses | |||||||||||
| Foreign currency (gains) losses | ( | ||||||||||
| Deferred income taxes | ( | ||||||||||
| Gain on asset disposal | ( | ( | |||||||||
| Non-cash compensation costs (credits) | ( | ||||||||||
| Other, net | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventory | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Other accrued liabilities | ( | ||||||||||
| Income taxes | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from disposal of assets | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings under 2020 ABL Facility | |||||||||||
| Payments under 2020 ABL Facility | ( | ||||||||||
| Borrowings under 2022 ABL Credit Facility (Revolving Credit Loans) | |||||||||||
| Payments under 2022 ABL Credit Facility (Revolving Credit Loans) | ( | ( | |||||||||
| Repayment of APSC Term Loan | ( | ||||||||||
| Borrowings under ME/RE Loans | |||||||||||
| Borrowings under 2022 ABL Credit Facility (Delayed Draw Term Loan) | |||||||||||
| Payments for debt issuance costs | ( | ( | |||||||||
| Issuance of common stock, net of issuance costs | |||||||||||
| Other | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
_________________
1 Condensed consolidated statement of cash flows for the six months ended June 30, 2022 includes discontinued operations.
See accompanying notes to unaudited condensed consolidated financial statements.
6
TEAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business. Unless otherwise indicated, the terms “we,” “our,” “us,” and “Team” are used in this report to refer to either Team, Inc., to one or more of its consolidated subsidiaries or to all of them taken as a whole.
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 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: 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 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 services in three distinct client demand profiles: (i) turnaround or project services, (ii) call-out services and (iii) nested or run-and-maintain services.
IHT provides conventional and advanced non-destructive testing services primarily for the process, pipeline and power sectors, pipeline integrity management services, and field heat treating services, as well as associated engineering and condition assessment services. These services can be offered while facilities are running (on-stream), during facility turnarounds or during new construction or expansion activities. IHT also provides advanced digital imaging including remote digital video imaging.
MS provides solutions designed to serve clients’ unique needs during both the operational (onstream) and off-line states of their assets. 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 on-line valve insertion solutions, which are delivered while assets are in an operational condition, which maximizes client production time. Asset shutdowns can be planned, such as a turnaround maintenance event, or unplanned, such as those due to component failure or equipment breakdowns. Our specialty maintenance, turnaround and outage services are designed to minimize client downtime and are primarily delivered while assets are off-line and often through the use of cross-certified technicians, whose multi-craft capabilities deliver the production needed to achieve tight time schedules. 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 and liquefied natural gas);
•Manufacturing and Process (chemical, petrochemical, pulp and paper industries, automotive and mining);
•Midstream and Others (valves, terminals and storage, pipeline and offshore oil and gas);
•Public Infrastructure (amusement parks, bridges, ports, construction and building, roads, dams and railways); and
•Aerospace and Defense.
Reverse Stock Split. On December 21, 2022, we completed a reverse stock split of our outstanding common stock at a ratio of one-for-ten (the “Reverse Stock Split”). The Reverse Stock Split effected a proportionate reduction in our authorized shares of common stock from 120,000,000 shares to 12,000,000 shares and reduced the number of shares of common stock outstanding from approximately 43,429,089 shares to approximately 4,342,909 shares. We have made proportionate adjustments to the number of common shares issuable upon exercise or conversion of our outstanding warrants, equity awards and convertible securities, as well as the applicable exercise prices and weighted average fair value of the equity awards. No fractional shares were issued in connection with the Reverse Stock Split.
Recent Refinancing Transactions. On June 16, 2023, we entered into the following separate amendments / agreements with our lenders.
Corre Amended and Restated Term Loan Credit Agreement. On June 16, 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”). Available funding commitments under the A&R Term Loan Credit Agreement, subject
7
to certain conditions, include a $57.5 million senior secured first lien term loan (the “Incremental Term Loan”) provided by Corre Partners Management, LLC (“Corre”) and certain of its affiliates, consisting of a $37.5 million term loan tranche and a $20.0 million delayed draw term loan tranche. Amounts outstanding under the existing subordinated term loan credit agreement (the “Uptiered Loan”) have become senior secured obligations of the Company and the A&R Term Loan Guarantors, secured on a pari passu basis with the Incremental Term Loans. All outstanding amounts in respect of the Incremental Term Loan under the A&R Term Loan Credit Agreement mature and become due and payable on December 31, 2026. All outstanding amounts in respect of the Uptiered Loan under the A&R Term Loan Credit Agreement mature and become due and payable on December 31, 2027; provided that, if greater than $50.0 million (including amounts in respect of payments in kind) of the Uptiered Loan is outstanding on December 31, 2026, then all outstanding amounts in respect of the Uptiered Loan under the A&R Term Loan Credit Agreement become due and payable on December 31, 2026.
As discussed in Note 11 - Debt, $42.5 million of the $57.5 million Incremental Term Loan under the A&R Term Loan Credit Agreement was drawn down and the proceeds thereof were used to repay the Notes (as defined below) that matured on August 1, 2023.
Eclipse Amendment No. 3 to Credit Agreement. On June 16, 2023, we also entered into Amendment No. 3 (“ABL Amendment No. 3”) to that certain credit agreement with Eclipse (defined below), dated as of February 11, 2022 (as amended by Amendment No. 1 dated as of May 6, 2022 and Amendment No. 2 dated as of November 1, 2022 and ABL Amendment No.3, the “ABL Credit Agreement”). The ABL Amendment No. 3 amended the ABL Credit Agreement to, among other things,
(i) provide the Company with a new $27.4 million term loan (the “ME/RE Loans”) secured by a first priority lien and mortgage on certain real estate and machinery and equipment of the Company and the ABL Guarantors, as defined below, (the “Specified RE/ME”),
(ii) increase borrowing base availability under the revolving credit facility by an additional $2.5 million,
(iii) extend the maturity date for the entire facility under the ABL Credit Agreement to August 11, 2025,
(iv) amend the financial maintenance covenant therein to match the maximum unfinanced capital expenditures covenant included in the A&R Term Loan Credit Agreement, and
(v) amend provisions applicable to the $35.0 million delayed draw term loans under the ABL Credit Agreement to remove the ability of the Company to repay and reborrow such loans, to remove the ability to pay any portion of the interest on such loans in PIK (as defined below) and add a mandatory prepayment with respect to such loan in relation to any sale of certain collateral principally supporting such loans.
The ME/RE Loans were drawn in full on the closing date and were used to pay off the amounts owed under the existing term loan credit agreement dated as of December 18, 2020 (as amended from time to time), among the Company, the lenders party thereto and Atlantic Park Strategic Capital Fund, L.P., as agent, which was repaid and terminated in full on June 16, 2023. See Note 11 - Debt for additional information.
Liquidity and Going Concern. These condensed consolidated financial statements have been prepared in accordance with GAAP and assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the issue date of these unaudited condensed consolidated financial statements.
As discussed above, we successfully negotiated amendments to existing debt instruments (including to the financial covenants contained therein) and / or entered into new agreements with our lenders. These actions removed the substantial doubt about our ability to continue as a going concern that previously existed and had been disclosed in prior periods. In addition, as of June 30, 2023, we are in compliance with our debt covenants. Based on the Company’s forecast and the amendments/new agreements entered in June 2023, we believe that our current working capital including cash on hand, our capital expenditure financing and the remaining borrowing availability under our various debt agreements is sufficient to fund our operations, maintain compliance with our debt covenants (as amended), and satisfy the Company’s obligations as they come due within one year after the date of issuance of these unaudited condensed consolidated financial statements. Our ability to maintain compliance with the financial covenants contained in the various debt agreements is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties. While our lenders agreed to amend the financial covenants contained therein and, in the case of the ABL Credit Agreement, to extend the maturity, there can be no assurance that our lenders will provide additional waivers or amendments in the event of future non-compliance with our debt covenants, or other possible events of default that could happen.
8
Significant Accounting Policies. Our significant accounting policies are disclosed in Note 1 - Summary of Significant Accounting Policies and Practices in our Annual Report on Form 10-K for the year ended December 31, 2022. On an ongoing basis, we evaluate the estimates and assumptions, including among other things, those related to long-lived assets. Since the date of our Annual Report on Form 10-K for the year ended December 31, 2022, there have been no material changes to our significant accounting policies.
2. DISCONTINUED OPERATIONS
On November 1, 2022, we completed the Quest Integrity Transaction with Baker Hughes for an aggregate purchase price of approximately $279.0 million, in accordance with the Sale Agreement. We used approximately $238.0 million of the net proceeds from the sale of Quest Integrity to pay down $225.0 million of our term loan debt, and to pay certain fees associated with that repayment and related accrued interest, with the remainder reserved for general corporate purposes, thereby reducing our future debt service obligations and leverage, and improving our liquidity. During the fourth quarter of 2022, we recorded total gain of $203.4 million, net of tax and working capital adjustments, on the sale of Quest Integrity. We settled the working capital adjustment in the second quarter of 2023. Quest Integrity previously represented a reportable segment. Following the completion of the Quest Integrity Transaction, we now operate in two segments, IHT and MS. Refer to Note 1 – Description of Business and Basis of Presentation for additional details regarding our IHT and MS operating segments.
Our condensed consolidated statements of operations for the three and six months ended June 30, 2022 report discontinued operations separate from continuing operations. Our condensed consolidated statements of comprehensive loss and statements of shareholders’ equity for the three and six months ended June 30, 2022 as well as statements of cash flows for the six months ended June 30, 2022 combine continuing and discontinued operations. A summary of financial information related to our discontinued operations is presented in the tables below.
9
The following table represents the reconciliation of the major line items consisting of pretax income from discontinued operations to the after-tax income from discontinued operations (in thousands):
| Three Months Ended June 30, 2022 (unaudited) | Six Months Ended June 30, 2022 (unaudited) | ||||||||||
| Major classes of line items constituting income (loss) from discontinued operations | |||||||||||
| Revenues | $ | $ | |||||||||
| Operating expenses | ( | ( | |||||||||
| Selling, general and administrative expenses | ( | ( | |||||||||
| Interest expense, net | ( | ( | |||||||||
| Other expense | ( | ( | |||||||||
| Income from discontinued operations before income taxes | |||||||||||
| Benefit from income taxes | |||||||||||
| Net income from discontinued operations | $ | $ | |||||||||
The following table presents the depreciation and amortization and capital expenditures of Quest Integrity (in thousands):
| Six Months Ended June 30, 2022 | |||||
| (unaudited) | |||||
| Cash flows provided by operating activities of discontinued operations: | |||||
| Depreciation and amortization | $ | ||||
| Cash flows provided by investing activities of discontinued operations: | |||||
| Capital expenditures | $ | ||||
3. REVENUE
Disaggregation of revenue. Essentially all of our revenues are associated with contracts with customers. A disaggregation of our revenue from contracts with customers by geographic region, by reportable operating segment and by service type is presented below (in thousands):
Geographic area:
| Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||||||||||||||||||||||
| United States and Canada | Other Countries | Total | United States and Canada | Other Countries | Total | |||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||
| IHT | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| MS | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||||||||||||||||||||||
| United States and Canada | Other Countries | Total | United States and Canada | Other Countries | Total | |||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||
| IHT | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| MS | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
10
Revenue by Operating segment and service type (in thousands):
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||
| Non-Destructive Evaluation and Testing Services | Repair and Maintenance Services | Heat Treating | Other | Total | |||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| IHT | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| MS | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| Non-Destructive Evaluation and Testing Services | Repair and Maintenance Services | Heat Treating | Other | Total | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| IHT | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| MS | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| Non-Destructive Evaluation and Testing Services | Repair and Maintenance Services | Heat Treating | Other | Total | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| IHT | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| MS | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| Non-Destructive Evaluation and Testing Services | Repair and Maintenance Services | Heat Treating | Other | Total | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| IHT | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| MS | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
For additional information on our reportable operating segments and geographic information, refer to Note 15 - Segment and Geographic Disclosures.
Contract balances. The timing of revenue recognition, billings, and cash collections results in trade accounts receivable, contract assets and contract liabilities on the condensed consolidated balance sheets. Trade accounts receivable include billed and unbilled amounts currently due from customers and represent unconditional rights to receive consideration. The amounts due are stated at their net estimated realizable value. Refer to Note 4 - Receivables for additional information on our trade receivables and the allowance for credit losses.
Contract costs. We recognize the incremental costs of obtaining contracts as selling, general and administrative expenses when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less. Costs to fulfill a contract are recorded as assets if they relate directly to a contract or a specific anticipated contract, the costs to generate or enhance resources that will be used in satisfying performance obligations in the future, and the costs are expected to be recovered. Costs to fulfill a contract recognized as assets primarily consist of labor and material costs and generally relate to engineering and set-up costs incurred prior to when the satisfaction of performance obligations begins. Assets recognized for
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costs to fulfill a contract are included in the “Prepaid expenses and other current assets” line of the condensed consolidated balance sheets and were not material as of June 30, 2023 and December 31, 2022. Such assets are recognized as expenses as we transfer the related goods or services to the customer. All other costs to fulfill a contract are expensed as incurred.
Remaining performance obligations. As permitted by ASC 606, Revenue from Contracts with Customers, we have elected not to disclose information about remaining performance obligations where (i) the performance obligation is part of a contract that has an original expected duration of one year or less or (ii) when we recognize revenue from the satisfaction of the performance obligation in accordance with the right-to-invoice practical expedient, which permits us to recognize revenue in the amount to which we have a right to invoice the customer if that amount corresponds directly with the value to the customer of our performance completed to date. As most of our contracts with customers are short-term in nature and billed on a time and material basis, there were no material amounts of remaining performance obligations as of June 30, 2023 and December 31, 2022.
4. RECEIVABLES
A summary of accounts receivable as of June 30, 2023 and December 31, 2022 is as follows (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Trade accounts receivable | $ | $ | |||||||||
| Unbilled receivables | |||||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Total | $ | $ | |||||||||
We measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This applies to financial assets measured at amortized cost, including trade and unbilled accounts receivable, and requires immediate recognition of lifetime expected credit losses. Significant factors that affect the expected collectability of our receivables include macroeconomic trends and forecasts in the oil and gas, refining, power, and petrochemical markets and changes in our results of operations and forecasts. For unbilled receivables, we consider them as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate.
The following table shows a rollforward of the allowance for credit losses (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Provision for expected credit losses | |||||||||||
| Recoveries collected | ( | ( | |||||||||
| Write-offs | ( | ( | |||||||||
| Foreign exchange effects | ( | ( | |||||||||
| Balance at end of period | $ | $ | |||||||||
5. INVENTORY
A summary of inventory as of June 30, 2023 and December 31, 2022 is as follows (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Raw materials | $ | $ | |||||||||
| Work in progress | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
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6. PREPAID AND OTHER CURRENT ASSETS
A summary of prepaid and other current assets as of June 30, 2023 and December 31, 2022 is as follows (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Insurance receivable | $ | $ | |||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Total | $ | $ | |||||||||
The insurance receivable relates to the receivable from our third-party insurance providers for a legal claim that is recorded in other accrued liabilities, refer to Note 9 - Other Accrued Liabilities. These receivables are covered by our third-party insurance providers for any litigation matter that has been settled, or pending settlements where the deductibles have been satisfied. The prepaid expenses primarily relate to prepaid insurance and other expenses that have been paid in advance of the coverage period. The other current assets primarily include items such as software implementation costs, other receivables, and other accounts receivables.
7. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment as of June 30, 2023 and December 31, 2022 is as follows (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Land | $ | $ | |||||||||
| Buildings and leasehold improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Furniture and fixtures | |||||||||||
| Capitalized ERP system development costs | |||||||||||
| Computers and computer software | |||||||||||
| Automobiles | |||||||||||
| Construction in progress | |||||||||||
| Total | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
Included in the table above are assets under finance leases of $8.2 million and $7.4 million, and related accumulated amortization of $2.6 million and $2.3 million as of June 30, 2023 and December 31, 2022, respectively. Depreciation expense for the three months ended June 30, 2023 and 2022 was $5.5 million and $5.7 million, respectively. Depreciation expense for the six months ended June 30, 2023 and 2022 was $11.1 million and $11.8 million, respectively.
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8. INTANGIBLE ASSETS
A summary of intangible assets as of June 30, 2023 and December 31, 2022 is as follows (in thousands):
| June 30, 2023 | |||||||||||||||||
| (unaudited) | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||
| Trade names | ( | ||||||||||||||||
| Technology | ( | ||||||||||||||||
| Licenses | ( | ||||||||||||||||
| Intangible assets | $ | $ | ( | $ | |||||||||||||
| December 31, 2022 | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||
| Trade names | ( | ||||||||||||||||
| Technology | ( | ||||||||||||||||
| Licenses | ( | ||||||||||||||||
| Intangible assets | $ | $ | ( | $ | |||||||||||||
Amortization expense of intangible assets for the three months ended June 30, 2023 and 2022 was $3.2 million and $3.2 million, respectively. Amortization expense of intangible assets for the six months ended June 30, 2023 and 2022 was $6.4 million and $6.4 million, respectively.
The weighted-average amortization period for intangible assets subject to amortization was 13.7
9. OTHER ACCRUED LIABILITIES
A summary of other accrued liabilities as of June 30, 2023 and December 31, 2022 is as follows (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Legal and professional accruals | $ | $ | |||||||||
| Payroll and other compensation expenses | |||||||||||
| Insurance accruals | |||||||||||
| Property, sales and other non-income related taxes | |||||||||||
| Accrued interest | |||||||||||
| Volume discount | |||||||||||
| Other accruals | |||||||||||
| Total | $ | $ | |||||||||
Legal and professional accruals include accruals for legal and professional fees as well as accrued legal claims, refer to Note 14 - Commitments and Contingencies. Certain legal claims are covered by insurance and the related insurance receivable for these claims is recorded in prepaid expenses and other current assets, refer to Note 6 - Prepaid and Other Current Assets. Payroll and other compensation expenses include all payroll related accruals including, among others, accrued vacation, severance, and bonuses. Insurance accruals primarily relate to accrued medical and workers compensation costs. Property, sales and other non-income related taxes includes accruals for items such as sales and use tax, property tax and other related tax accruals. Accrued interest relates to the interest accrued on our long-term debt. Other accruals include various business accruals.
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10. INCOME TAXES
11. DEBT
As of June 30, 2023 and December 31, 2022, our total long-term debt and finance lease obligations are summarized as follows (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| 2022 ABL Credit Facility | $ | $ | |||||||||
APSC Term Loan1 | |||||||||||
Uptiered Loan1 | |||||||||||
ME/RE Loans1 | |||||||||||
| Total | |||||||||||
Convertible Debt2 | |||||||||||
| Finance lease obligations | |||||||||||
| Total long-term debt and finance lease obligations | |||||||||||
| Current portion of long-term debt and finance lease obligations | ( | ( | |||||||||
| Total long-term debt and finance lease obligations, less current portion | $ | $ | |||||||||
_________________
1 Net carrying balances of the loans are presented below (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||
| Principal balance | Debt issuance cost and discount, net of accumulated amortization | Net carrying balance | Principal balance | Debt issuance cost and discount, net of accumulated amortization | Net carrying balance | ||||||||||||||||||||||||||||||
| APSC Term Loan | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Uptiered Loan | ( | ( | |||||||||||||||||||||||||||||||||
| ME/RE Loans | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
2 Comprised of principal amount outstanding, less unamortized discount and issuance costs. See Convertible Debt section below for additional information.
2022 ABL Credit Facility
On February 11, 2022, we entered into a new credit agreement, with the lender parties thereto, and Eclipse Business Capital, LLC, a Delaware limited liability company, as agent, (“Eclipse”) (such agreement, as amended by Amendment No. 1 dated as of May 6, 2022, Amendment No. 2 dated as of November 1, 2022 and Amendment No.3 (described below) dated June 16, 2023, the “2022 ABL Credit Agreement”). Available funding commitments to us under the 2022 ABL Credit Agreement, subject to certain conditions, include a revolving credit line in an amount of up to $130.0 million to be provided by certain affiliates of Eclipse (the “Revolving Credit Loans”), with a $35.0 million sublimit for swingline borrowings and a $26.0 million sublimit for issuances of letters of credit, and an incremental delayed draw term loan of up to $35.0 million (the “Delayed Draw Term Loan”) provided by Corre Partners Management, LLC and certain of its affiliates (“Corre”) (collectively, the “2022 ABL Credit Facility”). The 2022 ABL Credit Facility was originally scheduled to mature in February 2025 but is now extended to August 2025 by Amendment No.3 as described below.
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Our obligations under the 2022 ABL Credit Agreement are guaranteed by certain of our direct and certain indirect subsidiaries referenced below as the “ABL Guarantors” and, together with the Company, the “ABL Loan Parties.” Our obligations under the 2022 ABL Credit Facility are secured on a first priority basis by, among other things, accounts receivable, deposit accounts, securities accounts and inventory of the ABL Loan Parties and are secured on a second priority basis by substantially all of the other assets of the ABL Loan Parties. Availability under the revolving credit line is based on a percentage of the value of qualifying accounts receivable and inventory, reduced by certain reserves.
After the execution of Amendment No.3, described below, Revolving Credit Loans under the 2022 ABL Credit Facility bear interest through maturity at a variable rate based upon an Adjusted Term Secured Overnight Financing Rate (SOFR) (or a base rate if the SOFR Rate is unavailable for any reason), plus an applicable margin (“SOFR Loan” and “Base Rate Loan,” respectively). Prior to Amendment No.3, as described below, the rate utilized was LIBOR. The “base rate” is a fluctuating interest rate equal to the greatest of (1) 2.00 %, (2) the federal funds rate plus 0.50 %, (3) Term SOFR for a one-month tenor in effect on such day plus 1.00 %, and (4) Wells Fargo Bank, National Association’s prime rate. The “applicable margin” is defined as a rate of 3.15 %, 3.40 % or 3.65 % for Base Rate Loans with a 2.00 % base rate floor and a rate of 4.15 %, 4.40 % or 4.65 % for SOFR Loans with a 1.00 % SOFR floor, in each case depending on the amount of EBITDA as of the most recent measurement period as reported in a monthly compliance certificate. The Delayed Draw Term Loan bears interest through maturity at a rate of the Adjusted Term SOFR Rate plus 10.0 %, provided that, in the event that Adjusted Term SOFR is unavailable for any reason, then such rate shall be a rate per annum equal to the sum of the Base Rate, plus 9.00 % per annum. The fee for undrawn revolving amounts is 0.50 % and the fee for undrawn Delayed Draw Term Loan amounts is 3.00 %. Interest under the 2022 ABL Credit Facility is payable monthly. The Company will also be required to pay customary letter of credit fees, as necessary. The Company may make voluntary prepayments of the loans under the 2022 ABL Credit Facility from time to time, subject, in the case of the Delayed Draw Term Loan, to certain conditions. Mandatory prepayments are also required in certain circumstances, including with respect to the Delayed Draw Term Loan, if the ratio of aggregate value of the collateral under the 2022 ABL Credit Facility to the sum of the Delayed Draw Term Loan plus revolving facility usage outstanding is less than 130 %.
Amounts repaid under the Revolving Credit Loans may be re-borrowed, subject to compliance with the borrowing base and the other conditions set forth in the 2022 ABL Credit Agreement. Amounts repaid under the Delayed Draw Term Loan cannot be re-borrowed. Certain permanent repayments of the 2022 ABL Credit Facility loans are subject to the payment of a premium of 1.00 % from the ABL Amendment No.3 Effective Date (defined below) until August 11, 2024, and 0.50 % after August 11, 2024 until August 11, 2025. The 2022 ABL Credit Agreement contains customary conditions to borrowings and covenants, including covenants that restrict our ability to sell assets, make changes to the nature of our business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of certain debt. The 2022 ABL Credit Agreement following the execution of Amendment No.3, as described below, also requires that we will not exceed $15.0 million in unfinanced capital expenditures in any CapEx Test Period (as defined therein); provided the Company shall be permitted to make up to $25.0 million in unfinanced capital expenditures in any CapEx Test Period (as defined therein) if we maintain a net leverage ratio of less than or equal to 2.00 to 1.00 on a pro forma basis immediately after giving effect to each such unfinanced capital expenditures in excess of the $15.0 million maximum annual capital expenditure limit. In addition, the 2022 ABL Credit Agreement includes customary events of default, the occurrence of which may require that we pay an additional 2.00 % interest on the outstanding loans under the 2022 ABL Credit Facility and that the debt becomes payable immediately.
Amendment No.3
On June 16, 2023 (the “ABL Amendment No.3 Effective Date”), the Company entered into Amendment No. 3 (“ABL Amendment No. 3”) among the Company, as borrower, the lenders from time-to-time party thereto and Eclipse, as agent (the “ABL Agent”). The ABL Amendment No. 3 amended the 2022 ABL Credit Agreement to, among other things,
(i) provide the Company with a new $27.4 million term loan (the “ME/RE Loans”) secured by a first priority lien and mortgage on certain real estate and machinery and equipment of the Company and the ABL Guarantors (the “Specified RE/ME”) as described further below,
(ii) increase borrowing base availability under the revolving credit facility by an additional $2.5 million,
(iii) extend the maturity date for the entire facility under the 2022 ABL Credit Agreement to August 11, 2025,
(iv) amend the financial maintenance covenant with respect to the maximum unfinanced capital expenditures, and
(iv) amend provisions applicable to the $35.0 million delayed draw term loans under the 2022 ABL Credit Agreement to remove the ability of the Company to repay and re-borrow such loans, to remove the ability to pay any portion of the interest on
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such loans in PIK (as defined below) and add a mandatory prepayment with respect to such loan in relation to any sale of certain collateral principally supporting such loans.
The interest rate after the execution of Amendment No.3 as of June 30, 2023 was 9.92 % for Revolving Credit Loans and 15.27 % for the Delayed Draw Term Loan. The interest rate as of June 30, 2022 was 5.71 % for Revolving Credit Loans and 11.06 % for the Delayed Draw Term Loan. Cash interest paid on Revolving Credit Loans amounted to $3.0 million and $2.0 million for the six months ended June 30, 2023 and 2022, respectively. Cash interest paid on the Delayed Draw Term Loan amounted to $2.6 million and $0.8 million for the six months ended June 30, 2023 and 2022, respectively.
Direct and incremental costs associated with the issuance of the 2022 ABL Credit Facility excluding Amendment No.3 were approximately $8.4 million and were capitalized as deferred financing costs. These costs were fully amortized as of June 16, 2023 due to the Maturity Reserve Trigger Date provision that was previously applicable. We incurred additional $0.3 million of financing cost related to the existing ABL Credit Facility in connection with the ABL Amendment No. 3. These costs were capitalized and amortized on a straight-line basis over the new term of the 2022 ABL Credit Facility.
ME/RE Loans
As described above, on June 16, 2023, we entered into ABL Amendment No. 3 that, provided us with $27.4 million of new ME/RE Loans. Our obligations in respect of the ME/RE Loans are guaranteed by certain direct and indirect material subsidiaries of the Company (the “ABL Guarantors” and, together with the Company, the “ABL Loan Parties”). The ME/RE Loans under the 2022 ABL Credit Agreement are secured on a first priority basis by, among other things, the Specified RE/ME, accounts receivable, deposit accounts, securities accounts and inventory of the ABL Loan Parties (the “ABL Priority Collateral”) and on a second priority basis by substantially all of the other assets of the ABL Loan Parties, subject to the terms of the Intercreditor Agreement. The ME/RE Loans were drawn in full on June 16, 2023 and were used to pay off the amounts owed under the existing APSC Term Loan, discussed below.
The ME/RE Loans bear interest at an annual rate of the SOFR, plus a credit spread adjustment of 0.11 % per annum and a margin of 5.75 % per annum and is payable monthly. Amounts outstanding under the ME/RE Loans amortize each month in aggregate installments of $0.3 million, subject to certain adjustments. The Company may make voluntary prepayments of the ME/RE Loans from time to time, and mandatory prepayment is required in certain instances related to asset sales of the Specified RE/ME and with annual excess cash flow (as defined in the 2022 ABL Credit Agreement), subject to certain prepayment premiums (subject to certain exceptions), plus accrued and unpaid interest.
The effective interest rate of the ME/RE Loans as of June 30, 2023 was approximately 16.54 % and consisted of the 11.02 % stated interest rate and an additional 5.51 % due to amortization of the related debt issuance cost. No
Direct and incremental costs associated with the issuance of the ABL Amendment No. 3 were approximately $1.9 million and were deferred and presented as a direct deduction from the carrying amount of the related debt and are amortized on a straight-line basis over the term of the ME/RE Loans. Unamortized debt issuance cost amounted to $1.9 million as of June 30, 2023.
As of June 30, 2023, we had $80.9 million of Revolving Credit Loans outstanding and $35.0 million outstanding under the Delayed Draw Term Loan. There were $10.1 million outstanding in letters of credit secured by these instruments, which are off-balance sheet.
As of June 30, 2023, subject to the applicable sublimit and other terms and conditions, $21.8 million was available for loans or for issuance of new letters of credit.
APSC Term Loan
On December 18, 2020, we entered into that certain Term Loan Credit Agreement (as amended by Amendment No. 1, dated as of October 19, 2021, Amendment No. 2, dated as of October 29, 2021, Amendment No. 3, dated as of November 8, 2021, Amendment No. 4, dated as of December 2, 2021, Amendment No. 5, dated as of December 7, 2021 Amendment No. 6, dated as of February 11, 2022, Amendment No. 7, dated as of May 6, 2022, Amendment No. 8, dated as of November 1, 2022 and Amendment No. 9, dated as of November 4, 2022, the “Term Loan Credit Agreement”) with Atlantic Park Strategic Capital Fund, L.P., as agent (“APSC”), pursuant to which we borrowed $250.0 million (the “Term Loan”). The Term Loan had an original maturity date of December 18, 2026.
On June 16, 2023, we used the proceeds from the ME/RE Loans and borrowings under the 2022 ABL Credit Facility to repay the total outstanding Term Loan balance of $35.5 million plus the applicable prepayment premium of $1.4 million and related accrued interest, resulting in a loss on debt extinguishment of $1.6 million.
As of June 30, 2022, the effective interest amounted to 23.85 % and consisted of a 9.00 % variable interest rate paid in cash and an additional 14.85 % due to the acceleration of the amortization of the related debt issuance costs. The unamortized
17
balance of debt discounts, warrant discount and debt issuance cost amounted to $3.9 million at December 31, 2022. Cash interest paid amounted to $2.9 million and $5.5 million for the six months ended June 30, 2023 and 2022, respectively.
Subordinated Term Loan Credit Agreement / Amended and Restated Term Loan Credit Agreement
On November 9, 2021, we entered into a credit agreement (as amended by Amendment No. 1 dated as of November 30, 2021, Amendment No. 2 dated as of December 6, 2021, Amendment No. 3 dated as of December 7, 2021, Amendment No. 4 dated as of December 8, 2021, Amendment No. 5 dated as of February 11, 2022, Amendment No. 6 dated as of May 6, 2022, Amendment No. 7 dated as of June 28, 2022, Amendment No. 8 dated as of October 4, 2022, Amendment No. 9 dated as of November 1, 2022, Amendment No. 10 dated as of November 4, 2022, Amendment No. 11 dated as of November 21, 2022 and Amendment No. 12 dated as of March 29, 2023, the “Subordinated Term Loan Credit Agreement”) with Cantor Fitzgerald Securities, as agent, and the lenders party thereto providing for an unsecured approximately $123.1 million delayed draw subordinated term loan facility (the “Subordinated Term Loan”). Pursuant to the Subordinated Term Loan Credit Agreement, we borrowed $22.5 million on November 9, 2021, and an additional $27.5 million on December 8, 2021. On October 4, 2022, an additional approximately $57.0 million was added to the outstanding principal amount under the Subordinated Term Loan Credit Agreement in exchange for an equivalent amount of the Company’s Notes held by Corre (as defined below).
On June 16, 2023, the Company, 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 the Company, as borrower, the guarantors party thereto, the lenders from time to time party thereto and Cantor Fitzgerald Securities, as agent (the “A&R Term Loan Agent”). Additional funding commitments to the Company under the A&R Term Loan Credit Agreement, subject to certain conditions, included a $57.5 million senior secured first lien term loan (the “Incremental Term Loan”) provided by Corre Partners Management, LLC (“Corre” or the “Investor Representative”) and certain of its affiliates, consisting of a $37.5 million term loan tranche and a $20.0 million delayed draw term loan tranche. Amounts outstanding under the existing subordinated term loan credit agreement (the “Uptiered Loan”) have become senior secured obligations of the Company and the A&R Term Loan Guarantors (as defined below) and are secured on a pari passu basis with the Incremental Term Loan, on the terms described below. As of the closing date of the A&R Term Loan Credit Agreement (the “Closing Date”), the aggregate principal amount of the Uptiered Loan was $123.1 million. All outstanding amounts in respect of the Incremental Term Loan under the A&R Term Loan Credit Agreement mature and become due and payable on December 31, 2026. All outstanding amounts in respect of the Uptiered Loan under the A&R Term Loan Credit Agreement mature and become due and payable on December 31, 2027; provided that, if greater than $50.0 million (including amounts in respect of payments in kind) of the Uptiered Loan is outstanding on December 31, 2026, then all outstanding amounts in respect of the Uptiered Loan under the A&R Term Loan Credit Agreement become due and payable on December 31, 2026.
The Company’s obligations under the A&R Term Loan Credit Agreement are guaranteed by certain direct and indirect material subsidiaries of the Company (the “A&R Term Loan Guarantors” and, together with the Company, the “A&R Term Loan Parties”). The obligations of the A&R Term Loan Parties are secured on a second priority basis by the ABL Priority Collateral and on a first priority basis by substantially all of the other assets of the A&R Term Loan Parties, subject to the terms of an intercreditor agreement (the “Intercreditor Agreement”) between the A&R Term Loan Agent, the ABL Agent and the A&R Term Loan Parties, that sets forth the priorities in respect of the collateral and certain related agreements with respect thereto.
Incremental Term Loans borrowed under the A&R Term Loan Credit Agreement bear interest at an annual rate of 12.00 %, payable in cash. The Uptiered Loan under the A&R Term Loan Credit Agreement bear interest at an annual rate of 12.00 %, paid-in-kind (noncash) (“PIK”) from the Closing Date through December 31, 2023, and thereafter a split between cash and PIK, with the cash portion ranging from 2.50 % per annum to 12.00 % per annum, and the PIK portion ranging from 9.50 % per annum to 0.00 % per annum, depending on the Company’s Net Leverage Ratio (as defined in the A&R Term Loan Credit Agreement). Cash interest under the A&R Term Loan Credit Agreement is payable quarterly, and PIK interest is payable monthly. In addition, if certain minimum liquidity thresholds set forth in the A&R Term Loan Credit Agreement are not met for an applicable interest payment date, all interest in respect of the Uptiered Loan payable on such interest payment date will be PIK, irrespective of the Net Leverage Ratio at such time.
Amounts outstanding under the Incremental Term Loan amortize in quarterly installments of 0.75 % of the original principal amount borrowed.
The Company may make voluntary prepayments of the loans under the A&R Term Loan Credit Agreement from time to time, and the Company is required in certain instances related to change of control, asset sales, equity issuances, non-permitted debt issuances and with annual excess cash flow (as defined in the A&R Term Loan Credit Agreement), to make mandatory prepayments of the loans under the A&R Term Loan Credit Agreement, subject to certain prepayment premiums as specified in the A&R Term Loan Credit Agreement (subject to certain exceptions), plus accrued and unpaid interest.
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In addition, if certain conditions related to repayments in respect of the Incremental Term Loan are not met, certain additional quarterly fees (not to exceed 4 such fees) plus a 150 basis point increase to the applicable interest rate will be payable to the lenders under the A&R Term Loan Credit Agreement in cash or common stock of the Company, at the Company’s option.
The A&R Term Loan Credit Agreement contains certain conditions to borrowings, events of default and affirmative, negative and financial covenants, including covenants that restrict the Company’s ability to sell assets, make changes to the nature of the Company’s business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, make distributions or redeem or repurchase capital stock or make investments, engage in transactions with affiliates and make payments in respect of certain debt. The A&R Term Loan Credit Agreement also requires that the Company will not exceed $15.0 million in unfinanced capital expenditures in any four-fiscal quarter period, tested as of the end of the second and fourth fiscal quarters of each calendar year starting with the period ending December 31, 2023; provided that such amount shall increase to $25.0 million if the Company’s Total Leverage Ratio (as defined in the A&R Term Loan Credit Agreement) is less than or equal to 2.00 to 1.00 on a pro forma basis for such additional expenditure. In addition, the A&R Term Loan Credit Agreement requires that the Company not exceed a maximum Net Leverage Ratio, tested as of the end of each fiscal quarter, beginning at 9.25 to 1.00 for the fiscal quarter ending June 30, 2023 and stepping down each quarter to a ratio of 4.75 to 1.00 for the fiscal quarters ending March 31, 2026 and thereafter. Further, the A&R Term Loan Credit Agreement includes certain customary events of default, the occurrence of which may require that we pay an additional 2.00 % interest on the outstanding loans and other obligations under the A&R Term Loan Credit Agreement and the debt becomes payable immediately.
As of June 30, 2023, following the execution of the A&R Term Loan Credit Agreement, the effective interest rate on the Uptiered Term Loan amounted to 12.86 %. At June 30, 2022, the effective interest rate of 46.79 % consisted of the 12.00 % stated interest and an additional 34.79 % due to the accelerated amortization of the related debt issuance costs due to the Trigger Date provision. The unamortized debt issuance cost amounted to $0.7 million and $7.5 million as of June 30, 2023 and December 31, 2022, respectively. PIK interest added to principal amounted to $7.7 million and $3.0 million for the six months ended June 30, 2023 and 2022, respectively.
On July 31, 2023, $42.5 million, made up of $37.5 million of the term loan tranche and $5.0 million of the delayed draw term loan tranche, of the $57.5 million Incremental Term Loan under the A&R Term Loan Credit Agreement was drawn down and the proceeds thereof were used to repay the Notes that matured on August 1, 2023. The remaining availability of the delayed draw term loan tranche of $15.0 million will be used, subject to certain maximum liquidity conditions, for working capital purposes.
Warrants
As of June 30, 2023 and December 31, 2022, we had the following warrants outstanding:
| Original | After Reverse Stock Split (Effective date December 22, 2022) | ||||||||||||||||||||||||||||
| Holder | Date | Number of shares | Exercise price | Expiration date | Number of shares | Exercise price | Expiration date | ||||||||||||||||||||||
| APSC Holdco II, LP | |||||||||||||||||||||||||||||
| Original, as awarded | 12/18/2020 | $ | 6/14/2028 | ||||||||||||||||||||||||||
| Amended | 11/9/2021 | $ | 6/14/2028 | ||||||||||||||||||||||||||
| Amended | 12/8/2021 | $ | 12/8/2028 | ||||||||||||||||||||||||||
| Total APSC | $ | 12/8/2028 | $ | 12/8/2028 | |||||||||||||||||||||||||
| Corre | 12/8/2021 | $ | 12/8/2028 | $ | 12/8/2028 | ||||||||||||||||||||||||
| Total warrants | |||||||||||||||||||||||||||||
The exercise price and the number of shares of our common stock issuable on exercise of the warrants are subject to certain antidilution adjustments, including for stock dividends, stock splits, reclassifications, noncash distributions, cash dividends, certain equity issuances and business combination transactions.
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Convertible Notes
Description of the Notes
On July 31, 2017, we issued $230.0 million principal amount of senior unsecured 5.00 % Convertible Senior Notes (the “Notes”) due 2023 in a private offering to qualified institutional buyers (as defined in the Securities Act of 1933) pursuant to Rule 144A under the Securities Act (the “Offering”). Net proceeds received from the Offering were approximately $222.3 million after deducting discounts, commissions and expenses and were used to repay outstanding borrowings under a previous credit facility.
The Notes bore interest at a rate of 5.0 % per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2018. After a series of Note repurchases by the Company since issuance and the exchange by Corre in October 2022 of Notes totaling approximately $57.0 million for an equivalent amount of principal added to borrowings under the Subordinated Term Loan Credit Agreement, there was approximately $41.2 million of Notes outstanding at June 30, 2023.
As noted above, on July 31, 2023, $42.5 million of the $57.5 million Incremental Term Loan was drawn down and the proceeds thereof were used to repay the principal and accrued interest of the outstanding Notes that matured on August 1, 2023.
Accounting Treatment of the Notes
As of June 30, 2023 and December 31, 2022, the Notes were recorded in our condensed consolidated balance sheet as follows (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Liability component: | |||||||||||
| Principal | $ | $ | |||||||||
| Unamortized issuance costs | ( | ||||||||||
| Unamortized discount | ( | ||||||||||
Net carrying amount of the liability component1 | $ | $ | |||||||||
| Equity component: | |||||||||||
Carrying amount of the equity component, net of issuance costs2 | $ | $ | |||||||||
_________________
1 Included in the “Long-term debt and finance lease obligation” line for June 30, 2023 and “Current portion of long-term debt and finance lease obligations” line for December 31, 2022 of the condensed consolidated balance sheets.
2 Relates to the portion of the Notes accounted for under ASC 815-15 (defined below) and is included in the “Additional paid-in capital” line of the condensed consolidated balance sheets.
Under ASC 470-20, Debt with Conversion and Other Options, (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments that may be settled entirely or partially in cash upon conversion (such as the Notes) in a manner that reflects the issuer’s economic interest cost. However, entities must first consider the guidance in ASC 815-15, Embedded Derivatives (“ASC 815-15”), to determine if an instrument contains an embedded feature that should be separately accounted for as a derivative.
Fair Value of Debt
The fair value of our 2022 ABL Credit Facility, Uptiered Loans and ME/RE Loans are representative of the carrying value based upon the variable interest rate terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the debt. The fair value of the Notes as of June 30, 2023 and December 31, 2022 was $41.0 million and $37.5 million, respectively, (inclusive of the fair value of the conversion option) and are a “Level 2” measurement, determined based on the observed trading price of these instruments.
1970 Group Substitute Insurance Reimbursement Facility
The 1970 Group extended us credit in the form of a substitute reimbursement facility (the “Substitute Reimbursement Facility”) to provide up to approximately $21.4 million of letters of credit on our behalf in support of our workers’ compensation, commercial automotive and general liability insurance policies (the “Insurance Policies”).
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We are required to reimburse the 1970 Group for any draws made under the letters of credit within five business days of notice of any such draw. The Substitute Insurance Reimbursement Facility Agreement terminates upon the earlier of (i) the expiration or termination of our Insurance Policies or (ii) September 29, 2023.
According to the provisions of ASC 470 – Debt, the arrangement is a Substitute Insurance Reimbursement Facility limited to the amounts drawn under the letters of credit. Therefore, until there is a draw on the Substitute Insurance Reimbursement Facility, the letters of credit are treated as an off-balance sheet credit arrangement. The fees in the amount of $2.9 million paid by us are deferred and amortized to interest expense over the term of the arrangement. As of June 30, 2023, all fees were fully amortized.
Liquidity
As of June 30, 2023, we had $25.0 million of unrestricted cash and cash equivalents and $5.4 million of restricted cash. International cash balances as of June 30, 2023 were $10.4 million, and approximately $0.6 million of such cash is located in countries where currency restrictions exist. As of June 30, 2023, excluding availability dedicated to repayment of Notes as part of the A&R Term Loan Credit Agreement as described above, we had approximately $36.8 million of available borrowing capacity under our various credit agreements, consisting of $21.8 million available under the Revolving Credit Loans and $15.0 million available under the Incremental Term Loan under the A&R Term Loan Credit Agreement. We have $33.7 million in letters of credit and $2.2 million in surety bonds outstanding and $0.7 million in miscellaneous cash deposits securing leases or other required obligations. Our cash and cash equivalents as of December 31, 2022 totaled $58.1 million including $1.4 million of cash located in countries where currency restrictions existed.
12. EMPLOYEE BENEFIT PLANS
We have a defined benefit pension plan covering certain United Kingdom employees (the “U.K. Plan”). Net periodic pension credit includes the following components (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||
| Interest cost | $ | $ | $ | $ | ||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||
| Amortization of prior service cost | ||||||||||||||||||||
| Unrecognized Net Actuarial Loss | ||||||||||||||||||||
| Net periodic pension credit | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||
Net pension credit is included in “Other income, net” on our condensed consolidated statement of operations. The expected long-term rate of return on invested assets is determined based on the weighted average of expected returns on asset investment categories for the U.K. Plan as follows: 6.4 % overall, 9.5 % for equities and 5.3 % for debt securities. We expect to contribute $3.7 million to the U.K. Plan for 2023, of which $1.9 million has been contributed through June 30, 2023.
13. STOCKHOLDERS’ EQUITY
Shareholder’s Equity and Preferred Stock
On December 21, 2022, we completed a reverse stock split of our outstanding common stock at a ratio of one-for-ten. The Reverse Stock Split effected a proportionate reduction in our authorized shares of common stock from 120,000,000 shares to 12,000,000 shares and reduced the number of shares of common stock outstanding from approximately 43,429,089 shares to approximately 4,342,909 shares. We have made proportionate adjustments to the number of common shares issuable upon exercise or conversion of our outstanding warrants, equity awards and convertible securities, as well as the applicable exercise prices and weighted average fair value of the equity awards. No fractional shares were issued in connection with the Reverse Stock Split.
As of June 30, 2023 there were 4,368,422 12,000,000 0.30 par value per share.
As of June 30, 2023 we had 500,000 none of which had been issued.
Accumulated Other Comprehensive Income (loss)
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A summary of changes in accumulated other comprehensive loss included within shareholders’ equity is as follows (in thousands):
| Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency Translation Adjustments | Defined Benefit Pension Plans | Tax Provision | Total | Foreign Currency Translation Adjustments | Defined Benefit Pension Plans | Tax Provision | Total | ||||||||||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | ( | $ | ( | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | ( | $ | ( | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
14. COMMITMENTS AND CONTINGENCIES
We accrue for contingencies where the occurrence of a material loss is probable and can be reasonably estimated, based on our best estimate of the expected liability. We may increase or decrease our legal accruals in the future, on a matter-by-matter basis, to account for developments in such matter. Because such matters are inherently unpredictable and unfavorable developments or outcomes can occur, assessing contingencies is highly subjective and requires judgments about future events. Notwithstanding the uncertainty as to the outcome and while our insurance coverage might not be available or adequate to cover these claims, based upon the information currently available, we do not believe that any uninsured losses that might arise from these lawsuits and proceedings will have a materially adverse effect on our condensed consolidated financial statements.
Notice of Potential Environmental Violation - On April 20, 2021, Team Industrial Services, Inc. received Notices of Potential Violation from the U.S. Environmental Protection Agency (“EPA”) alleging noncompliance with various waste determination, reporting, training, and planning obligations under the Resource Conservation and Recovery Act at seven of our facilities located in Texas and Louisiana. The allegations largely related to spent film developing solutions generated through our mobile radiographic inspection services and related to the characterization and quantities of those wastes and related notices, reporting, training, and planning.
On February 9, 2022, Team and the EPA agreed to settle all the claims related to this matter and the formal settlement agreement was finalized in April 2022 with our agreement to pay penalties totaling $0.2 million.
Kelli Most Litigation - On November 13, 2018, Kelli Most filed a lawsuit against Team Industrial Services, Inc., individually and as a personal representative of the estate of Jesse Henson, in the 268th District Court of Fort Bend County, Texas (the “Most litigation”). The complaint asserted claims against Team for negligence resulting in the wrongful death of Jesse Henson. A jury trial commenced on this matter on May 4, 2021. On June 1, 2021, the jury rendered a verdict against Team for $222.0 million in compensatory damages.
On January 25, 2022, the trial court signed a final judgment in favor of the plaintiff and against Team Industrial Services, Inc. Post-judgment motions challenging the judgment were filed on February 24, 2022 and were denied by the court on April 22, 2022. A notice of appeal was filed on April 25, 2022, and this case is currently pending in the Court of Appeals for the First District of Texas, in Houston.
We believe that the likelihood that the amount of the judgment will be affirmed is not probable. We currently estimate a range of possible outcomes between $13.0 million and approximately $51.0 million, and as of June 30, 2023 we have recorded a receivable from our third-party insurance providers in other current assets with a corresponding liability of the same amount in other accrued liabilities at an amount we believe is the most likely estimate for a probable loss on this matter. Such amounts are treated as non-cash operating activities. The Most litigation is covered by our general liability and excess insurance policies which are occurrence based and subject to an aggregate $3.0 million self-insured retention and deductible. All retentions and deductibles have been met, accordingly, we believe pending the final settlement, all further claims will be fully funded by our insurance policies. We will continue to evaluate the possible outcomes of this case in light of future developments and their potential impact on factors relevant to our assessment of any possible loss.
Accordingly, for all matters discussed above, we have accrued in the aggregate approximately $41.2 million as of June 30, 2023, of which approximately $2.2 million is not covered by our various insurance policies.
In addition to legal matters discussed above, we are subject to various lawsuits, claims and proceedings encountered in the normal conduct of business (“Other Proceedings”). Management believes that based on its current knowledge and after consultation with legal counsel that the Other Proceedings, individually or in the aggregate, will not have a material effect on our condensed consolidated financial statements.
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15. SEGMENT AND GEOGRAPHIC DISCLOSURES
ASC 280, Segment Reporting, requires us to disclose certain information about our operating segments. Operating segments are defined as “components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.” We conduct operations in two segments: IHT and MS.
Segment data for our two operating segments are as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| IHT | $ | $ | $ | $ | |||||||||||||||||||
| MS | |||||||||||||||||||||||
| Total Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||
| Operating income (loss): | |||||||||||||||||||||||
| IHT | $ | $ | $ | $ | |||||||||||||||||||
| MS | |||||||||||||||||||||||
| Corporate and shared support services | ( | ( | ( | ( | |||||||||||||||||||
| Total Operating income (loss) | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||
Capital expenditures1: | |||||||||||||||||||||||
| IHT | $ | $ | $ | $ | |||||||||||||||||||
| MS | |||||||||||||||||||||||
| Corporate and shared support services | |||||||||||||||||||||||
| Total Capital expenditures | $ | $ | $ | $ | |||||||||||||||||||
____________
1 Excludes finance leases. Totals may vary from amounts presented in the condensed consolidated statements of cash flows due to the timing of cash payments.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||
| Depreciation and amortization: | |||||||||||||||||||||||
| IHT | $ | $ | $ | $ | |||||||||||||||||||
| MS | |||||||||||||||||||||||
| Corporate and shared support services | |||||||||||||||||||||||
| Total Depreciation and amortization | $ | $ | $ | $ | |||||||||||||||||||
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Separate measures of our assets by operating segment are not produced or utilized by management to evaluate segment performance. A geographic breakdown of our revenues for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||
Total Revenues1 | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Europe | |||||||||||||||||||||||
| Other foreign countries | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
______________
1 Revenues attributable to individual countries/geographic areas are based on the country of domicile of the legal entity that performs the work.
16. RELATED PARTY TRANSACTIONS
Alvarez & Marsal provided certain consulting services to the Company in connection with our former Interim Chief Financial Officer position and other corporate support costs. Effective June 12, 2022 the Interim Chief Financial Officer position ended as the Company named a permanent Chief Financial Officer. The Company paid $8.1 million in consulting fees to Alvarez & Marsal for the year ended December 31, 2022.
In connection with the Company’s debt transactions, the Company engaged in transactions with Corre and APSC to provide funding as described in Note 11 - Debt.
17. SUBSEQUENT EVENTS
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ||||
Overview
Unless otherwise indicated, the terms “Team, Inc.,” “Team,” “we,” “our” and “us” are used in this report to refer to Team, Inc., to one or more of its 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 for the year ended December 31, 2022 (“our Annual Report on Form 10-K”) and other documents previously filed with the Securities and Exchange Commission. 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 Statement 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 beliefs and assumptions that we believe to be reasonable, and our current expectations, estimates and projections about ourselves and our industry. However, all forward-looking statements are subject to risks and uncertainties, many of which are out of our control, that may cause actual results to differ materially from those that are expected and, therefore, you should not unduly rely on such statements. The forward-looking statements included herein are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.
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. Additionally, there are a number of risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by these forward-looking statements. Such risks include those disclosed under the heading “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and in Part II, Item 1A of this Quarterly Report on Form 10-Q, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the United States Securities and Exchange Commission, as well as, risks related to:
•our ability to continue as a going concern;
•our ability to generate sufficient cash from operations, access our 2022 ABL Credit Facility, or maintain our compliance with our 2022 ABL Credit Agreement and A&R Term Loan Credit Agreement covenants;
•our ability to manage inflationary pressures in our operating costs;
•the impact to our business, financial condition, results of operations and cash flows due to negative market conditions, including from the lingering impact of widespread public health crises, epidemics and pandemics, threats of domestic and global economic recession and future economic uncertainties, particularly in industries in which we are heavily dependent;
•delays in the commencement of major projects;
•our business may be affected by seasonal and other variation, such as severe weather conditions (including conditions influenced by climate change) and the nature of our clients’ industry;
•our ability to expand into new markets (including low carbon energy transition) and attract clients in new industries may be limited due to our competition’s breadth of service offerings and intellectual property;
•we have 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;
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•the timing of new client contracts and termination of existing contracts may result in unpredictable fluctuations in our cash flows and financial results;
•risk of non-payment and/or delays in payment of receivables from our clients;
•we may not be able to continue to meet the New York Stock Exchange’s (“NYSE”) continued listing requirements and rules, and the NYSE may delist our common stock, which could negatively affect our company, the price of our common stock and our shareholders’ ability to sell our common stock;
•our financial forecasts are based upon estimates and assumptions that may materially differ from actual results;
•we may incur liabilities and suffer negative financial or reputational impacts relating to occupational health and safety matters;
•changes in laws or regulations in the local jurisdictions that we conduct our business;
•the inherently uncertain outcome of current and future litigation;
•if we fail to maintain effective internal controls, we may not be able to report our financial results accurately or timely or prevent or detect fraud, which could have a material adverse effect on our business; and
•acts of terrorism, war or political or civil unrest in the U.S. or elsewhere, changes in laws and regulations, or the imposition of economic or trade sanctions affecting international commercial transactions.
General Description 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 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: 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 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 services in three distinct client demand profiles: (i) turnaround or project services, (ii) call-out services and (iii) nested or run-and-maintain services.
IHT provides conventional and advanced non-destructive testing services primarily for the process, pipeline and power sectors, pipeline integrity management services, and field heat treating services, as well as associated engineering and condition assessment services. These services can be offered while facilities are running (on-stream), during facility turnarounds or during new construction or expansion activities. IHT also provides advanced digital imaging including remote digital video imaging.
MS provides solutions designed to serve clients’ unique needs during both the operational (onstream) and off-line states of their assets. 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 on-line valve insertion solutions, which are delivered while assets are in an operational condition, which maximizes client production time. Asset shutdowns can be planned, such as a turnaround maintenance event, or unplanned, such as those due to component failure or equipment breakdowns. Our specialty maintenance, turnaround and outage services are designed to minimize client downtime and are primarily delivered while assets are off-line and often through the use of cross-certified technicians, whose multi-craft capabilities deliver the production needed to achieve tight time schedules. 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 and liquefied natural gas);
•Manufacturing and Process (chemical, petrochemical, pulp and paper industries, automotive and mining);
•Midstream and Others (valves, terminals and storage, pipeline and offshore oil and gas);
•Public Infrastructure (amusement parks, bridges, ports, construction and building, roads, dams and railways); and
•Aerospace and Defense.
Significant Factors Impacting Results and Recent Developments
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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 of our Annual Report on Form 10-K “Risk Factors” which includes items that 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.
Market Conditions Update. The lingering impact of widespread public health crises, epidemics and pandemics had less effect on our workforce and operations during the first and second quarters of 2023, as well as the operations of our clients, suppliers and contractors. However, the global economy, including the financial and credit markets, has recently experienced significant volatility and disruptions, including increases in inflation rates, rising interest rates, disruption to global supply chains, declines in economic growth, volatility in foreign currency exchange rates, and uncertainty about economic stability. The severity and duration of the impact of these conditions on our business cannot be predicted. See Item 1A of our Annual Report on Form 10-K “Risk Factors” for additional information.
Recent Refinancing Transaction. On June 16, 2023, we entered into the A&R Term Loan Credit Agreement and ABL Amendment No. 3. Refer to Note 1 - Description of Business and Basis of Presentation and Note 11 - Debt to the unaudited condensed consolidated financial statements for additional details.
Listing Notice from NYSE. During 2022, the Company’s share price and total market capitalization and Shareholders equity had fallen below NYSE listing standard thresholds and therefore the Company received notices of non-compliance from the NYSE. On May 25, 2023, we were notified by the NYSE that we had regained compliance with the NYSE’s quantitative continued listing standards.
Although we have regained compliance with the NYSE’s quantitative continued listing within the cure period, there is no assurance that we will remain in compliance with such requirement or other NYSE continued listing standards in the future.
27
Results of Operations
The following is a comparison of our results of operations for the three and six months ended June 30, 2023 to the three and six months ended June 30, 2022.
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
The following table sets forth the components of revenue and operating loss from our operations for the three month period ended June 30, 2023 and 2022 (in thousands):
| Three Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||||||||||
| Revenues by business segment: | ||||||||||||||||||||||||||
| IHT | $ | 116,740 | $ | 114,124 | $ | 2,616 | 2.3 | % | ||||||||||||||||||
| MS | 122,752 | 107,416 | 15,336 | 14.3 | % | |||||||||||||||||||||
| Total revenues | $ | 239,492 | $ | 221,540 | $ | 17,952 | 8.1 | % | ||||||||||||||||||
| Operating income (loss): | ||||||||||||||||||||||||||
| IHT | $ | 6,548 | $ | 5,514 | $ | 1,034 | 18.8 | % | ||||||||||||||||||
| MS | 12,720 | 6,984 | 5,736 | 82.1 | % | |||||||||||||||||||||
| Corporate and shared support services | (14,672) | (23,292) | 8,620 | 37.0 | % | |||||||||||||||||||||
| Total operating income (loss) | $ | 4,596 | $ | (10,794) | $ | 15,390 | 142.6 | % | ||||||||||||||||||
| Interest expense, net | $ | (16,691) | $ | (18,476) | $ | 1,785 | 9.7 | % | ||||||||||||||||||
| Loss on debt extinguishment | (1,582) | — | (1,582) | NM | ||||||||||||||||||||||
| Other income, net | 13 | 3,259 | (3,246) | (99.6) | % | |||||||||||||||||||||
| Loss before income taxes | $ | (13,664) | $ | (26,011) | $ | 12,347 | 47.5 | % | ||||||||||||||||||
| Provision for income taxes | (2,089) | (2,191) | 102 | 4.7 | % | |||||||||||||||||||||
| Net loss from continuing operations | $ | (15,753) | $ | (28,202) | $ | 12,449 | 44.1 | % | ||||||||||||||||||
| NM = Not meaningful | ||||||||||||||||||||||||||
Revenues. Total revenues increased $18.0 million or 8.1% from the prior year quarter and were negatively impacted by $1.8 million from adverse foreign exchange movement. IHT revenues increased by $2.6 million or 2.3% and benefited from a $4.6 million or 5% increase in IHT U.S. revenue due to higher callout and turnaround activity, and a $1.1 million increase in IHT international revenue, partially offset by a $3.1 million decrease in Canada revenue due to lower turnaround activity. MS revenue increased by $15.3 million or 14.3%, attributable to a $4.8 million or 8.9% increase in U.S. revenue due to higher callout activity in leak repair, turnaround activity, hot tapping services, and a $10.0 million revenue increase in international regions and Canada.
Operating income (loss). Overall operating income was $4.6 million in the current year quarter, a $15.4 million improvement compared to an operating loss of $10.8 million in the prior year quarter. IHT operating income increased by $1.0 million or 18.8% due to higher activity and higher margins in all regions, partially offset by higher labor related costs in U.S. operations. MS operating income increased by $5.7 million or 82.1% as compared to the prior year quarter, driven by higher revenue and margins from the Company’s U.S., Canada and international operations. Operating income from U.S. and international operations increased by $3.4 million and $2.8 million, respectively, and Canada increased by $0.9 million, partially offset by a decrease in operating income from our domestic valve business. Corporate operating loss decreased by $8.6 million due to lower professional fees and lower severance cost in the current quarter compared to the prior year quarter and lower overall costs due to the Company’s ongoing cost reduction efforts. In spite of our cost reduction efforts, we continue to experience cost inflation in several areas across all segments, such as raw materials, transportation, and labor costs.
28
For the three months ended June 30, 2023 and 2022, operating loss includes net expenses totaling $3.1 million and $6.9 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, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Operating income (loss) | $ | 4,596 | $ | (10,794) | ||||||||||
| Professional fees and other | 2,647 | 4,693 | ||||||||||||
| Legal costs | 200 | 1,200 | ||||||||||||
| Severance charges, net | 217 | 1,008 | ||||||||||||
| Total non-core expenses | 3,064 | 6,901 | ||||||||||||
| Operating income (loss), excluding non-core expenses | $ | 7,660 | $ | (3,893) | ||||||||||
Excluding the impact of these identified non-core items in both periods, operating income increased by $11.6 million from a loss of $3.9 million to income of $7.7 million. See our non-GAAP reconciliation for additional details of our non-core expenses.
Interest expense, net. Interest expense decreased by $1.8 million compared to the prior year quarter. The decrease was primarily attributable to lower outstanding debt during the second quarter of 2023 due to the $225.0 million pay down of our term debt in November 2022. These effects were partially offset by the increase in PIK interest on the subordinated term loan, a year over year increase in cash interest rates and the acceleration of the amortization of debt related deferred costs until June 16, 2023 to reflect the revised Trigger Date impact on the maturity date.
Cash interest paid during the quarter ended June 30, 2023 and 2022 was $4.7 million and $3.3 million, respectively.
Loss on Debt Extinguishment. On June 16, 2023, we used the proceeds from the ME/RE Loans and borrowings under the 2022 ABL Credit Facility to repay the total outstanding Term Loan balance of $35.5 million plus the applicable prepayment premium of $1.4 million and related accrued interest, resulting in a loss on debt extinguishment of $1.6 million.
Other income (expense), net. Other income (expense), net decreased by $3.2 million primarily due to foreign currency fluctuations and lower gains on asset disposals in the second quarter of 2023 as compared to the 2022 period, and insurance proceeds received from a natural disaster claim in the 2022 period.
Taxes. The provision for income tax was $2.1 million on the pre-tax loss from continuing operations of $13.7 million in the current year quarter, compared to a $2.2 million income tax provision on a pre-tax loss of $26.0 million in the prior year quarter. The effective tax rate, inclusive of discrete items, was a provision of 15.3% for the three months ended June 30, 2023, compared to a provision of 8.5% for the three months ended June 30, 2022. The effective tax rate change from the prior year quarter compared to the current year quarter is due to changes in the valuation allowance.
29
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
The following is a comparison of our results of operations for the six months ended June 30, 2023 to the six months ended June 30, 2022.
The components of revenue and operating income (loss) from our continuing operations consisted of the following (in thousands):
| Six Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||||||||||
| Revenues by business segment: | ||||||||||||||||||||||||||
| IHT | $ | 218,569 | $ | 209,721 | $ | 8,848 | 4.2 | % | ||||||||||||||||||
| MS | 223,200 | 200,857 | 22,343 | 11.1 | % | |||||||||||||||||||||
| Total revenues | $ | 441,769 | $ | 410,578 | $ | 31,191 | 7.6 | % | ||||||||||||||||||
| Operating income (loss): | ||||||||||||||||||||||||||
| IHT | $ | 11,271 | $ | 5,648 | $ | 5,623 | 99.6 | % | ||||||||||||||||||
| MS | 15,913 | 7,497 | 8,416 | 112.3 | % | |||||||||||||||||||||
| Corporate and shared support services | (30,334) | (46,346) | 16,012 | 34.5 | % | |||||||||||||||||||||
| Total operating loss | $ | (3,150) | $ | (33,201) | $ | 30,051 | 90.5 | % | ||||||||||||||||||
| Interest expense, net | $ | (33,432) | $ | (37,055) | $ | 3,623 | 9.8 | % | ||||||||||||||||||
| Loss on debt extinguishment | (1,582) | — | (1,582) | NM | ||||||||||||||||||||||
| Other income (expense), net | 648 | 6,438 | (5,790) | (89.9) | % | |||||||||||||||||||||
| Loss before income taxes | $ | (37,516) | $ | (63,818) | $ | 26,302 | 41.2 | % | ||||||||||||||||||
| Provision for income taxes | (2,948) | (2,717) | (231) | (8.5) | % | |||||||||||||||||||||
| Net loss from continuing operations | $ | (40,464) | $ | (66,535) | $ | 26,071 | 39.2 | % | ||||||||||||||||||
| NM = Not meaningful | ||||||||||||||||||||||||||
Revenues. Total revenues increased $31.2 million or 7.6% from the prior year period, with both segments seeing increases compared to prior year period. IHT revenues increased by $8.8 million or 4.2% and MS revenue increased by $22.3 million or 11.1%. Revenues were negatively impacted by adverse foreign exchange movements of $4.9 million during the six month period ended June 30, 2023. IHT segment year to date revenue increased 4.2%, compared to the prior year period, which was primarily driven by an increase of $13.2 million in U.S. revenue due to higher callout and turnaround activity and an increase of $2.2 million increase in international revenue, partially offset by lower activity in Canada revenue. MS segment revenue increased 11.1% compared to the prior year period, due to a $8.8 million increase in the U.S. market, primarily attributable to higher activity in callout, hot taping and leak repair services, a $9.3 million increase in international operations primarily attributable to higher turnaround activity, leak repair services and product sales, and a $3.5 million increase in Canada.
Operating income (loss). Overall operating loss was $3.2 million in the current year, a $30.1 million or 90.5% improvement as compared to an operating loss of $33.2 million in the prior year. IHT operating income increased by $5.6 million or 99.6% driven by higher activity and improved margins in the U.S. and cost reductions in Canada. MS operating income increased by $8.4 million as compared to the prior year period. Operating income from the U.S., international and Canada operations increased by $4.2 million, $2.1 million and $2.1 million, respectively, driven by higher activity and improved margins. Corporate operating loss decreased by $16.0 million due to lower professional fees and lower severance cost in the current year period as compared to the prior year period and lower overall costs due to the Company’s ongoing cost reduction efforts. In spite of our cost reduction efforts, we continue to experience cost inflation in several areas across all segments, such as raw materials, transportation, and labor costs.
30
For the six months ended June 30, 2023 and 2022, operating loss includes net expenses totaling $5.1 million and $14.1 million, respectively, that we do not believe are indicative of our core operating activities, as detailed in the table below (in thousands):
| Six Months Ended June 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Operating loss | $ | (3,150) | $ | (33,201) | ||||||||||
| Professional fees and other | 4,368 | 10,037 | ||||||||||||
| Legal costs | 200 | 1,728 | ||||||||||||
| Severance charges, net | 522 | 2,358 | ||||||||||||
| Total non-core expenses | 5,090 | 14,123 | ||||||||||||
| Operating income (loss), excluding non-core expenses | $ | 1,940 | $ | (19,078) | ||||||||||
Excluding the impact of these identified non-core items in both periods, operating loss decreased by $21.0 million from a loss of $19.1 million to income of $1.9 million. See our non-GAAP reconciliation for additional details of our non-core expenses.
Interest expense, net. Interest expense, net decreased $3.6 million from the prior year period. The decrease was primarily attributable to lower outstanding debt during the 2023 period, due to the $225.0 million pay down of our term debt in November 2022 and the 2022 period write off of deferred financing costs related to our Citi ABL facility that was refinanced in February 2022. These effects were partially offset by a year over year increase in cash interest rates and the acceleration of the amortization of debt related deferred costs until June 16, 2023 to reflect the revised Trigger Date impact on the maturity date.
Cash interest paid for six months ended June 30, 2023 and 2022 was $9.1 million and $9.4 million, respectively.
Loss on Debt Extinguishment. On June 16, 2023, we used the proceeds from the ME/RE Loans and borrowings under the 2022 ABL Credit Facility to repay the total outstanding Term Loan balance of $35.5 million under the Term Loan Credit Agreement with APSC plus the applicable prepayment premium of $1.4 million and related accrued interest, resulting in a loss on debt extinguishment of $1.6 million.
Other income (expense), net. Other income (expense) improved by $5.8 million from the prior year period primarily due to foreign currency fluctuations, lower gains on disposal of assets in 2023 compared to the 2022 period, and insurance proceeds received from a natural disaster claim in 2022.
Taxes. The provision for income tax was $2.9 million on the pre-tax loss from continuing operations of $37.5 million in the current year-to-date compared to income tax expense of $2.7 million on the pre-tax loss of $63.8 million in the prior year-to-date period. The effective tax rate was a provision of 7.7% for the six months ended June 30, 2023, compared to a provision of 4.2% for the six months ended June 30, 2022. The effective tax rate change from the prior year quarter compared to the current year quarter is due to an increase in the valuation allowance.
31
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, restructuring charges, loss on debt extinguishment, certain severance charges, 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, and items of other (income) expense. Consolidated adjusted EBITDA further excludes from consolidated adjusted EBIT depreciation, amortization and non-cash share-based compensation costs. Segment adjusted EBIT is equal to segment operating income (loss) excluding costs associated with non-routine legal costs and settlements, non-routine professional fees, loss on debt extinguishment, certain severance charges, and certain other items as determined by management. 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.
Management believes 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 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:
32
| TEAM, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued) | ||||||||||||||||||||||||||
| (unaudited, in thousands) | ||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Adjusted Net Loss: | ||||||||||||||||||||||||||
| Net loss | $ | (15,753) | $ | (28,202) | $ | (40,464) | $ | (66,535) | ||||||||||||||||||
Professional fees and other1 | 2,647 | 4,693 | 4,368 | 10,037 | ||||||||||||||||||||||
Legal costs2 | 200 | 1,200 | 200 | 1,728 | ||||||||||||||||||||||
Severance charges, net3 | 217 | 1,008 | 522 | 2,358 | ||||||||||||||||||||||
| Natural disaster insurance recovery | — | (872) | — | (872) | ||||||||||||||||||||||
| Loss on debt extinguishment | 1,582 | — | 1,582 | — | ||||||||||||||||||||||
Tax impact of adjustments and other net tax items4 | (7) | (3) | (85) | (7) | ||||||||||||||||||||||
| Adjusted Net Loss | $ | (11,114) | $ | (22,176) | $ | (33,877) | $ | (53,291) | ||||||||||||||||||
| Adjusted Net Loss per common share: | ||||||||||||||||||||||||||
| Basic | $ | (2.55) | $ | (5.14) | $ | (7.78) | $ | (13.17) | ||||||||||||||||||
| Consolidated Adjusted EBIT and Adjusted EBITDA: | ||||||||||||||||||||||||||
| Net loss | $ | (15,753) | $ | (28,202) | $ | (40,464) | $ | (66,535) | ||||||||||||||||||
| Provision for income taxes | 2,089 | 2,191 | 2,948 | 2,717 | ||||||||||||||||||||||
| Loss (gain) on equipment sale | 7 | (1,172) | (296) | (3,485) | ||||||||||||||||||||||
| Interest expense, net | 16,691 | 18,476 | 33,432 | 37,055 | ||||||||||||||||||||||
Professional fees and other1 | 2,647 | 4,693 | 4,368 | 10,037 | ||||||||||||||||||||||
Legal costs2 | 200 | 1,200 | 200 | 1,728 | ||||||||||||||||||||||
Severance charges, net3 | 217 | 1,008 | 522 | 2,358 | ||||||||||||||||||||||
| Foreign currency (gain) loss | 143 | (1,029) | (34) | (1,691) | ||||||||||||||||||||||
Pension credit5 | (162) | (189) | (318) | (393) | ||||||||||||||||||||||
| Natural disaster insurance recovery | — | (872) | — | (872) | ||||||||||||||||||||||
| Loss on debt extinguishment | 1,582 | — | 1,582 | — | ||||||||||||||||||||||
| Consolidated Adjusted EBIT | 7,661 | (3,896) | 1,940 | (19,081) | ||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Amount included in operating expenses | 3,694 | 3,914 | 7,413 | 8,072 | ||||||||||||||||||||||
| Amount included in SG&A expenses | 5,845 | 5,095 | 11,672 | 10,391 | ||||||||||||||||||||||
| Total depreciation and amortization | 9,539 | 9,009 | 19,085 | 18,463 | ||||||||||||||||||||||
| Non-cash share-based compensation costs | 245 | 565 | 627 | (59) | ||||||||||||||||||||||
| Consolidated Adjusted EBITDA | $ | 17,445 | $ | 5,678 | $ | 21,652 | $ | (677) | ||||||||||||||||||
| Free Cash Flow: | ||||||||||||||||||||||||||
| Cash used in operating activities | $ | (5,854) | $ | (511) | $ | (23,617) | $ | (56,486) | ||||||||||||||||||
| Capital expenditures | (2,381) | (5,279) | (5,073) | (11,416) | ||||||||||||||||||||||
| Free Cash Flow | $ | (8,235) | $ | (5,790) | $ | (28,690) | $ | (67,902) | ||||||||||||||||||
____________________________________
1 For the three and six months ended June 30, 2023, includes $1.6 million and $3.2 million, respectively related to debt financing and $0.7 million and $0.8 million, respectively, related to lease extinguishment charges. For the three and six months ended June 30, 2022, includes $4.7 million and $10.0 million, respectively, related to costs associated with the debt financing and corporate support.
2 Primarily relates to accrued legal matters and legal fees.
3 For the three and six months ended June 30, 2023, primarily related to costs associated with staff reductions. For the three months ended June 30, 2022, includes $1.0 million primarily related to customary severance costs associated with staff reductions. For the six months ended June 30, 2022, includes $1.3 million related to customary severance costs associated with executive departures and $1.1 million associated with severance across multiple corporate departments.
4 Represents the tax effect of the adjustments.
5 Represents pension credits for the U.K. pension plan based on the difference between the expected return on plan assets and the cost of the discounted pension liability. The pension plan was frozen in 1994 and no new participants have been added since that date. Accruals for future benefits ceased in connection with a plan curtailment in 2013.
33
| TEAM, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued) | ||||||||||||||||||||||||||
| (unaudited, in thousands) | ||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Segment Adjusted EBIT and Adjusted EBITDA: | ||||||||||||||||||||||||||
| IHT | ||||||||||||||||||||||||||
| Operating income | $ | 6,548 | $ | 5,514 | $ | 11,271 | $ | 5,648 | ||||||||||||||||||
Severance charges, net1 | 165 | 25 | 205 | 41 | ||||||||||||||||||||||
| Professional fees and other | 828 | — | 828 | — | ||||||||||||||||||||||
| Adjusted EBIT | 7,541 | 5,539 | 12,304 | 5,689 | ||||||||||||||||||||||
| Depreciation and amortization | 3,188 | 3,096 | 6,242 | 6,350 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 10,729 | $ | 8,635 | $ | 18,546 | $ | 12,039 | ||||||||||||||||||
| MS | ||||||||||||||||||||||||||
| Operating income | $ | 12,720 | $ | 6,984 | $ | 15,913 | $ | 7,497 | ||||||||||||||||||
Severance charges, net1 | 52 | 54 | 308 | 54 | ||||||||||||||||||||||
| Professional fees and other | 47 | — | 67 | — | ||||||||||||||||||||||
| Adjusted EBIT | 12,819 | 7,038 | 16,288 | 7,551 | ||||||||||||||||||||||
| Depreciation and amortization | 4,704 | 4,634 | 9,457 | 9,518 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 17,523 | $ | 11,672 | $ | 25,745 | $ | 17,069 | ||||||||||||||||||
| Corporate and shared support services | ||||||||||||||||||||||||||
| Net loss | $ | (35,021) | $ | (40,700) | $ | (67,648) | $ | (79,680) | ||||||||||||||||||
| Provision for income taxes | 2,089 | 2,191 | 2,948 | 2,717 | ||||||||||||||||||||||
| Gain on equipment sale | 7 | (1,172) | (296) | (3,485) | ||||||||||||||||||||||
| Interest expense, net | 16,691 | 18,476 | 33,432 | 37,055 | ||||||||||||||||||||||
| Foreign currency gain | 143 | (1,029) | (34) | (1,691) | ||||||||||||||||||||||
Pension credit2 | (162) | (189) | (318) | (393) | ||||||||||||||||||||||
Professional fees and other3 | 1,772 | 4,693 | 3,473 | 10,037 | ||||||||||||||||||||||
Legal costs4 | 200 | 1,200 | 200 | 1,728 | ||||||||||||||||||||||
Severance charges, net1 | — | 929 | 9 | 2,263 | ||||||||||||||||||||||
| Loss on debt extinguishment | 1,582 | — | 1,582 | — | ||||||||||||||||||||||
| Natural disaster insurance recovery | — | (872) | — | (872) | ||||||||||||||||||||||
| Adjusted EBIT | (12,699) | (16,473) | (26,652) | (32,321) | ||||||||||||||||||||||
| Depreciation and amortization | 1,647 | 1,279 | 3,386 | 2,595 | ||||||||||||||||||||||
| Non-cash share-based compensation costs | 245 | 565 | 627 | (59) | ||||||||||||||||||||||
| Adjusted EBITDA | $ | (10,807) | $ | (14,629) | $ | (22,639) | $ | (29,785) | ||||||||||||||||||
___________________
1 For the three and six months ended June 30, 2023, primarily related to costs associated with staff reductions. For the three months ended June 30, 2022, includes $1.0 million primarily related to customary severance costs associated with staff reductions. For the six months ended June 30, 2022, includes $1.3 million related to customary severance costs associated with executive departures and $1.1 million associated with severance across multiple corporate departments.
2 Represents pension credits for the U.K. pension plan based on the difference between the expected return on plan assets and the cost of the discounted pension liability. The pension plan was frozen in 1994 and no new participants have been added since that date. Accruals for future benefits ceased in connection with a plan curtailment in 2013.
3 For the three and six months ended June 30, 2023, includes $1.6 million and $3.2 million, respectively related to debt financing and $0.7 million and $0.8 million, respectively, related to lease extinguishment charges. For the three and six months ended June 30, 2022, includes $4.7 million and $10.0 million, respectively, related to costs associated with the debt financing and corporate support.
4 Primarily relates to accrued legal matters and legal fees.
34
Liquidity, Capital Resources and Going Concern
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP and assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the issue date of these condensed consolidated financial statements.
As discussed in Note 1 - Description of Business and Basis of Presentation, the Company successfully negotiated amendments to existing debt instruments (including to the financial covenants contained therein) and / or entered into new agreements with our lenders. These actions removed the substantial doubt about our ability to continue as a going concern that previously existed and had been disclosed in prior periods. In addition, as of June 30, 2023, we are in compliance with our debt covenants. Based on the Company’s forecast and the amendments/new agreements entered in June 2023, we believe that our current working capital including cash on hand, our capital expenditure financing and the remaining borrowing availability under our various debt agreements is sufficient to fund our operations, maintain compliance with our debt covenants (as amended), and satisfy the Company’s obligations as they come due within one year after the date of issuance of these unaudited condensed consolidated financial statements. Our ability to maintain compliance with the financial covenants contained in the various debt agreements is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties. While our lenders agreed to amend the financial covenants contained therein and, in the case of the ABL Credit Agreement, to extend the maturity, there can be no assurance that our lenders will provide additional waivers or amendments in the event of future non-compliance with our debt covenants, or other possible events of default that could happen.
Financing for our operations consists primarily of our 2022 ABL Credit Agreement (which includes the Revolving Credit Loans, the Delayed Draw Term Loan, and the ME/RE Loans), the A&R Term Loan Credit Agreement (which includes the Uptiered Loan and the Incremental Term Loan), and cash flows attributable to our operations. As of June 30, 2023, excluding availability dedicated to repayment of the Notes and drawn on July 31, 2023, we had approximately $36.8 million of pro forma borrowing capacity consisting of $21.8 million available under the amended 2022 ABL Credit Agreement, and $15.0 million available under the A&R Term Loan Agreement. Our principal uses of cash are for working capital needs and operations. We have entered into recent refinancing transactions as further described in Note 11 – Debt and certain amendments to address our near-term liquidity needs, and we have taken definitive actions to reduce costs, improve operations, profitability, and liquidity, and position the Company for future growth; however, we have suffered recurring operating losses and subsequent to year-end, we had reduced borrowing capacity to fund our increasing working capital needs.
Our cash and cash equivalents as of June 30, 2023 totaled $30.4 million, consisting of $25.0 million of unrestricted cash on hand, and $5.4 million restricted. As of December 31, 2022, our cash and cash equivalents were $58.1 million, including $51.1 million of unrestricted cash on hand, and $7.0 million restricted. Our gross debt and finance obligations were $310.9 million, of which $4.5 million was classified as current at June 30, 2023, compared to gross debt of $285.9 million at December 31, 2022.
On July 31, 2023, $42.5 million of the $57.5 million availability under the A&R Term Loan Credit Agreement was drawn down and the proceeds were used to repay the Notes that matured on August 1, 2023. As of August 8, 2023, we had consolidated cash and cash equivalents of $21.3 million, excluding $5.3 million of restricted cash, and approximately $33.4 million of undrawn availability under our various credit facilities, resulting in total liquidity of $54.7 million.
Refer to Note 11 - Debt for information on our debt instruments.
Capital Resources. We establish a capital budget at the beginning of each calendar year and review it during the course of the year. Our capital budgets are based upon our estimate of internally generated sources of cash including from asset sales, as well as cash on hand and the available borrowing capacity under our ABL and other Credit Facilities. We expect to finance our 2023 capital budget with cash flows from operations, cash on hand, proceeds from asset sales, and our credit facility. Actual capital expenditure levels may vary significantly due to many factors, including industry conditions; the prices and availability of goods and services; the extent to which non-strategic assets are sold and our liquidity outlook.
35
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): | 2023 | 2022 | Increase (Decrease) | ||||||||||||||||||||||||||||||||
| Operating activities | $ | (23,617) | $ | (53,391) | 56 | % | |||||||||||||||||||||||||||||
| Investing activities | (4,741) | (8,882) | 47 | % | |||||||||||||||||||||||||||||||
| Financing activities | 483 | 64,786 | (99) | % | |||||||||||||||||||||||||||||||
| Effect of exchange rate changes on cash | 237 | (382) | NM | ||||||||||||||||||||||||||||||||
| Net change in cash and cash equivalents | $ | (27,638) | $ | 2,131 | NM | ||||||||||||||||||||||||||||||
| NM - Not meaningful | |||||||||||||||||||||||||||||||||||
Cash flows attributable to our operating activities. For the six months ended June 30, 2023, net cash used in operating activities was $23.6 million. Our net cash used in operating activities was driven by our net loss for the period, which totaled $40.5 million and negative working capital of $26.4 million, partially offset by amortization of debt issuance costs and debt discount of $16.2 million, depreciation and amortization of $19.1 million, and PIK Interest of $7.1 million.
For the six months ended June 30, 2022, net cash used in operating activities was $53.4 million. Our net cash used in operating activities generally reflects the cash effects of transactions and other events used in the determination of net loss, which totaled $54.0 million. The decline in cash generated from operations was driven by the net loss during the period, decline in working capital of $38.0 million, a gain on disposal of assets of $3.5 million, and movement in deferred income taxes of $0.4 million. These were partially offset by amortization of debt issuance costs and debt discount, write off of deferred loan costs of $14.8 million, depreciation and amortization of $19.6 million, and paid-in-kind interest of $10.0 million, resulting in negative operating cash flows for the period.
Cash flows attributable to our investing activities. For the six months ended June 30, 2023, net cash used in investing activities was $4.7 million, consisting primarily of capital expenditures (mainly related to the Company’s new aerospace inspection facility in Cincinnati), partially offset by $0.3 million of cash proceeds from asset sales.
For the six months ended June 30, 2022, net cash used in investing activities was $8.9 million, consisting primarily of $14.0 million of capital expenditures, partially offset by $5.1 million of cash proceeds from asset sales.
Cash flows attributable to our financing activities. For the six months ended June 30, 2023, net cash provided by financing activities was $0.5 million consisting primarily of net borrowings under our 2022 ABL Credit Facility of $16.0 million and borrowings under ME/RE loans of $27.4 million offset by the payoff of APSC Term Loan of $37.1 million and payment of deferred financing cost of $5.3 million.
For the six months ended June 30, 2022, net cash provided by financing activities was $64.8 million consisting primarily of net borrowings under our 2022 ABL Credit Facility of $66.1 million and issuance of common stock amounting to $9.7 million partially offset by $10.6 million in payments for debt issuance costs.
Effect of exchange rate changes on cash and cash equivalents. For the six months ended June 30, 2023 and 2022, the effect of foreign exchange rate changes on cash was $0.2 million and $0.4 million, respectively. The impact of exchange rates on cash and cash equivalents is primarily attributable to fluctuations in U.S. Dollar exchange rates against the Canadian Dollar, the Euro, the British Pound, the Australian Dollar and Mexican Peso.
Contractual Obligations. We have various contractual obligations in the normal course of our operations. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to the contractual obligation disclosure since year-end 2022, see Note 11 - Debt for additional details regarding amendments to our debt agreements that were executed during the first and second quarters of 2023.
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. As of June 30, 2023, the material off-balance sheet arrangements and transactions that we have entered into include $10.1 million in outstanding letters of credit under the 2022 ABL Credit Facility. See Note 11 - Debt for additional details.
36
Critical Accounting Policies and Estimates
A discussion of our critical accounting policies and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2022. There were no material changes to our critical accounting policies during the six months ended June 30, 2023.
| 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.
| ITEM 4. | CONTROLS AND PROCEDURES | ||||
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have concluded as of June 30, 2023, that our disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.
Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended June 30, 2023.
37
PART II—OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS | ||||
For information on legal proceedings, see Note 14 - Commitments and Contingencies to the condensed consolidated financial statements included in this report.
| ITEM 1A. | RISK FACTORS | ||||
Our operations and financial results are subject to various risks and uncertainties. There have been no material changes in our risk factors as previously disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | ||||
NONE
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | ||||
NONE
| ITEM 4. | MINE SAFETY DISCLOSURES | ||||
NOT APPLICABLE
| ITEM 5. | OTHER INFORMATION | ||||
NONE
38
| ITEM 6. | EXHIBITS | ||||
Exhibit Number | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 3.4 | ||||||||
| 3.5 | ||||||||
| 3.6 | Certificate of Designations of Series A Preferred Stock of Team, Inc., as filed with the Secretary of State of the State of Delaware on February 2, 2022 (filed as Exhibit 3.1 to Team, Inc.’s Current Report on Form 8-K (File No. 001-08604) filed on February 2, 2022, incorporated by reference herein). | |||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 31.3 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 32.3 | ||||||||
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
39
Note: Unless otherwise indicated, documents incorporated by reference are located under Securities and Exchange Commission file number 001-08604.
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
TEAM, INC. (Registrant) | ||||||||
| Date: August 10, 2023 | /S/ Keith D. Tucker | |||||||
| Keith D. Tucker Chief Executive Officer (Principal Executive Officer) | ||||||||
/S/ Nelson M. Haight | ||||||||
| Nelson M. Haight Chief Financial Officer (Principal Financial Officer) | ||||||||
/S/ Matthew E. Acosta | ||||||||
| Matthew E. Acosta Vice President, Chief Accounting Officer (Principal Accounting Officer) | ||||||||
41
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TEAM, INC.
Team, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware, hereby certifies as follows:
1.This Certificate of Amendment (the “Certificate of Amendment”) amends the provisions of the Corporation’s Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware on November 29, 2011, as amended by that certain Certificate of Amendment of Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware on October 24, 2013 (the “Certificate of Incorporation”).
2.The terms and provisions of this Certificate of Amendment have been duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware.
3.That the first sentence of Article IV of the Certificate of Incorporation is hereby amended and restated in its entirety as follows:
The aggregate number of shares which the corporation shall have the authority to issue is 120,500,000 shares, of which 120,000,000 shares shall be common shares, par value $0.30 each (“Common Stock”), and of which 500,000 shares shall be preferred shares, par value $100.00 each (“Preferred Stock”), issuable in series.
4.This Certificate of Amendment to the Certificate of Incorporation so adopted (i) shall be effective as of 5:00 p.m., Eastern Time, on November 28, 2022, (ii) reads in full as set forth above and (iii) is hereby incorporated into the Certificate of Incorporation by this reference. All other provisions of the Certificate of Incorporation remain in full force and effect.
[Signature Page Follows]
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by André C. Bouchard, its Executive Vice President, Administration, Chief Legal Officer & Secretary, this 28th day of November, 2022.
| By: | /s/ André C. Bouchard | ||||||||||||||||||||||
| Name: | André C. Bouchard | ||||||||||||||||||||||
| Title: | Executive Vice President, Administration, Chief Legal Officer & Secretary | ||||||||||||||||||||||
[Signature Page to Certificate of Amendment]
Exhibit 31.1
I, Keith D. Tucker, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Team, Inc.; | ||||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||||
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||||||
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | ||||
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||||||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||||||
Date: August 10, 2023
Keith D. Tucker Chief Executive Officer (Principal Executive Officer) | |||||
Exhibit 31.2
I, Nelson M. Haight, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Team, Inc.; | ||||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||||
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||||||
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | ||||
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||||||
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||||||
Date: August 10, 2023
Nelson M. Haight Chief Financial Officer (Principal Financial Officer) | |||||
Exhibit 31.3
I, Matthew E. Acosta, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Team, Inc.; | ||||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||||
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||||||
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | ||||
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||||||
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||||||
Date: August 10, 2023
Matthew E. Acosta Vice President, Chief Accounting Officer (Principal Accounting Officer) | |||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Team, Inc. (the Company) on Form 10-Q for the period ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Keith D. Tucker, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Keith D. Tucker Chief Executive Officer (Principal Executive Officer) | |||||
| August 10, 2023 | |||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Team, Inc. (the Company) on Form 10-Q for the period ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Nelson M. Haight, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Nelson M. Haight Chief Financial Officer (Principal Financial Officer) | |||||
| August 10, 2023 | |||||
Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Team, Inc. (the Company) on Form 10-Q for the period ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Matthew E. Acosta, Vice President and Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Matthew E. Acosta Vice President, Chief Accounting Officer (Principal Accounting Officer) | |||||
| August 10, 2023 | |||||