TIC Solutions, Inc. (TIC) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Overview
We are a leading provider of critical asset integrity services. We operate primarily in North America serving a broad range of industrial markets, most notably chemical, pipeline, refinery, power generation, oilsands, automotive, aerospace, mining, manufacturing, renewable energy, and pulp and paper. We provide these essential and often
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compliance-mandated (often at customer locations) services in the industrial space and are focused on the recurring maintenance needs of our customers.
The work we do fits in the service category referred to as Testing, Inspection, Certification and Compliance. These activities include several Nondestructive Testing (“NDT”) techniques such as radiography, ultrasonic testing, magnetic particle inspection, penetrant testing, and visual inspection. NDT activities include inspection and evaluation of industrial equipment through various technology-enabled methods to ensure asset integrity, avoid costly accidents and comply with regulatory requirements without destroying the asset or component. Given the amount of activity required at heights in the industrial space, we provide market leading RAT solutions to reach difficult areas without scaffolding. The work on ropes at heights extends beyond inspection and testing to include industrial trades such as insulation, coatings and blasting, welding, pipe fitting, hoisting and rigging, and electrical services. We offer these trades in a niche way where RAT solutions are optimal (cost efficient and/or schedule enhancing) and where we can provide quality services without compromising safety. Our TICC service also includes support from consulting engineers with in-lab destructive testing capabilities. Our highly specialized materials engineers support failure investigation, material selection, corrosion engineering, welding engineering, fracture mechanics, destructive testing, and chemical analysis.
We have two operating and reportable segments which are the United States and Canada. We have operations in the United Kingdom that are not considered material and are included in the United States reportable segment. Each segment is representative of the operations incurred under the respective geographic territory. Both operating segments provide the same services to a similar base of customers.
We were incorporated with limited liability under the laws of the British Virgin Islands under the BVI Companies Act on December 15, 2022 under the name Admiral Acquisition Limited (“Admiral”). Admiral was formed for the purpose of acquiring a target company or business. We completed our initial public offering in the United Kingdom on May 22, 2023, raising gross proceeds of approximately $539.5 million and the Founder Entity purchased 1,000,000 shares of Series A Preferred Stock for $10.5 million. We began trading on the London Stock Exchange (“LSE”) on May 22, 2023 and trading was suspended on July 30, 2024 when we completed our acquisition of ASP Acuren (the “Acuren Acquisition”). Our LSE listing was subsequently cancelled on August 19, 2024. In connection with the Acuren Acquisition, we changed our name to Acuren Corporation and on December 16, 2024, changed our jurisdiction of incorporation from the British Virgin Islands to Delaware and domiciled to Delaware.
Prior to the Domestication, we were incorporated with limited liability under the laws of the British Virgin Islands with ordinary shares (the “Ordinary Shares”) listed on the London Stock Exchange. Upon the Domestication, our Ordinary Shares were automatically converted, on a one-for-one basis, into shares of Common Stock and our Founder Preferred Shares (the “Founder Preferred Shares”) were automatically converted, on a one-for-one basis, into shares of Series A Preferred Stock. All references to our Ordinary Shares and Founder Preferred Shares refer to the equity of the Company prior to Domestication and all references to our Common Stock and Series A Preferred Stock refer to the equity of the Company following the Domestication. Our Common Stock began trading on the OTCQX Market on December 30, 2024. We voluntarily withdrew from trading on the OTCQX Market as of February 14, 2025 and began trading on the NYSE American (the “NYSE”) on February 18, 2025. Prior to the listing of our Common Stock on the NYSE, we were subject to and complied with the rules of the LSE. In connection with the Acuren Acquisition, we formed our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee.
Recent Developments
Acuren Acquisition
On July 30, 2024, we completed the acquisition of ASP Acuren, a market leading provider of asset integrity management solutions. The consideration paid at closing for the Acuren Acquisition was approximately $1.9 billion in cash. We funded the consideration paid with a combination of $568.0 million cash on hand, a $775.0 million senior loan facility and an aggregate of $675.0 million of gross proceeds from the PIPE Financing and the Warrant Financing. The Warrant Financing was an offer to permit holders of our Warrants to early exercise all of their outstanding Warrants at a reduced exercise price of $10.00 per whole share of our common stock. Holders of
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36,710,124 Warrants participated in the Warrant Financing. As of December 31, 2024, there were 18,264,876 Warrants outstanding.
Credit Facilities
In connection with the closing of the Acuren Acquisition, on July 30, 2024, we entered into the Credit Facility by and among Acuren Delaware Holdco, Inc. (f/k/a AAL Delaware Holdco, Inc.), Acuren Holdings, Inc. (f/k/a ASP Acuren Holdings, Inc.), the guarantors from time to time party thereto, the lenders from time to time party thereto, and Jefferies Finance LLC, as administrative agent and as collateral agent (the “Credit Agreement”), pursuant to which we incurred a $775.0 million seven-year senior secured term loan (the “Term Loan”) under the senior secured term loan facility (the “Term Loan Facility”), which was used to fund a part of the cash portion of the purchase price of the Acuren Acquisition. The Credit Agreement also provides for a $75.0 million five-year senior secured revolving credit facility (the “Revolving Credit Facility,” and together with the Term Loan Facility, the “Credit Facility”). See “— Liquidity and Capital Resources — Credit Facilities” for more information regarding the Credit Facility.
Certain Factors and Trends Affecting Acuren’s Results of Operations
Summary of Acquisitions
In addition to the Acuren Acquisition, the Company completed other acquisitions during the periods presented that also affect the comparability of results of operations.
From January 1, 2024 through July 29, 2024, Acuren acquired three businesses for total aggregate consideration of $47.6 million in cash, net of cash acquired. During the year ended December 31, 2023, Acuren acquired one business for total consideration of $6.0 million in cash. The businesses acquired compliment and are synergistic to Acuren’s existing business.
Economic, Industry and Market Factors
We have observed some impact from inflationary pressures during 2023 and 2024. Over the reporting periods we have been able to stabilize margin with a combination of cost management and price initiatives. There has been no direct effect on our business from the Russian-Ukrainian or the Middle Eastern conflicts. These conflicts may have an impact on certain end markets, results of operations or liquidity or in other ways which we cannot yet determine.
Description of Key Financial Statement Line Items
Service revenue
Service revenue is generated from Acuren’s engineers, scientists, technologists, technicians, and specialized craft trades performing inspections, testing, and related services for customers both in the field and in our laboratories. Service revenue is recognized by Acuren as services are performed for the customer. The vast majority of Acuren billing is on a time and materials basis.
Cost of revenue
Cost of revenue consists primarily of direct labor. Cost of revenue also includes materials and indirect costs, such as supplies, tools, facility costs, and depreciation of equipment related to our services as well as travel, per diem, and lodging costs. Labor costs are recognized as labor hours are incurred in delivering services.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of employee compensation, information systems and technology costs, share-based compensation, amortization on intangibles, facility related expenses, and management consulting services.
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Results of Operations
The comparability of our operating results for the period from July 30, 2024 through December 31, 2024 (Successor), January 1, 2024 through July 29, 2024 (Predecessor) (as restated) and the year ended December 31, 2023 (Predecessor) was impacted by the Acuren Acquisition. In the discussion of our results of operations for these periods, we may quantitatively disclose the impacts of the Acuren Acquisition to the extent they remain ascertainable. The entirety of Admiral’s activity through the closing date of the Acuren Acquisition was related to our formation, the preparation of our initial public offering, and since the closing of our initial public offering, the search for a target company or business.
Comparison of the periods from January 1, 2024 to July 29, 2024 (Predecessor) (as restated) and July 30, 2024 to December 31, 2024 (Successor) to the year ended December 31, 2023 (Predecessor)
The following table summarizes our results of operations for the periods indicated (in thousands)(1):
| 2024 | 2023 | 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Successor July 30 to December 31 | Predecessor January 1 to July 29(As Restated) | Predecessor January 1 to December 31 | Predecessor January 1 to December 31 | ||||||||||
| Service revenue | $463,527 | $ | 633,866 | $ | 1,050,057 | $ | 928,326 | ||||||
| Cost of revenue | 359,848 | 471,881 | 810,534 | 725,375 | |||||||||
| Gross profit | 103,679 | 161,985 | 239,523 | 202,951 | |||||||||
| Selling, general and administrative expenses | 150,306 | 121,369 | 185,022 | 168,229 | |||||||||
| Transaction costs | 35,998 | 5,204 | — | — | |||||||||
| Income (loss) from operations | (82,625) | 35,412 | 54,501 | 34,722 | |||||||||
| Interest expense, net | 31,061 | 39,379 | 60,022 | 24,159 | |||||||||
| Loss on extinguishment of debt | — | 9,073 | — | — | |||||||||
| Other expense (income), net | (2,978) | (580) | (1,241) | (12,888) | |||||||||
| Income (loss) before provision for income taxes | (110,708) | (12,460) | (4,280) | 23,451 | |||||||||
| Provision (benefit) for income taxes | (5,256) | 3,243 | 2,009 | 3,408 | |||||||||
| Net income (loss) | ($105,452) | ($15,703) | ($6,289) | $20,043 |
____________
1.Refer to “Note 2. Summary of Significant Accounting Policies” in the consolidated financial statements for further detail on the update to the presentation of cost of revenue and selling, general, and administrative expenses impacting the amounts presented herein for the periods from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), and the year ended December 31, 2023 (Predecessor). Refer to “Note 2. Summary of Significant Accounting Policies” in the consolidated financial statements for further detail on the restatement of previously issued consolidated financial statements for the period from January 1, 2024 to July 29, 2024 (Predecessor).
Revenues
Service revenue was $633.9 million and $463.5 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), respectively, an increase of $47.3 million, or 4.5%, compared to $1,050.1 million during the year ended December 31, 2023 (Predecessor). This increase in service revenue was driven primarily by increases in transaction volumes with recurring customers and new sales in target markets as well as net sales growth of approximately $21.3 million directly related to the 2024 Predecessor acquisitions.
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Cost of revenue
Cost of revenue was $471.9 million and $359.8 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), respectively, an increase of $21.2 million, or 2.6%, compared to $810.5 million during the year ended December 31, 2023 (Predecessor). This increase was primarily driven by 2024 Predecessor acquisitions which contributed $17.3 million of the increase.
Gross profit
The following table presents gross profit and gross profit margin, defined as gross profit as a percentage of service revenues, for the periods from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor) compared to the year ended December 31, 2023 (Predecessor) (in thousands):
| 2024 | 2023 | |||||||
|---|---|---|---|---|---|---|---|---|
| Successor July 30 to December 31 | Predecessor January 1 to July 29 | Predecessor January 1 to December 31 | ||||||
| Service revenue | $463,527 | $633,866 | $1,050,057 | |||||
| Gross profit | 103,679 | 161,985 | 239,523 | |||||
| Gross profit margin | 22 | % | 26 | % | 23 | % |
Acuren’s gross profit was $162.0 million and $103.7 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), respectively, an increase of $26.1 million, or 10.9%, compared to $239.5 million during the year ended December 31, 2023 (Predecessor). The gross profit increase primarily results from pricing initiatives implemented in 2023 and increased volumes. Additionally, Acuren had gross profit growth of approximately $3.9 million directly related to acquisitions.
Selling, general and administrative expenses
The following table presents selling, general and administrative expenses (“SG&A expenses”) and operating margin, defined as income (loss) from operations as a percentage of service revenues, for the periods from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor) compared to the year ended December 31, 2023 (Predecessor) (in thousands):
| 2024 | 2023 | |||||||
|---|---|---|---|---|---|---|---|---|
| Successor July 30 to December 31 | Predecessor January 1 to July 29 (as restated) | Predecessor January 1 to December 31 | ||||||
| SG&A expenses | $150,306 | $121,369 | $185,022 | |||||
| SG&A expenses as a percentage of service revenue (%) | 32.4 | % | 19.1 | % | 17.6 | % |
Acuren’s SG&A expenses were $121.4 million and $150.3 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), respectively, an increase of $86.7 million, or 46.8%, compared to $185.0 million during the year ended December 31, 2023 (Predecessor). The increase in SG&A expenses was driven primarily by share-based compensation related costs resulting from the Acuren Acquisition. The remaining change relates to increases in employee related costs as well as increases in rent and facility costs.
Depreciation and Amortization Expense
Total depreciation expense for property, plant and equipment and amortization expense for intangibles were recognized as follows:
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| 2024 | 2023 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Successor July 30 to December 31 | Predecessor January 1 to July 29 | Predecessor January 1 to December 31 | ||||||||
| Depreciation expense included in cost of revenue | $25,282 | $22,123 | $54,504 | |||||||
| Depreciation and amortization expense included in selling, general and administrative expenses | 22,031 | 23,654 | 40,314 | |||||||
| Total depreciation and amortization expense | $ | 47,313 | $ | 45,777 | $ | 94,818 |
Transaction costs
Transaction costs were $5.2 million and $36.0 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), respectively, an increase of $41.2 million, compared to no transaction costs during the year ended December 31, 2023 (Predecessor). The increase is primarily related to legal, accounting, advisory, and other transaction costs resulting from the Acuren Acquisition.
Interest expense, net
Interest expense was $39.4 million and $31.1 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), respectively, an increase of $10.4 million, or 17.4%, compared to $60.0 million during the year ended December 31, 2023 (Predecessor). This increase is due to new borrowings for working capital purposes and to fund acquisitions under our Credit Agreement in addition to a higher interest rate environment when compared against the prior year period.
Loss on extinguishment of debt
The loss on extinguishment of debt of $9.1 million recorded during the period from January 1, 2024 to July 29, 2024 (Predecessor) relates to the extinguishment of Predecessor debt as a result of the Acuren Acquisition.
Provision for income taxes
Acuren recorded a provision for income taxes of $3.2 million and a tax benefit of $5.3 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) (as restated) and July 30, 2024 to December 31, 2024 (Successor), respectively, as compared to income tax expense of $2.0 million during the year ended December 31, 2023 (Predecessor). The tax benefit was primarily driven by the increased loss before taxes for the period from January 1, 2024 to July 29, 2024 (Predecessor) (as restated) and July 30, 2024 to December 31, 2024 (Successor) compared to income before taxes for the year ended December 31, 2023.
The Organization for Economic Co-operation and Development has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as "Pillar 2"), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted the legislation, and other countries are in the process of introducing legislation to implement Pillar 2. We are continuing to evaluate and monitor the impact of Pillar 2. To date, Pillar 2 has not had a material impact on the effective tax rate or the consolidated financial statements.
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Operating Segment Results
Comparison of the periods from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor) to the year ended December 31, 2023 (Predecessor)
| Service Revenue | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | ||||||||||||||
| Successor July 30 to December 31 | Predecessor January 1 to July 29 | Predecessor January 1 to December 31 | Increase (Decrease) | % Change | |||||||||||
| United States | $267,136 | $363,474 | $643,847 | ($13,237) | (2) | % | |||||||||
| Canada | 197,541 | 271,859 | 409,150 | 60,250 | 15 | % | |||||||||
| Corporate and Eliminations | (1,150) | (1,467) | (2,940) | 323 | (11) | % | |||||||||
| $463,527 | $633,866 | $1,050,057 | $47,336 | 5 | % |
| Cost of Revenue | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | ||||||||||||||
| Successor July 30 to December 31 | Predecessor January 1 to July 29 | Predecessor January 1 to December 31 | Increase (Decrease) | % Change | |||||||||||
| United States | $208,574 | $255,335 | $498,964 | ($35,055) | (7) | % | |||||||||
| Canada | 152,424 | 218,013 | 314,510 | 55,927 | 18 | % | |||||||||
| Corporate and Eliminations | (1,150) | (1,467) | (2,940) | 323 | (11) | % | |||||||||
| $359,848 | $471,881 | $810,534 | $21,195 | 3 | % |
| Gross Profit | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | ||||||||||||||
| Successor July 30 to December 31 | Predecessor January 1 to July 29 | Predecessor January 1 to December 31 | Increase (Decrease) | % Change | |||||||||||
| United States | $58,562 | $108,139 | $144,883 | $21,818 | 15 | % | |||||||||
| Canada | 45,117 | 53,846 | 94,640 | 4,323 | 5 | % | |||||||||
| $103,679 | $161,985 | $239,523 | $26,141 | 11 | % |
United States
United States service revenues were $363.5 million and $267.1 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), respectively, a decrease of $13.2 million, or 2.1%, compared to $643.8 million during the year ended December 31, 2023 (Predecessor). The decrease was driven by lower volumes during 2024 offset by impact of price increases from 2023 as well as increased revenue from 2024 acquisitions, which contributed approximately $9.1 million in new service revenue.
Segment gross profit was $108.1 million and $58.6 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), respectively, an increase of $21.8 million, or 15%, compared to $144.9 million during the year ended December 31, 2023 (Predecessor). The increase primarily resulted from pricing initiatives implemented in 2023. Acquisitions represented approximately $1.4 million in gross profit growth.
Canada
Canada service revenue was $271.9 million and $197.5 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), respectively, an increase of $60.3 million, or 14.7%, compared to $409.2 million during the year ended December 31, 2023 (Predecessor). The growth
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in service revenue was driven primarily by increased callout and customer outage activity. Acquisitions contributed approximately $12.1 million in new service revenue.
Segment gross profit was $53.8 million and $45.1 million for the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), respectively, an increase of $4.3 million, or 4.6%, compared to $94.6 million during the year ended December 31, 2023 (Predecessor). The increase was primarily driven by stronger volume. Acquisitions represented approximately $2.6 million in gross profit growth.
Liquidity and Capital Resources
Overview
Overall, Acuren believes that available cash and cash equivalents, cash flows generated from future operations, access to capital markets, and availability under its existing revolving credit facility are sufficient to fund our operations, service our indebtedness, and maintain compliance with our debt covenants. Acuren’s uses of available cash, borrowing capacity, cash flows from operations and financing arrangements are used to invest in capital expenditures to support its growth, repay debt maturities as they become due, and complete integration activities. Acuren’s principal liquidity requirements are for working capital and general corporate purposes, including capital expenditures and debt service, as well as to execute and integrate strategic acquisitions. In addition, we will use available cash, borrowing capacity, and cash flows from operations to fund our operating leases, finance leases, debt repayments and various other obligations as they arise as noted within “Note 12. Debt” and “Note 15. Leases.”
Capital Resources
In connection with the closing of the Acuren Acquisition, on July 30, 2024, we entered into the Credit Facility and in connection therewith incurred a $775.0 million seven-year senior secured Term Loan under the Term Loan Facility, which was used to fund a part of the cash portion of the purchase price for the Acuren Acquisition. The Credit Agreement also provides for a $75.0 million five-year senior secured revolving credit facility of which up to $20.0 million can be used for the issuance of letters of credit. As of December 31, 2024, there was nothing outstanding on the Revolving Credit Facility.
As of December 31, 2024, Acuren had $773.1 million of indebtedness outstanding under the Term Loan. Acuren incurred an aggregate of $19.5 million in debt issuance costs related to the Term Loan that are amortized using the effective interest method over the life of the Term Loan using an effective interest rate of 9.2%. As of December 31, 2024, the unamortized debt issuance cost balance was $18.3 million and is presented as a reduction of the carrying value of the Term Loan in the consolidated balance sheets. For the Successor period ended December 31, 2024, Acuren recorded total interest expense of $29.2 million, inclusive of $1.2 million related to the amortization of debt issuance costs.
Acuren incurred an aggregate of $1.9 million in debt issuance costs for the Revolving Credit Facility that are amortized over the five year term of the revolving Credit Facility on a straight-line basis. At December 31, 2024, the unamortized debt issuance costs balance was $1.7 million. For the Successor period ended December 31, 2024, Acuren recorded an interest expense of $0.2 million for the access to the Revolving Credit Facility.
For discussion of the covenants contained in the Credit Agreement governing our Revolving Credit Facility, see “Note 12. Debt” of the Notes to our Consolidated Financial Statements. As of December 31, 2024, we were in compliance with these covenants.
ASP Acuren entered into a credit agreement on December 20, 2019 (“Prior Credit Agreement”) that provided for a term loan of $430.0 million and a revolving credit facility of $75.0 million. On each of January 23, 2020, November 19, 2021 and August 15, 2023, the Prior Credit Agreement was amended, increasing the term loan to $445.0 million, $545.0 million and $715.0 million, respectively. In connection with the Acuren Acquisition on July 30, 2024, the Prior Credit Agreement was repaid in full.
Cash Flows
The following table summarizes net cash flows with respect to Acuren’s operating, investing, and financing activities for the periods indicated (in thousands):
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| 2024 | 2023 | 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Cash flows provided by (used in): | Successor July 30 to December 31 | Predecessor January 1 to July 29 | Predecessor January 1 to December 31 | Predecessor January 1 to December 31 | ||||||
| Operating activities | $2,629 | $20,439 | $95,809 | $39,980 | ||||||
| Investing activities | (1,834,651) | (57,985) | (26,534) | (67,672) | ||||||
| Financing activities | 1,414,346 | 7,818 | (49,176) | 35,965 | ||||||
| Effect of exchange rate on cash | (123) | (7,877) | 4,377 | (5,625) | ||||||
| Net change in cash and cash equivalents | ($417,799) | ($37,605) | $24,476 | $2,648 |
Cash flows attributable to our operating activities
Net cash provided by operating activities for the period from January 1, 2024 to July 29, 2024 (Predecessor) and for the period from July 30, 2024 to December 31, 2024 (Successor) was $20.4 million and $2.6 million, respectively, a decrease of $72.7 million compared to cash provided by operating activities of $95.8 million in the Predecessor period year ended December 31, 2023. The change in cash used in operating activities was primarily driven by the decrease in net income (loss) of $114.9 million, which includes $41.2 million of transaction costs related to the Acuren Acquisition, as well as decreases in operating assets and liabilities of $39.7 million, offset by changes in share-based compensation expense of $77.5 million.
Cash flows attributable to our investing activities
For the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), net cash used in investing activities was $58.0 million and $1.8 billion, primarily related to acquisitions in the Predecessor period and the Acuren Acquisition in the Successor period, respectively.
For the year ended December 31, 2023, net cash used in investing activities was $26.5 million, consisting primarily of $22.1 million of capital expenditures.
Cash flows attributable to our financing activities
For the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), net cash provided by financing activities was $7.8 million and $1.4 billion, consisting primarily of borrowings of long-term debt of $805.0 million and proceeds from the issuance of ordinary shares and the exercise of Warrants for $666.6 million related to the Acuren Acquisition offset by repayments of long-term debt of $18.3 million, principal payments on finance lease obligations of $9.8 million, and payments of debt issuance costs of $21.4 million.
For the year ended December 31, 2023, net cash used in financing activities was $49.2 million, consisting primarily of dividends paid of $150.0 million, repayments of long-term debt of $81.4 million, and principal payments of finance lease obligations of $9.9 million, offset by net borrowings under our Prior Credit Agreement of $113.6 million.
Effect of exchange rate changes on cash and cash equivalents
For the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), and year ended December 31, 2023, the effect of foreign exchange rate changes on cash was negative $7.9 million, negative $0.1 million and positive $4.4 million, respectively. The impact of exchange rates on cash and cash equivalents is primarily attributable to fluctuations in the U.S. Dollar exchange rate against the Canadian Dollar.
Off-Balance Sheet Arrangements
During the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor) and the years ended December 31, 2023 and 2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special
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purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Recently Issued Accounting Pronouncements
See “Note 2. Summary of Significant Accounting Policies” of the Notes to our Consolidated Financial Statements for disclosures regarding recently issued accounting pronouncements and the critical accounting policies related to our business.
Critical Accounting Estimates
For discussion regarding our significant accounting policies, see “Note 2. Summary of Significant Accounting Policies” of the Notes to our Consolidated Financial Statements. We have outlined below the policies identified as being critical to the understanding of our business and results of operations and that require the application of significant management judgement.
Revenue Recognition from Contracts with Customers
The majority of our revenues are derived from providing services on a time and material basis and are short-term in nature. Payments are generally due within 45 days of services unless otherwise noted. There are no material warranties, refunds, or other similar obligations.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of contracts have a single performance obligation as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. We provide highly integrated and bundled inspection services to its customers. Some contracts have multiple performance obligations, most commonly due to the contract providing for a combination of inspection, engineering or industrial services.
For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation utilizing several different pricing scenarios and is able to discretely price out each individual component based on its nature and relation to the overall performance obligation.
Contract modifications are not routine in the performance of contracts. Generally, when contracts are modified, the modification is to account for changes in scope to the services that are provided. In most instances, contract modifications reflect either additions or subtractions to previously identified performance obligations and therefore are not considered distinct.
Performance obligations are satisfied over time as work progresses. Revenue is recognized over time based on time and material incurred to date which best portrays the transfer of control to the customer. We expect any significant remaining performance obligations to be satisfied within one year.
Business Combinations
We account for our business combinations under the acquisition method of accounting, with the purchase price allocated based on the fair value to the individual assets acquired and liabilities assumed at the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Certain estimates and judgments are required in the application of the fair value techniques, including estimates of the respective acquisition’s future performance and related cash flows, selection of a discount rate and economic lives, and use of Level 3 measurements. While we use the best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, estimates are inherently uncertain and subject to refinement. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations and comprehensive income (loss).
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Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price of acquired businesses over the fair value of the underlying net tangible and intangible assets acquired. We evaluate the impairment of our goodwill annually or more frequently when events or changes in circumstances indicate that goodwill may be impaired. Goodwill is required to be evaluated for impairment at the reporting unit level, which represents the operating segment level or one level below the operating segment level for which discrete financial information is available. We have two reporting units, the United States and Canada, which align with our reportable segments.
We first assess qualitatively, step zero, whether it is necessary to perform step one of the annual impairment tests. An entity is required to perform step one if the entity concludes that it is more likely than not that a reporting unit’s fair value is below its carrying amount (that is, a likelihood of more than 50%). When step one indicates that the reporting unit’s carrying value exceeds its fair value, an impairment will be recorded in the period the goodwill is determined to be impaired.
We can also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit. Additionally, a significant change in business climate, a loss of a significant customer, increased competition, a sustained decrease in share price, or a decrease in estimated fair value below book value may trigger the need for interim impairment testing of goodwill associated with one or more reporting units.
Any goodwill impairment is limited to the total amount of goodwill allocated to that reporting unit. The income tax effect associated with an impairment of tax-deductible goodwill is also considered in the measurement of the goodwill impairment. During the years ended December 31, 2023 and 2022, Acuren performed a qualitative analysis. There were no impairment charges in 2023 or 2022. No indications of impairment were identified during the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor), and the year ended December 31, 2023.
We consider the income and market approaches when estimating the fair values of reporting units which requires significant judgement in evaluating economic and industry trends, estimated future cash flows, discount rates, and other factors.
Intangible assets consisting of customer relationships, technology, tradenames, and non-compete agreements, have been recorded based on their fair value at the date of acquisition and are amortized over their economic useful lives which range from 1 to 15 years. Amortization on other intangibles assets is included within Selling, general and administrative expenses.
Valuation of Long-Lived Assets
Long-lived assets, such as property, plant and equipment and purchased identifiable intangible assets that are subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of an asset is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. No indications of impairment were identified during the period from January 1, 2024 to July 29, 2024 (Predecessor) and July 30, 2024 to December 31, 2024 (Successor) and the years ended December 31, 2023 and 2022.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured at the enacted income tax rates expected to apply in the taxable year that the asset or liability is expected to be recovered or settled.
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In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of a deferred income tax asset will not be realized. Valuation allowances are provided when management believes, after estimating future taxable income, considering feasible income tax planning opportunities and weighing all facts and circumstances that certain deferred tax assets are not recoverable. We evaluate our tax contingencies and recognize a liability when we believes it is more likely than not that a liability exists.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
We record interest expenses and penalties on uncertain tax liabilities in the provision for income taxes.