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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-08604
TEAM, INC.
| | | | | | | | |
(Exact Name of Registrant as Specified in Its Charter) |
Delaware | | 74-1765729 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
13131 Dairy Ashford, Suite 600, Sugar Land, Texas | | 77478 |
(Address of Principal Executive Offices) | | (Zip Code) |
(281) 331-6154 |
(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 |
Common Stock, $0.30 par value | TISI | New York Stock Exchange |
Preferred Stock Purchase Rights | N/A | New York Stock Exchange |
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 |
Non-accelerated filer | | ☐ | | Smaller reporting company | | x |
| | | | 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 43,223,879 shares of common stock, par value $0.30, outstanding as of November 4, 2022.
INDEX
PART I—FINANCIAL INFORMATION
| | | | | |
ITEM 1. | FINANCIAL STATEMENTS |
TEAM, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
ASSETS | (unaudited) | | |
| | | |
Current assets: | | | |
Cash and cash equivalents | $ | 56,387 | | | $ | 55,193 | |
Accounts receivable, net of allowance of $4,805 and $7,843, respectively | 188,044 | | | 168,273 | |
Inventory | 36,992 | | | 35,375 | |
Income tax receivable | — | | | 4,289 | |
| | | |
Prepaid expenses and other current assets | 65,877 | | | 56,063 | |
Current assets associated with discontinued operations | 88,670 | | | 83,096 | |
Total current assets | 435,970 | | | 402,289 | |
Property, plant and equipment, net | 138,497 | | | 145,480 | |
Operating lease right-of-use assets | 48,189 | | | 58,495 | |
Intangible assets, net | 78,580 | | | 88,318 | |
| | | |
Defined benefit pension asset | 5,402 | | | 2,902 | |
| | | |
Other assets, net | 7,051 | | | 9,060 | |
| | | |
Total assets | $ | 713,689 | | | $ | 706,544 | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 34,921 | | | $ | 44,056 | |
Current portion of long-term debt and finance lease obligations | 506,414 | | | 667 | |
Current portion of operating lease obligations | 13,328 | | | 15,412 | |
Income taxes payable | 1,549 | | | — | |
Other accrued liabilities | 116,477 | | | 111,736 | |
Current liabilities associated with discontinued operations | 19,375 | | | 16,396 | |
Total current liabilities | 692,064 | | | 188,267 | |
Long-term debt and finance lease obligations | 4,810 | | | 405,184 | |
Operating lease obligations | 39,144 | | | 47,617 | |
Deferred income taxes | 3,784 | | | 3,812 | |
Other long-term liabilities | 2,617 | | | 9,797 | |
| | | |
Total liabilities | 742,419 | | | 654,677 | |
Commitments and contingencies | | | |
Equity: | | | |
Preferred stock, 500,000 shares authorized, none issued | — | | | — | |
Common stock, par value $0.30 per share, 60,000,000 shares authorized; 43,223,879 and 31,214,714 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 12,962 | | | 9,359 | |
Additional paid-in capital | 445,839 | | | 444,824 | |
Accumulated deficit | (448,647) | | | (375,584) | |
Accumulated other comprehensive loss | (38,884) | | | (26,732) | |
Total (deficit) equity | (28,730) | | | 51,867 | |
Total liabilities and equity | $ | 713,689 | | | $ | 706,544 | |
See accompanying notes to unaudited condensed consolidated financial statements.
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Revenues | $ | 218,339 | | | $ | 197,879 | | | $ | 628,917 | | | $ | 591,043 | |
Operating expenses | 162,322 | | | 153,369 | | | 479,656 | | | 458,237 | |
Gross margin | 56,017 | | | 44,510 | | | 149,261 | | | 132,806 | |
Selling, general and administrative expenses | 57,746 | | | 60,444 | | | 184,174 | | | 182,624 | |
Restructuring and other related charges, net | — | | | 457 | | | 16 | | | 2,317 | |
Goodwill impairment charge | — | | | 55,837 | | | — | | | 55,837 | |
Operating loss | (1,729) | | | (72,228) | | | (34,929) | | | (107,972) | |
Interest expense, net | (26,653) | | | (9,913) | | | (63,708) | | | (28,764) | |
Other income (expense) | 3,227 | | | (904) | | | 9,664 | | | (1,790) | |
Loss from continuing operations before income taxes | (25,155) | | | (83,045) | | | (88,973) | | | (138,526) | |
Provision for income taxes | (1,465) | | | (7,401) | | | (4,182) | | | (8,420) | |
Net loss from continuing operations | $ | (26,620) | | | $ | (90,446) | | | $ | (93,155) | | | $ | (146,946) | |
Discontinued operations: | | | | | | | |
Net income (loss) from discontinued operations, net of income tax | 3,747 | | | (736) | | | 16,268 | | | 3,980 | |
Net loss | $ | (22,873) | | | $ | (91,182) | | | $ | (76,887) | | | $ | (142,966) | |
| | | | | | | |
Basic and diluted net loss per common share: | | | | | | | |
Loss from continuing operations | (0.62) | | | (2.92) | | | (2.25) | | | (4.75) | |
Income (loss) from discontinued operations | 0.09 | | | (0.02) | | | 0.39 | | | 0.13 | |
Total | $ | (0.53) | | | $ | (2.94) | | | $ | (1.86) | | | $ | (4.62) | |
| | | | | | | |
Weighted-average number of shares outstanding: | | | | | | | |
Basic and diluted | 43,224 | | | 30,980 | | | 41,388 | | | 30,933 | |
| | | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements.
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Net loss | $ | (22,873) | | | $ | (91,182) | | | $ | (76,887) | | | $ | (142,966) | |
Other comprehensive income (loss) before tax: | | | | | | | |
Foreign currency translation adjustment | (7,035) | | | (3,084) | | | (12,152) | | | (2,210) | |
Other comprehensive loss, before tax | (7,035) | | | (3,084) | | | (12,152) | | | (2,210) | |
Tax provision attributable to other comprehensive loss | — | | | 691 | | | — | | | 536 | |
Other comprehensive loss, net of tax | (7,035) | | | (2,393) | | | (12,152) | | | (1,674) | |
Total comprehensive loss | $ | (29,908) | | | $ | (93,575) | | | $ | (89,039) | | | $ | (144,640) | |
See accompanying notes to unaudited condensed consolidated financial statements.
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, 2021 | 31,215 | | | | | $ | 9,359 | | | | | $ | 444,824 | | | | | $ | (375,584) | | | $ | (26,732) | | | $ | 51,867 | |
Adjustments for prior periods from adopting ASU 2020-06 | — | | | | | — | | | | | (5,651) | | | | | 3,824 | | | — | | | (1,827) | |
| | | | | | | | | | | | | | | | | |
Net loss | — | | | | | — | | | | | — | | | | | (32,462) | | | — | | | (32,462) | |
Issuance of common stock | 11,905 | | | | | 3,572 | | | | | 6,196 | | | | | — | | | — | | | 9,768 | |
Foreign currency translation adjustment, net of tax | — | | | | | — | | | | | — | | | | | — | | | 346 | | | 346 | |
| | | | | | | | | | | | | | | | | |
Non-cash compensation | 2 | | | | | — | | | | | (624) | | | | | — | | | — | | | (624) | |
Net settlement of vested stock awards | — | | | | | — | | | | | 2 | | | | | — | | | — | | | 2 | |
Balance at March 31, 2022 | 43,122 | | | | | $ | 12,931 | | | | | $ | 444,747 | | | | | $ | (404,222) | | | $ | (26,386) | | | $ | 27,070 | |
Net loss | — | | | | | $ | — | | | | | $ | — | | | | | $ | (21,552) | | | $ | — | | | $ | (21,552) | |
Issuance of Common Stock | 102 | | | | | 31 | | | | | (102) | | | | | — | | | — | | | (71) | |
Foreign currency translation adjustment, net of tax | — | | | | | — | | | | | — | | | | | — | | | (5,463) | | | (5,463) | |
| | | | | | | | | | | | | | | | | |
Non-cash compensation | — | | | | | — | | | | | 565 | | | | | — | | | — | | | 565 | |
| | | | | | | | | | | | | | | | | |
Balance at June 30, 2022 | 43,224 | | | | | $ | 12,962 | | | | | $ | 445,210 | | | | | $ | (425,774) | | | $ | (31,849) | | | $ | 549 | |
Net Loss | — | | | | | $ | — | | | | | $ | — | | | | | $ | (22,873) | | | $ | — | | | $ | (22,873) | |
Foreign currency translation adjustment, net of tax | — | | | | | — | | | | | — | | | | | — | | | (7,035) | | | (7,035) | |
| | | | | | | | | | | | | | | | | |
Non-cash compensation | — | | | | | — | | | | | 629 | | | | | — | | | — | | | 629 | |
| | | | | | | | | | | | | | | | | |
Balance at September 30, 2022 | 43,224 | | | | | $ | 12,962 | | | | | $ | 445,839 | | | | | $ | (448,647) | | | $ | (38,884) | | | $ | (28,730) | |
Balance at December 31, 2020 | 30,874 | | | | | $ | 9,257 | | | | | $ | 422,589 | | | | | $ | (189,565) | | | $ | (27,678) | | | $ | 214,603 | |
Net loss | — | | | | | — | | | | | — | | | | | (34,291) | | | — | | | (34,291) | |
Foreign currency translation adjustment, net of tax | — | | | | | — | | | | | — | | | | | — | | | 319 | | | 319 | |
Non-cash compensation | — | | | | | — | | | | | 2,330 | | | | | — | | | — | | | 2,330 | |
Net settlement of vested stock awards | 19 | | | | | 6 | | | | | (107) | | | | | — | | | — | | | (101) | |
Balance at March 31, 2021 | 30,893 | | | | | $ | 9,263 | | | | | $ | 424,812 | | | | | $ | (223,856) | | | $ | (27,359) | | | $ | 182,860 | |
Net loss | — | | | | | $ | — | | | | | $ | — | | | | | $ | (17,493) | | | $ | — | | | $ | (17,493) | |
Foreign currency translation adjustment, net of tax | — | | | | | — | | | | | — | | | | | — | | | 400 | | | 400 | |
Non-cash compensation | — | | | | | — | | | | | 2,138 | | | | | — | | | — | | | 2,138 | |
Net settlement of vested stock awards | 86 | | | | | 26 | | | | | (26) | | | | | — | | | — | | | — | |
Balance at June 30, 2021 | 30,979 | | | | | $ | 9,289 | | | | | $ | 426,924 | | | | | $ | (241,349) | | | $ | (26,959) | | | $ | 167,905 | |
Net loss | — | | | | | $ | — | | | | | $ | — | | | | | $ | (91,182) | | | $ | — | | | $ | (91,182) | |
Foreign currency translation adjustment, net of tax | — | | | | | — | | | | | — | | | | | — | | | (2,393) | | | (2,393) | |
Non-cash compensation | — | | | | | — | | | | | 1,108 | | | | | — | | | — | | | 1,108 | |
Net settlement of vested stock awards | 1 | | | | | — | | | | | (1) | | | | | — | | | — | | | (1) | |
Balance at September 30, 2021 | 30,980 | | | | | $ | 9,289 | | | | | $ | 428,031 | | | | | $ | (332,531) | | | $ | (29,352) | | | $ | 75,437 | |
See accompanying notes to unaudited condensed consolidated financial statements.
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS1
(in thousands)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Cash flows (used in) provided by operating activities: | | | |
Net loss | $ | (76,887) | | | $ | (142,966) | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | |
Depreciation and amortization | 28,591 | | | 31,416 | |
Write-off of deferred financing costs | 2,748 | | | — | |
Amortization of deferred financing costs, debt issuance costs, and debt warrant discounts | 25,666 | | | 6,388 | |
Paid-in-kind interest | 15,464 | | | — | |
Allowance for credit losses | (362) | | | 1,985 | |
Foreign currency losses | 571 | | | 4,274 | |
Deferred income taxes | 382 | | | 5,083 | |
(Gain) loss on asset disposals | (4,296) | | | 17 | |
Goodwill impairment charges | — | | | 55,837 | |
Non-cash compensation costs | 571 | | | 5,576 | |
Other, net | (3,469) | | | (3,629) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (31,313) | | | (14,817) | |
Inventory | (3,076) | | | (334) | |
Prepaid expenses and other current assets | (7,048) | | | 3,700 | |
Accounts payable | (6,038) | | | 6,012 | |
Other accrued liabilities | 5,911 | | | 5,321 | |
Income taxes | 6,220 | | | 276 | |
Net cash used in operating activities | (46,365) | | | (35,861) | |
Cash flows used in investing activities: | | | |
Capital expenditures | (21,002) | | | (12,376) | |
Proceeds from disposal of assets | 7,165 | | | 154 | |
| | | |
Net cash used in investing activities | (13,837) | | | (12,222) | |
Cash flows (used in) provided by financing activities: | | | |
Borrowings under ABL Credit Facility (Eclipse) | 106,531 | | | — | |
Payments under ABL Credit Facility (Eclipse) | (11,715) | | | — | |
Borrowings under Corre Delayed Draw Term Loans (ABL Credit Facility (Corre)) | 35,000 | | | — | |
Borrowings under ABL Facility (Citibank), net | — | | | 46,300 | |
Borrowings under ABL Facility (Citibank), gross | 10,300 | | | 124,700 | |
Payments under ABL Facility (Citibank), gross | (72,300) | | | (125,900) | |
Payments for debt issuance costs | (13,609) | | | (2,899) | |
Issuance of common stock | 9,696 | | | — | |
Taxes paid related to net share settlement of share-based awards | — | | | (102) | |
Other | (615) | | | (356) | |
Net cash provided by financing activities | 63,288 | | | 41,743 | |
Effect of exchange rate changes on cash and cash equivalents | (1,373) | | | (1,274) | |
Net increase (decrease) in cash and cash equivalents | 1,713 | | | (7,614) | |
Cash and cash equivalents at beginning of period | 65,315 | | | 24,586 | |
| | | |
| | | |
Cash and cash equivalents at end of period | $ | 67,028 | | | $ | 16,972 | |
| | | |
| | | |
_________________
1 Condensed consolidated statements of cash flows include discontinued operations.
| | | | | | | | | | | |
| September 30, 2022 | | September 30, 2021 |
Cash and cash equivalents from continuing operations | $ | 56,387 | | | $ | 12,009 | |
Cash and cash equivalents from discontinued operations | 10,641 | | | 4,963 | |
Total | $ | 67,028 | | | $ | 16,972 | |
See accompanying notes to unaudited condensed consolidated financial statements.
TEAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
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 integrated, digitally-enabled asset performance assurance and optimization solutions. 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. Prior to the sale of our Quest Integrity segment (“Quest Integrity”) as discussed below, we conducted operations in three segments: Inspection and Heat Treating (“IHT”), Mechanical Services (“MS”) and Quest Integrity. We currently conduct operations in two segments. 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 scaling 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.
On November 1, 2022, we completed the sale of all of the issued and outstanding equity interests of our wholly-owned subsidiary, TQ Acquisition Inc., a Texas corporation (“TQ Acquisition”), to Baker Hughes Holdings LLC (“Baker Hughes”) for an aggregate purchase price of approximately $279 million, reflecting certain estimated post-closing adjustments (the “Quest Integrity Transaction”), pursuant to that certain Equity Purchase Agreement by and among us and Baker Hughes, dated as of August 14, 2022 (the “Sale Agreement”). TQ Acquisition and its subsidiaries constituted Quest Integrity, which provided integrity and reliability management solutions for the process, pipeline and power sectors. In connection with the Quest Integrity Transaction, the credit support in the form of guarantees and liens on assets, as applicable, of TQ Acquisition and its subsidiaries in respect of our existing debt arrangements were released. We used approximately $238 million of the net proceeds from the Quest Integrity Transaction to pay down $225.0 million term debt and 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.
As of September 30, 2022, the criteria for reporting Quest Integrity as a discontinued operation were met and, as such, all periods presented in this Form 10-Q have been recast to present Quest Integrity as a discontinued operation. Unless otherwise specified, the financial information and discussion in this 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.
IHT provides conventional and advanced non-destructive testing (“NDT”) services primarily for the process, pipeline and power sectors, and pipeline integrity management services, and field heat treating and thermal services, tank management solutions, and pipeline integrity solutions, 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 and laser scanning services.
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.
Prior to its sale, Quest Integrity provided integrity and reliability management solutions for the process, pipeline and power sectors. These solutions encompass two broadly-defined disciplines: (1) highly specialized in-line inspection services for historically unpiggable process piping and pipelines using proprietary in-line inspection tools and analytical software; and (2) advanced engineering and condition assessment services through a multi-disciplined engineering team and related lab support. As referenced previously, Quest Integrity is now reported as discontinued operations.
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, manufacturing, 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.
Ongoing Effects of COVID-19. The COVID-19 pandemic has impacted our workforce and operations, as well as the operations of our clients, suppliers and contractors. We continue to be affected by the direct and indirect impact of the pandemic and global economic conditions on operating expenses, staffing and supply chain management.
Cares Act. Under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), we qualified to defer the employer portion of social security taxes incurred through the end of calendar 2020. As of December 31, 2021 we had $14.1 million of deferred employer payroll taxes outstanding and we paid $7.0 million of the deferred payroll taxes in January 2022. The remaining balance of $7.1 million is due at the end of 2022, and includes a $0.5 million balance due by discontinued operations. Additionally, other governments in jurisdictions where we operate passed legislation to provide employers with relief programs, which include wage subsidy grants, deferral of certain payroll related expenses and tax payments and other benefits. We elected to treat qualified government subsidies from Canada and other governments as offsets to the related expenses. As these other governments review compliance with their relief programs, we may be required to return a portion of these funds. During the three months ended September 30, 2022, we did not receive any related government subsidies. During the three months ended September 30, 2021, we recognized a $1.8 million and $0.3 million reduction to our operating expenses and selling, general and administrative expenses, respectively. We recognized a reduction of $0.6 million and $0.1 million to our operating expenses and our selling, general and administrative expenses, respectively, related to these programs during the nine months ended September 30, 2022, and $5.6 million and $1.0 million, respectively, during the nine months ended September 30, 2021 related to these programs.
Inflation. Inflation rates and currency exchange rates continue to have an effect on worldwide economies and, consequently, on the way the Company operates. The Company continues to monitor these situations and take appropriate actions. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases. We are carefully monitoring impacts from inflation, supply chain challenges and slowing economic conditions. For further information regarding the risks we face relating to inflation, see “Risk Factors - We may experience inflationary pressures in our operating costs and cost overruns on our projects” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Ukraine Conflict. The Company does not have employees or operations in Russia or Ukraine. Sanctions and other trade controls imposed by the United States (U.S.) and other governments in response to Russia’s military operations in Ukraine could impact our supply chain in future periods. While it is difficult to estimate the impact of current or future sanctions on the Company’s business and financial position, these sanctions could adversely impact the Company’s sales, cost of procuring raw materials, or distribution costs in future periods.
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 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, 2021 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.
Related Party Transactions. A related party transaction is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including the incurrence or issuance of any indebtedness or the guarantee of indebtedness) in which (1) the Company or any of its subsidiaries is a participant, and (2) any Related Party (as defined below) has or will have a direct or indirect material interest.
A Related Party is any person who is, or, at any time since the beginning of the Company’s last fiscal year, was (1) an executive officer, director or nominee for election as a director of the Company or any of its subsidiaries, (2) a person with greater than five percent (5%) beneficial interest in the Company, (3) an immediate family member of any of the individuals or entities identified in (1) or (2) of this paragraph, and (4) any firm, corporation or other entity in which any of the foregoing individuals or entities is employed or is a general partner or principal or in a similar position or in which such person or entity has a five percent (5%) or greater beneficial interest. Immediate family members includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone residing in such person’s home, other than a tenant or employee.
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. Our ability to continue as a going concern is dependent on many factors, including among other things, our ability to comply with the covenants in our debt agreements, our ability to cure any defaults that occur under our debt agreements, or forbearances with respect to any such defaults, and our ability to pay, retire, amend, replace or refinance our indebtedness as defaults occur or as interest and principal payments come due. Liquidity risk is the risk that we will be unable to meet our financial obligations as they become due. Our liquidity may be affected by improvements and declines in commodity prices, our segments’ operational performance, and our ability to access capital and credit markets.
We evaluated our liquidity within one year after the date of issuance of these unaudited condensed consolidated financial statements to determine if there is substantial doubt about the Company’s ability to continue as a going concern. In the preparation of this liquidity assessment, we applied judgment to estimate the projected cash flows of the Company, including the following: (i) projected cash outflows, (ii) projected cash inflows, and (iii) availability under the Company’s existing debt arrangements. The cash flow projections were based on known or planned cash requirements for operating and financing costs and include management’s best estimate regarding future customer activity levels, pricing for its services and for its supplies and other factors. Actual results could vary significantly from those projections. We do not believe, based on the Company’s forecast, that current working capital, cash flow from operations, and capital expenditure financing is sufficient to fund the operations, maintain compliance with our debt covenants (as amended), and satisfy the Company’s obligations, specifically with respect to the Notes described below, as they come due within one year after the date of issuance of these condensed consolidated financial statements.
Our 5.00% Convertible Senior Notes are due on August 1, 2023 (the “Notes”) and had a principal balance of $97.4 million as of September 30, 2022, which was subsequently reduced to $41.2 million as a result of the exchange transactions described in Note 12 - Debt.
We are exploring alternatives to reduce or refinance the Notes outstanding balance, including extending their maturity as well as other alternatives. However, there is no assurance that we will be able to execute a reduction, extension, or refinancing of the Notes or that the terms of any replacement financing would be as favorable as the terms of the Notes prior to the maturity date. Under the terms of our amended financing arrangements that were entered into during 2022, the Maturity Reserve Trigger Date, as defined in the ABL Credit Agreement (as defined herein), and the Maturity Trigger Date as defined in the Term Loan Credit Agreement (as defined herein), collectively referred to as the “Trigger Date” was May 18, 2023, which has subsequently been amended to June 17, 2023, see to Note 12 - Debt for additional information. Therefore, the Notes balance must be paid down to $10.0 million by June 17, 2023, or the Company must have equivalent cash on hand to pay down the balance of the Notes to $10.0 million.
The failure to pay down the Notes by the Trigger Date would be an event of default under our Term Loan Credit Agreement (as defined herein), Subordinated Term Loan Credit Agreement (as defined herein), ABL Credit Facility, and Corre Delayed Draw Term Loan (as defined herein) since these instruments contain cross default provisions, resulting in these debt instruments becoming payable on demand. Refer to Note 12 - Debt for more information on the terms and maturity dates of our debt that may affect our future liquidity.
On October 4, 2022, we entered into Amendment No. 8 (“Amendment No. 8”) to the Subordinated Term Loan Credit Agreement (as defined below). See Note 12 - Debt for additional details.
On November 1, 2022, we completed the Quest Integrity Transaction with Baker Hughes, as discussed above, for an aggregate purchase price of approximately $279 million, reflecting certain estimated post-closing adjustments, in accordance with the Sale Agreement. We used the net proceeds from the sale of Quest Integrity to pay down $225.0 million term debt and
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.
On November 4, 2022, we entered into Amendment No. 9 (“Amendment No.9”) to the Term Loan Credit Agreement and Amendment No. 10 (“Amendment No. 10”) to the Subordinated Term Loan Credit Agreement. See Note 12 - Debt for additional details.
As of September 30, 2022, we are in compliance with our debt covenants. However, without the consummation of a refinancing transaction or agreement to extend the Notes maturity date, there is a risk that the Company could be, among other things, unable to make principal payments on the Notes to satisfy the Trigger Date provision, or will be unable to pay off convertible debt when it becomes due on August 1, 2023. Failure to pay down the principal on the Notes to $10.0 million by June 17, 2023, or pay it off at the maturity date on August 1, 2023 will result in an event of default and the associated cross defaults noted above under the Company’s other debt instruments.
As a result of our current financial resources and no guarantee that we will be able to obtain an extension or amend the financial covenants, substantial doubt exists that we have the ability to continue as a going concern. We are evaluating and will continue to explore strategic alternatives to a refinancing transaction or the reduction of the debt, including negotiating amendments to our credit facilities and the financial covenants contained therein, the sale of assets, or other alternative financing transactions. While our lenders agreed on an extension and amended the financial covenants in prior periods, there can be no assurance that our lenders will provide additional extensions, waivers or amendments in the event of future non-compliance with our debt covenants, or other possible events of default. The unaudited condensed consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.
Use of estimates. Our accounting policies conform to GAAP. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect our reported financial position and results of operations. We review significant estimates and judgments affecting our condensed consolidated financial statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Estimates and judgments are based on information available at the time such estimates and judgments are made. Adjustments made with respect to the use of these estimates and judgments often relate to information not previously available. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements. Estimates and judgments are used in, among other things, (1) aspects of revenue recognition, (2) valuation of acquisition related tangible and intangible assets and assessments of all long-lived assets for possible impairment, (3) estimating various factors used to accrue liabilities for workers’ compensation, auto, medical, and general liability, (4) establishing an allowance for uncollectible accounts receivable, (5) estimating the useful lives of our assets, (6) assessing future tax exposure and the realization of tax assets, (7) selecting assumptions used in the measurement of costs and liabilities associated with defined benefit pension plans, (8) assessments of fair value and (9) managing our foreign currency risk in foreign operations. Our most significant accounting policies are described below.
Fair value of financial instruments. As defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 Fair Value Measurements and Disclosure (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations in which there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy such that “Level 1” measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, “Level 2” measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets, and “Level 3” measurements include inputs that are unobservable and of a highly subjective measure.
Our financial instruments consist primarily of cash, cash equivalents, accounts receivable, accounts payable and debt obligations. The carrying amount of cash, cash equivalents, trade accounts receivable and trade accounts payable are representative of their respective fair values due to the short-term maturity of these instruments. The fair value of our ABL Credit Facility and Term Loans is representative of the carrying value based upon the variable 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 our Notes as of September 30, 2022 and December 31, 2021 is $97.4 million and $84.0 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. For additional information regarding our ABL Credit Facilities, Atlantic Park Term Loan, Subordinated Term Loan and Notes, see Note 12 - Debt.
Cash and cash equivalents. Cash and cash equivalents consist of all deposits and funds invested in highly liquid short-term investments with original maturities of three months or less.
Inventory. Except for certain inventories that are valued based on weighted-average cost, we use the first-in, first-out method to value our inventory. Inventory includes material, labor, and certain fixed overhead costs. Inventory is stated at the lower of cost and net realizable value. Inventory quantities on hand are reviewed periodically and carrying cost is reduced to net realizable value for inventories for which their cost exceeds their utility. The cost of inventories consumed or products sold are included in operating expenses.
Property, plant and equipment. Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Leasehold improvements are amortized over the shorter of their respective useful life or the lease term. Depreciation and amortization of assets are computed by the straight-line method over the following estimated useful lives of the assets:
| | | | | | | | |
Classification | | Useful Life |
Buildings | | 20-40 years |
Enterprise Resource Planning (“ERP”) System | | 15 years |
Leasehold improvements | | 2-15 years |
Machinery and equipment | | 2-12 years |
Furniture and fixtures | | 2-10 years |
Computers and computer software | | 2-5 years |
Automobiles | | 2-5 years |
Goodwill and intangible assets. Goodwill and intangible assets acquired in a business combination determined to have an indefinite useful life are not amortized, but are instead tested for impairment, and assessed for potential triggering events, at least annually in accordance with the provisions of the ASC 350 Intangibles—Goodwill and Other (“ASC 350”). Intangible assets with finite lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with ASC 360-10 Impairment or Disposal of Long-Lived Assets (“ASC 360”).
We assess goodwill for impairment at the reporting unit level, which we have determined to be the same as our operating segments. As of September 30, 2022 and December 31, 2021, there was no goodwill on the Company’s balance sheets related to continuing operations. The only segment with goodwill was Quest Integrity, which is included in discontinued operations.
If the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. We test our goodwill for impairment annually on December 1 of each year and whenever we become aware of an event or a change in circumstances that would indicate the carrying value may be impaired. There was no goodwill impairment recorded for the nine months ended September 30, 2022. Goodwill impairment of $55.8 million was recorded for the three months and nine months ended September 30, 2021 in our continuing operations related to our MS operating segment.
Income taxes. We follow the guidance of ASC 740 Income Taxes (“ASC 740”), which requires that we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences. As part of the process of preparing our condensed consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax payable or receivable and related tax expense or benefit together with assessing temporary differences resulting from differing treatment of certain items, such as depreciation, for tax and accounting purposes. These differences can result in deferred tax assets and liabilities, which are included within our consolidated balance sheets.
In accordance with ASC 740, we are required to assess the likelihood that our deferred tax assets will be realized and, to the extent we believe it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized, we must establish a valuation allowance. We consider all available evidence to determine whether, based on the weight of the evidence, a valuation allowance is needed. Evidence used includes the reversal of existing taxable temporary differences, taxable income in prior carryback years if carryback is permitted by tax law, information about our current financial position and our results of operations for the current and preceding years, as well as all currently available information about future years, including our anticipated future performance and tax planning strategies.
We regularly assess whether it is more likely than not that we will realize the deferred tax assets in the jurisdictions in which we operate. Management believes future sources of taxable income, reversing temporary differences and other tax planning strategies will be sufficient to realize the deferred tax assets for which no valuation allowance has been established. Our valuation allowance primarily relates to net operating loss carryforwards. While we have considered these factors in assessing the need for additional valuation allowance, there can be no assurance that additional valuation allowance would not need to be established in the future if information about future years change. Any changes in valuation allowance would impact our income tax provision and net income (loss) in the period in which such a determination is made.
Significant judgment is required in assessing the timing and amounts of deductible and taxable items for tax purposes. In accordance with ASC 740-10, we establish reserves for uncertain tax positions when, despite our belief that our tax return positions are supportable, we believe that it is not more likely than not that the position will be sustained upon challenge. When facts and circumstances change, we adjust these reserves through our provision for income taxes. To the extent interest and penalties may be assessed by taxing authorities on any related underpayment of income tax, such amounts have been accrued and are classified as a component of income tax expense (benefit) in our consolidated statements of operations.
Workers’ compensation, auto, medical and general liability accruals. In accordance with ASC 450 Contingencies (“ASC 450”), we record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review our loss contingencies on an ongoing basis to ensure that we have appropriate reserves recorded on our balance sheet. These reserves are based on historical experience with claims incurred but not received, estimates and judgments made by management, applicable insurance coverage for litigation matters, and are adjusted as circumstances warrant. For workers’ compensation, our self-insured retention is $1.0 million and our automobile liability deductible is $2.0 million per occurrence. For general liability claims, we have a deductible of $1.0 million and a self-insured retention of $5.0 million per occurrence. For medical claims, our self-insured retention is $0.4 million per individual claimant determined on an annual basis. For environmental liability claims, our self-insured retention is $1.0 million per occurrence. We maintain insurance for claims that exceed such self-retention limits. The insurance is subject to terms, conditions, limitations, and exclusions that may not fully compensate us for all losses. Our estimates and judgments could change based on new information, changes in laws or regulations, changes in management’s plans or intentions, or the outcome of legal proceedings, settlements, or other factors. If different estimates and judgments were applied with respect to these matters, it is likely that reserves would be recorded for different amounts.
Allowance for credit losses. In the ordinary course of business, a portion of our accounts receivable are not collected due to billing disputes, customer bankruptcies, dissatisfaction with the services we performed and other various reasons. We establish an allowance to account for those accounts receivable that we estimate will eventually be deemed uncollectible. The allowance for credit losses is based on a combination of our historical experience and management’s review of long outstanding accounts receivable.
Concentration of credit risk. No single customer accounts for more than 10% of consolidated revenues.
Earnings (loss) per share. Basic earnings (loss) per share is computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations or net income (loss) by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations or net income (loss) by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, (2) the dilutive effect of the assumed exercise of share-based compensation using the treasury stock method and (3) the dilutive effect of the assumed conversion of our Notes under the if converted method. Our current intent is to settle the principal amount of our Notes in cash upon maturity. If the conversion value exceeds the principal amount, we may elect to deliver shares of our common stock with respect to the remainder of our conversion obligation in excess of the aggregate principal amount (the “conversion spread”). Accordingly, the conversion spread is included in the denominator for the computation of diluted earnings per common share using the treasury stock method and the numerator is adjusted for any recorded gain or loss, net of tax, on the embedded derivative associated with the conversion feature.
For the three and nine months ended September 30, 2022 and 2021, all outstanding share-based compensation awards were excluded from the calculation of diluted loss per share because their inclusion would be antidilutive due to the loss from continuing operations in those periods. Also, for the three and nine months ended September 30, 2022 and 2021, potential shares issuable upon the conversion of the Notes were excluded from the calculation of diluted earnings (loss) per share since the conversion price exceeded the average price of our common stock during the applicable periods. For information regarding our Notes and our share-based compensation awards, refer to Note 12 - Debt and Note 14 - Share-Based Compensation, respectively.
Non-cash investing and financing activities. Non-cash investing and financing activities are excluded from the condensed consolidated statements of cash flows and are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Assets acquired under finance lease | $ | 752 | | | $ | 611 | | | $ | 852 | | | $ | 1,017 | |
Also, we had $1.4 million and $1.7 million of accrued capital expenditures as of September 30, 2022 and September 30, 2021, respectively, which are excluded from the condensed consolidated statements of cash flows until paid.
Foreign currency. For subsidiaries whose functional currency is not the U.S. Dollar, assets and liabilities are translated at period ending rates of exchange and revenues and expenses are translated at period average exchange rates. Translation adjustments for the asset and liability accounts are included as a separate component of accumulated other comprehensive loss in stockholders’ equity. Foreign currency transaction gains and losses are included in our statements of operations.
We have historically executed a foreign currency hedging program to mitigate the foreign currency risk in countries where we have significant assets and liabilities denominated in currencies other than the functional currency. Our hedging program ended in October 2021. The impact from the foreign currency swap contracts was not material for the three and nine months ended September 30, 2021.
Defined benefit pension plans. Pension benefit costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions include factors such as discount rates, expected investment return on plan assets, mortality rates and retirement rates. The discount rates, expected investment return on plan assets, mortality rates and retirement rates are determined based on reference to yields, and are reviewed annually and considered for adjustment to reflect current market conditions. The expected return on plan assets is derived from detailed periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks (standard deviations) and correlations of returns among the asset classes that comprise the plans’ asset mix. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return. Mortality and retirement rates are based on actual and anticipated plan experience. In accordance with GAAP, actual results that differ from the assumptions are accumulated and are subject to amortization over future periods and, therefore, generally affect recognized expense in future periods. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the pension obligation and future expense.
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.
Newly Adopted Accounting Standards
ASU No. 2020-06. In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by eliminating certain separation models and will generally be reported as a single liability at its amortized cost. In addition, ASU 2020-06 eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. On January 1, 2022, we adopted the ASU using the modified retrospective method. We recognized a cumulative effect of initially applying the ASU as an adjustment to the January 1, 2022 opening accumulated deficit balance. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. Refer to Note 12 - Debt for impact on the adoption of this ASU as of January 1, 2022.
Accounting Standards Not Yet Adopted
ASU No. 2020-04. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance in ASU 2020-04 and ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which was issued in January 2021, provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another rate that is expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. While we are currently determining whether we will elect the optional expedients, we do not expect our adoption of these ASUs to have a significant impact on our consolidated financial position, results of operations, and cash flows.
2. DISCONTINUED OPERATIONS
On November 1, 2022, we completed the Quest Integrity Transaction with Baker Hughes for an aggregate purchase price of approximately $279 million, reflecting certain estimated post-closing adjustments, in accordance with the Sale Agreement. We used the net proceeds from the sale of Quest Integrity to pay down $225.0 million of term debt and 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. 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 – Summary of Significant Accounting Policies and Practices for additional details regarding the Quest Integrity Transaction.
Our condensed consolidated balance sheets and condensed consolidated statements of operations report discontinued operations separate from continuing operations. Our condensed consolidated statements of comprehensive loss, statements of equity and statements of cash flows combine continuing and discontinued operations. A summary of financial information related to our discontinued operations is presented in the tables below.
The table below 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 September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Major classes of line items constituting income (loss) from discontinued operations | | | | | | | |
Revenues | $ | 29,441 | | | $ | 19,531 | | | $ | 88,704 | | | $ | 59,858 | |
Operating expenses | (12,052) | | | (10,720) | | | (39,508) | | | (32,878) | |
Selling, general and administrative expenses | (8,832) | | | (7,109) | | | (26,422) | | | (19,531) | |
Restructuring and other related charges, net | — | | | — | | | — | | | (297) | |
Interest expense, net | (78) | | | (61) | | | (108) | | | (204) | |
Other expense | (2,675) | | | (856) | | | (4,934) | | | (1,964) | |
Income before income taxes from discontinued operations | 5,804 | | | 785 | | | 17,732 | | | 4,984 | |
Provision for income taxes | (2,057) | | | (1,521) | | | (1,464) | | | (1,004) | |
Net income (loss) from discontinued operations | $ | 3,747 | | | $ | (736) | | | $ | 16,268 | | | $ | 3,980 | |
The table below represents the reconciliation of the major classes of assets and liabilities of the discontinued operations to amounts presented separately in the condensed consolidated balance sheets (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (unaudited) | | |
Carrying amount of major classes of assets included as part of discontinued operations | | | |
Cash and cash equivalents | $ | 10,641 | | |