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x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-08604

Securities registered pursuant to Section 12(b) of the Act:

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.

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.

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS1

1        Condensed consolidated statement of cash flows for the six months ended June 30, 2022 includes discontinued operations.

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.

•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 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”),

(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.

Basis for presentation. These condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain disclosures have been condensed or omitted from the interim financial statements included in this report. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission.

Consolidation. The condensed consolidated financial statements include the accounts of our subsidiaries where we have control over operating and financial policies. All material intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications. Certain amounts in prior periods have been reclassified to conform to the current year presentation, including the separate presentation and reporting of discontinued operations. Such reclassifications did not have any effect on our financial condition or results of operations as previously reported.

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.

Discontinued operations. On November 1, 2022, we completed the sale of Quest Integrity (the “Quest Integrity Transaction”). The criteria for reporting Quest Integrity as a discontinued operation were met during the third quarter of 2022 pursuant to that certain Equity Purchase Agreement by and between us and Baker Hughes Holdings LLC, dated as of August 14, 2022 (the “Sale Agreement”), and, as such, the prior year amounts presented in this Quarterly Report on Form 10-Q have been recast to present Quest Integrity as a discontinued operation. Unless otherwise specified, the financial information and discussion in this Quarterly Report on Form 10-Q are based on our continuing operations (IHT and MS segments) and exclude any results of our discontinued operations (Quest Integrity). Refer to Note 2 - Discontinued Operations for additional details.

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.

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):

The following table presents the depreciation and amortization and capital expenditures of Quest Integrity (in thousands):

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):

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 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.

A summary of accounts receivable as of June 30, 2023 and December 31, 2022 is as follows (in thousands): 

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):

A summary of inventory as of June 30, 2023 and December 31, 2022 is as follows (in thousands): 

A summary of prepaid and other current assets as of June 30, 2023 and December 31, 2022 is as follows (in thousands):

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.

A summary of property, plant and equipment as of June 30, 2023 and December 31, 2022 is as follows (in thousands):

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.

A summary of intangible assets as of June 30, 2023 and December 31, 2022 is as follows (in thousands): 

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 years as of June 30, 2023 and December 31, 2022.

A summary of other accrued liabilities as of June 30, 2023 and December 31, 2022 is as follows (in thousands): 

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.

We recorded an income tax provision of $2.1 million and $2.9 million for the three and six months ended June 30, 2023 compared to a provision of $2.2 million and $2.7 million for the three and six months ended June 30, 2022. 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. For the six months ended June 30, 2023, our effective tax rate, inclusive of discrete items, was a provision of 7.7%, compared to a provision of 4.2% for the six months ended June 30, 2022. The effective tax rate differed from the statutory tax rate due to changes in the valuation allowance in certain jurisdictions.

As of June 30, 2023 and December 31, 2022, our total long-term debt and finance lease obligations are summarized as follows (in thousands):

1    Net carrying balances of the loans are presented below (in thousands):

2        Comprised of principal amount outstanding, less unamortized discount and issuance costs. See Convertible Debt section below for additional information.

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.

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.

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,

(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 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.

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 interest was paid during the six months ended June 30, 2023.

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.

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 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.

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.

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.

As of June 30, 2023 and December 31, 2022, we had the following warrants outstanding:

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.

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.

As of June 30, 2023 and December 31, 2022, the Notes were recorded in our condensed consolidated balance sheet as follows (in thousands):

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.

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.

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”).

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.

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.

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):