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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________ 
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.30 par valueTISINew 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  þ    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  þ    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 
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨     No  þ
The Registrant had 30,979,783 shares of common stock, par value $0.30, outstanding as of August 2, 2021.


Table of Contents
INDEX
 
  Page No.

1

Table of Contents
PART I—FINANCIAL INFORMATION
 
ITEM 1.FINANCIAL STATEMENTS
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
June 30, 2021December 31, 2020
 (unaudited) 
ASSETS
Current assets:
Cash and cash equivalents$18,355 $24,586 
Receivables, net217,461 194,066 
Inventory37,841 36,854 
Income tax receivable1,233 1,474 
Prepaid expenses and other current assets96,522 26,752 
Total current assets371,412 283,732 
Property, plant and equipment, net164,692 170,309 
Operating lease right-of-use assets65,577 63,869 
Intangible assets, net96,526 103,282 
Goodwill90,604 91,351 
Deferred income taxes5,788 6,790 
Other assets, net11,761 11,642 
Total assets$806,360 $730,975 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$46,150 $42,148 
Current portion of long-term debt and finance lease obligations473 337 
Current portion of operating lease obligations16,995 17,375 
Other accrued liabilities151,646 73,144 
Total current liabilities215,264 133,004 
Long-term debt and finance lease obligations355,986 312,159 
Operating lease obligations53,712 52,207 
Defined benefit pension liability2,932 5,282 
Deferred income taxes1,235 4,375 
Other long-term liabilities9,326 9,345 
Total liabilities638,455 516,372 
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; 30,979,783 and 30,874,437 shares issued
9,289 9,257 
Additional paid-in capital426,924 422,589 
Retained deficit(241,349)(189,565)
Accumulated other comprehensive loss(26,959)(27,678)
Total equity167,905 214,603 
Total liabilities and equity$806,360 $730,975 
See accompanying notes to unaudited condensed consolidated financial statements.
2

Table of Contents

TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Revenues$238,873 $189,304 $433,491 $426,143 
Operating expenses176,109 131,928 327,026 311,281 
Gross margin62,764 57,376 106,465 114,862 
Selling, general and administrative expenses68,478 58,882 134,602 137,326 
Restructuring and other related charges, net280 2,860 2,157 3,046 
Goodwill impairment charge   191,788 
Operating loss(5,994)(4,366)(30,294)(217,298)
Interest expense, net(9,598)(7,314)(18,994)(14,090)
Other expense, net(1,044)(165)(1,994)(637)
Loss before income taxes(16,636)(11,845)(51,282)(232,025)
(Provision) benefit for income taxes(857)(1,683)(502)18,770 
Net loss$(17,493)$(13,528)$(51,784)$(213,255)
Loss per common share:
Basic and diluted$(0.57)$(0.44)$(1.68)$(6.97)
Weighted-average number of shares outstanding:
Basic and diluted30,940 30,628 30,909 30,584 

See accompanying notes to unaudited condensed consolidated financial statements.
3

Table of Contents
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Net loss$(17,493)$(13,528)$(51,784)$(213,255)
Other comprehensive income (loss) before tax:
Foreign currency translation adjustment657 3,583 874 (6,158)
Foreign currency hedge (282) (17)
Other comprehensive income (loss), before tax657 3,301 874 (6,175)
Tax (provision) benefit attributable to other comprehensive income (loss)(257)319 (155)134 
Other comprehensive income (loss), net of tax400 3,620 719 (6,041)
Total comprehensive loss$(17,093)$(9,908)$(51,065)$(219,296)
 
See accompanying notes to unaudited condensed consolidated financial statements.

4

Table of Contents
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(Unaudited)
Common StockAdditional
Paid-in
Capital
Retained
Earnings (Deficit)
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
SharesAmount
Balance at December 31, 202030,874 $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 awards19 6 (107)— — (101)
Balance at March 31, 202130,893 $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 awards86 26 (26)— —  
Balance at June 30, 202130,979 $9,289 $426,924 $(241,349)$(26,959)$167,905 
Balance at December 31, 201930,519 $9,153 $409,034 $48,673 $(30,190)$436,670 
Adoption of new accounting principle, net of tax— — — (1,034)— (1,034)
Net loss— — — (199,727)— (199,727)
Foreign currency translation adjustment, net of tax— — — — (9,861)(9,861)
Foreign currency hedge, net of tax— — — — 200 200 
Non-cash compensation— — 1,530 — — 1,530 
Net settlement of vested stock awards109 30 (379)— — (349)
Balance at March 31, 202030,628 $9,183 $410,185 $(152,088)$(39,851)$227,429 
Net income— — — (13,528)— (13,528)
Foreign currency translation adjustment, net of tax— — — — 3,832 3,832 
Foreign currency hedge, net of tax— — — — (212)(212)
Non-cash compensation— — 1,415 — — 1,415 
Balance at June 30, 202030,628 $9,183 $411,600 $(165,616)$(36,231)$218,936 



See accompanying notes to unaudited condensed consolidated financial statements.


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TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Six Months Ended
June 30,
 20212020
Cash flows from operating activities:
Net loss$(51,784)$(213,255)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization21,306 23,186 
Amortization of deferred loan costs and debt discounts4,154 4,191 
Allowance for credit losses965 1,122 
Foreign currency loss2,341 876 
Deferred income taxes(2,318)(5,177)
Loss on asset disposal309 447 
Goodwill impairment charge 191,788 
Non-cash compensation cost4,468 2,946 
Other, net(2,451)(2,226)
Changes in operating assets and liabilities:
Accounts receivable(24,811)36,033 
Inventory(743)1,989 
Prepaid expenses and other current assets5,612 (3,750)
Accounts payable3,379 4,023 
Other accrued liabilities4,484 (12,992)
Income taxes290 (1,956)
Net cash (used in) provided by operating activities(34,799)27,245 
Cash flows from investing activities:
Capital expenditures(9,220)(12,486)
Business acquisitions, net of cash acquired (1,013)
Proceeds from disposal of assets49 181 
Other 54 
Net cash used in investing activities(9,171)(13,264)
Cash flows from financing activities:
Payments under Credit Facility revolver, net (5,198)
Borrowings under ABL Facility, net49,300  
Borrowings under ABL Facility, gross95,200  
Payments under ABL Facility, gross(104,200) 
Payments under Credit Facility term loan (2,500)
Payments for debt issuance costs(2,326)(1,841)
Taxes paid related to net share settlement of share-based awards(102)(349)
Other(206)(129)
Net cash provided by (used in) financing activities37,666 (10,017)
Effect of exchange rate changes on cash and cash equivalents73 (589)
Net (decrease) increase in cash and cash equivalents(6,231)3,375 
Cash and cash equivalents at beginning of period24,586 12,175 
Cash and cash equivalents at end of period$18,355 $15,550 


See accompanying notes to unaudited condensed consolidated financial statements.
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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 “Team, Inc.,” “Team,” “we,” “our” and “us” are used in this report to refer to Team, Inc., to one or more of its consolidated subsidiaries or to all of them taken as a whole.
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 client’s most critical assets. We conduct operations in three segments: Inspection and Heat Treating (“IHT”), Mechanical Services (“MS”) and Quest Integrity. Through the capabilities and resources in these three segments, we believe that Team is uniquely qualified to provide integrated solutions involving in their most basic form: inspection to assess condition; engineering assessment to determine fitness for purpose in the context of industry standards and regulatory codes; and mechanical services to repair, rerate or replace based upon the client’s election. In addition, we are capable of escalating with the client’s needs, as dictated by the severity of the damage found and the related operating conditions, from standard services to some of the most advanced services and integrated asset integrity and reliability management solutions available in the industry. We also believe that Team is unique in its ability to provide services in three distinct client demand profiles: (i) turnaround or project services, (ii) call-out services and (iii) nested or run-and-maintain services.
IHT provides integrity management and performance solutions, conventional and advanced non-destructive testing (“NDT”) services, 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.
MS provides machining, bolting, and vapor barrier weld testing services, hot tap and line intervention services, valve management solutions, and emission control services primarily as call-out and turnaround services under both on-stream and off-line/shut down circumstances. On-stream services offered by MS represent the services offered while plants are operating and under pressure. Turnaround services are project-related and demand is a function of the number and scope of scheduled and unscheduled facility turnarounds as well as new industrial facility construction or expansion activities.
Quest Integrity provides integrity and reliability management solutions for the process, pipeline and power sectors. These solutions encompass three broadly-defined disciplines including highly specialized in-line inspection services for historically unpiggable process piping and pipelines using proprietary in-line inspection tools and analytical software; advanced engineering and condition assessment services through a multi-disciplined engineering team and related lab support; and advanced digital imaging including remote digital video imaging, laser scanning and laser profilometry-enabled reformer care services.
We market our services to companies in a diverse array of industries which include:
Energy (refining, power, and nuclear);
Energy Transition (liquefied natural gas, hydrogen, carbon capture & sequestration, biofuels, and renewable power);
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.  The impact of the COVID pandemic continues to affect our workforce and operations, as well as the operations of our clients, suppliers and contractors. During this period, we have continued to focus on the following key priorities:
the health and safety of our employees and business continuity;
the alignment of our business to the near term market dynamics and demand for our services; and
our end market revenue diversification strategy.
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Although the rollout of the vaccines is ongoing in the U.S., we believe that it will take more time before the vaccines are widely available globally. While the ultimate duration of the COVID pandemic remains unclear, we believe the increased availability and administration of COVID vaccines, easing of pandemic related restrictions, reopening of economies, and increasing commodity prices are positive signs of broader economic recovery.
The extent of COVID’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic (including any resurgences), impact of the new COVID variants and the rollout of COVID vaccines, and the level of social and economic restrictions imposed in the United States and abroad in an effort to curb the spread of the virus, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.
Basis for presentation. In the opinion of management, these unaudited interim 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, 2020 as filed with the Securities and Exchange Commission (“the 2020 Form 10-K”).
Use of estimates. Our accounting policies conform to Generally Accepted Accounting Principles in the United States (“GAAP”). The preparation of 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 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 contingencies, workers’ compensation, auto, medical, and general liability, (4) establishing an allowance for credit losses, (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.
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 those 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, accounts receivable and accounts payable are representative of their respective fair values due to the short-term maturity of these instruments. The fair value of our ABL Facility and Term Loan (each defined in Note 10) is representative of the carrying value based upon the variable terms and management’s opinion that the current rates are available to us with the same maturity and security structure are equivalent to that of the debt. The fair value of our 5% Convertible Senior Notes due 2023 (the “Notes”) as of June 30, 2021 and December 31, 2020 is $90.1 million and $91.9 million, respectively, (inclusive of the fair value of the conversion option) and is a “Level 2” measurement, determined based on the observed trading price of these instruments. For additional information regarding our ABL Facility, Term Loan and Notes, see Note 10.
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Goodwill. 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 estimated useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with ASC 350. We assess goodwill for impairment at the reporting unit level, which we have determined to be the same as our operating segments.

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. Our goodwill annual test date is December 1 of each year.

We performed our most recent annual impairment test as of December 1, 2020 and concluded that there was no impairment based upon a qualitative assessment to determine if it was more likely than not (that is, a likelihood of more than 50 percent) that the fair values of the reporting units were less than their respective carrying values as of the reporting date. There have been no events that have required an interim assessment of the carrying value of goodwill during 2021.
During the three months ended March 31, 2020, we recognized a non-cash goodwill impairment charge of $191.8 million for the IHT operating segment. These charges were a result of an interim goodwill impairment test that was triggered due to certain impairment indicators that were present during the first quarter of 2020, primarily the decline in operating results due to COVID, lower oil prices and related impacts on the IHT operating segment.
Subsequent to June 30, 2021, our stock price saw declines continuing through early August 2021. We have determined that goodwill at our MS reporting unit is at risk for impairment should events or circumstances indicate that a decline in fair value is other than temporary. As such, we are currently estimating the projected timing of a recovery and whether or not a triggering event has occurred during the third quarter of 2021 on this reporting unit. The value of this business is dependent upon the timing and extent of the market recovery and our conclusions could result in an impairment of goodwill. The total carrying value of the net assets for the MS reporting unit was approximately $127 million as of June 30, 2021, including goodwill of $56 million.
There was $90.6 million of goodwill at June 30, 2021 and $91.4 million at December 31, 2020. The following table presents a rollforward of goodwill for the six months ended June 30, 2021 as follows (in thousands): 
 IHTMSQuest IntegrityConsolidated
 Goodwill, GrossAccumulated ImpairmentGoodwill, NetGoodwill, GrossAccumulated ImpairmentGoodwill, NetGoodwill, GrossAccumulated ImpairmentGoodwill, NetGoodwill, GrossAccumulated ImpairmentGoodwill, Net
Balance at December 31, 2020$212,928 $(212,928)$ $110,721 $(54,101)$56,620 $34,731 $ $34,731 $358,380 $(267,029)$91,351 
FX Adjustments —  (420)— (420)(327)— (327)(747)— (747)
Balance at June 30, 2021$212,928 $(212,928)$ $110,301 $(54,101)$56,200 $34,404 $ $34,404 $357,633 $(267,029)$90,604 

Concentration of credit risk. No single customer accounts for more than 10% of consolidated revenues.
Earnings (loss) per share. Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the sum of the weighted-average number of shares of common stock outstanding during the period and, if dilutive, the assumed exercise or conversion of (1) outstanding share-based compensation, (2) our Notes and (3) outstanding Warrants (defined in Note 9). The impact of share-based compensation, the Notes and warrants are calculated using the treasury stock method.
Our intent is to settle the principal amount of the Notes in cash upon conversion. 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.

Amounts used in basic and diluted earnings per share, for the three and six months ended June 30, 2021 and 2020, are as follows (in thousands): 
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 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
 (unaudited)(unaudited)(unaudited)(unaudited)
Weighted-average number of basic shares outstanding30,940 30,628 30,909 30,584 
Stock options, stock units and performance awards    
Notes    
Warrants  — — 
Total shares and dilutive securities30,940 30,628 30,909 30,584 
For the three and six months ended June 30, 2021 and 2020, all outstanding share-based compensation awards and the Warrants were excluded from the calculation of diluted EPS as their inclusion would be antidilutive due to the net loss in both periods. Also, for the three and six months ended June 30, 2021 and 2020, the Notes were excluded from diluted EPS as the conversion price exceeded the average price of our common stock during those periods. For information on our Notes and Warrants, refer to Note 10. For information on our share-based compensation awards, refer to Note 13.
Newly Adopted Accounting Principles
ASU No. 2019-12. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, that simplifies the accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes as well as clarifies aspects of existing guidance to promote more consistent application. The adoption of ASU No. 2019-12 had no impact on the current quarter.
Accounting Principles 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 ASU’s to have a significant impact on our consolidated financial position, results of operations, and cash flows.
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 EPS for convertible instruments and requires the use of the if-converted method. We expect to adopt ASU 2020-06 beginning January 1, 2022, at which time we would utilize the if-converted method, which would require us to assume the Notes would be settled entirely in shares of common stock for purposes of calculating diluted EPS, if the effect would be dilutive. We are still evaluating the other impacts this ASU may have on our financial statements.

2. REVENUE
In accordance with ASC 606, Revenue from Contracts with Customers, we follow a five-step process to recognize revenue: (1) identify the contract with the customer, (2) identify the performance obligations, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations, and (5) recognize revenue when the performance obligations are satisfied.
The majority of our contracts with customers are short-term in nature and billed on a time and materials basis, while certain other contracts are at a fixed price. Certain contracts may contain a combination of fixed and variable elements. We act as a principal and have performance obligations to provide the service itself or oversee the services provided by any subcontractors. Revenue is measured based on consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties, such as taxes assessed by governmental authorities. In contracts where the amount of consideration is variable, we consider our experience with similar contracts in estimating the amount to which we will be entitled and recognize revenues accordingly. As most of our contracts contain only one performance obligation, the allocation of a contract’s transaction price to multiple performance obligations is generally not applicable. Customers are generally billed as we satisfy our performance obligations and payment terms typically range from 30 to 90 days from the invoice date. Billings under certain fixed-price contracts may be based upon the achievement of specified milestones, while some arrangements may
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require advance customer payment. Our contracts do not include significant financing components since the contracts typically span less than one year. Contracts generally include an assurance type warranty clause to guarantee that the services comply with agreed specifications. The warranty period typically is 12 months or less from the date of service. Warranty expenses were not material for the three and six months ended June 30, 2021 and 2020.
Revenue is recognized as (or when) the performance obligations are satisfied by transferring control over a service or product to the customer. Revenue recognition guidance prescribes two recognition methods (over time or point in time). Most of our performance obligations qualify for recognition over time because we typically perform our services on customer facilities or assets and customers receive the benefits of our services as we perform. Where a performance obligation is satisfied over time, the related revenue is also recognized over time using the method deemed most appropriate to reflect the measure of progress and transfer of control. For our time and materials contracts, we are generally able to elect the right-to-invoice practical expedient, which permits us to recognize revenue in the amount to which we have a right to invoice the customer if that amount corresponds directly with the value to the customer of our performance completed to date. For our fixed price contracts, we typically recognize revenue using the cost-to-cost method, which measures the extent of progress towards completion based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Under this method, revenue is recognized proportionately as costs are incurred. For contracts where control is transferred at a point in time, revenue is recognized at the time control of the asset is transferred to the customer, which is typically upon delivery and acceptance by the customer.
Disaggregation of revenue. Essentially all of our revenues are associated with contracts with customers. A disaggregation of our revenue from contracts with customers by geographic region, by reportable operating segment and by service type is presented below (in thousands):
Three Months Ended June 30, 2021Three Months Ended June 30, 2020
(unaudited)(unaudited)
United States and CanadaOther CountriesTotalUnited States and CanadaOther CountriesTotal
Revenue:
IHT$114,834 $2,628 $117,462 $78,234 $2,240 $80,474 
MS65,303 31,864 97,167 67,403 25,417 92,820 
Quest Integrity16,480 7,764 24,244 10,748 5,262 16,010 
Total$196,617 $42,256 $238,873 $156,385 $32,919 $189,304 

Six Months Ended June 30, 2021Six Months Ended June 30, 2020
(unaudited)(unaudited)
United States and CanadaOther CountriesTotalUnited States and CanadaOther CountriesTotal
Revenue:
IHT$204,059 $4,542 $208,601 $183,536 $4,819 $188,355 
MS125,349 59,214 184,563 143,985 53,354 197,339 
Quest Integrity25,535 14,792 40,327 23,582 16,867 40,449 
Total$354,943 $78,548 $433,491 $351,103 $75,040 $426,143 

Three Months Ended June 30, 2021
(unaudited)
Non-Destructive Evaluation and Testing ServicesRepair and Maintenance ServicesHeat TreatingOtherTotal
Revenue:
IHT$92,291 $207 $17,267 $7,697 $117,462 
MS 97,149 8 10 97,167 
Quest Integrity24,244    24,244 
Total$116,535 $97,356 $17,275 $7,707 $238,873 

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Three Months Ended June 30, 2020
(unaudited)
Non-Destructive Evaluation and Testing ServicesRepair and Maintenance ServicesHeat TreatingOtherTotal
Revenue:
IHT$62,963 $62 $10,770 $6,679 $80,474 
MS 92,094 196 530 92,820 
Quest Integrity16,010    16,010 
Total$78,973 $92,156 $10,966 $7,209 $189,304 

Six Months Ended June 30, 2021
(unaudited)
Non-Destructive Evaluation and Testing ServicesRepair and Maintenance ServicesHeat TreatingOtherTotal
Revenue:
IHT$163,820 $288 $30,722 $13,771 $208,601 
MS 183,125 697 741 184,563 
Quest Integrity40,327    40,327 
Total$204,147 $183,413 $31,419 $14,512 $433,491 

Six Months Ended June 30, 2020
(unaudited)
Non-Destructive Evaluation and Testing ServicesRepair and Maintenance ServicesHeat TreatingOtherTotal
Revenue:
IHT$149,370 $163 $24,916 $13,906 $188,355 
MS 194,709 675 1,955 197,339 
Quest Integrity40,449    40,449 
Total$189,819 $194,872 $25,591 $15,861 $426,143 

For additional information on our reportable operating segments and geographic information, refer to Note 16.
Contract balances. The timing of revenue recognition, billings and cash collections results in trade accounts receivable, contract assets and contract liabilities on the consolidated balance sheets. Trade accounts receivable include billed and unbilled amounts currently due from customers and represent unconditional rights to receive consideration. The amounts due are stated at their net estimated realizable value. Refer to Note 3 for additional information on the allowance for credit losses and our trade receivables. Contract assets include unbilled amounts typically resulting from sales under fixed-price contracts when the cost-to-cost method of revenue recognition is utilized, the revenue recognized exceeds the amount billed to the customer and the right to payment is conditional on something other than the passage of time. Amounts may not exceed their net realizable value. If we receive advances or deposits from our customers, a contract liability is recorded. Additionally, a contract liability arises if items of variable consideration result in less revenue being recorded than what is billed. Contract assets and contract liabilities are generally classified as current.
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Trade accounts receivable, contract assets and contract liabilities consisted of the following (in thousands):
June 30, 2021December 31, 2020
(unaudited)
Trade accounts receivable, net1
$217,461 $194,066 
Contract assets2
$1,453 $5,242 
Contract liabilities3
$893 $930 
_________________
1    Includes billed and unbilled amounts, net of allowance for credit losses. See Note 3 for details.    
2    Included in the “Prepaid expenses and other current assets” line on the condensed consolidated balance sheets.
3    Included in the “Other accrued liabilities” line of the condensed consolidated balance sheets.
The $3.8 million decrease in our contract assets from December 31, 2020 to June 30, 2021 is due to less fixed price contracts in progress at June 30, 2021 as compared to December 31, 2020. Contract liabilities as of June 30, 2021 are associated with contracts under which customers had paid for all or a portion of the consideration in advance of the work being performed. Due to the short-term nature of our contracts, contract liability balances as of the end of any period are generally recognized as revenue in the following quarter.
Contract costs. We recognize the incremental costs of obtaining contracts as selling, general and administrative expenses when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less. Assets recognized for costs to obtain a contract were not material as of June 30, 2021. Costs to fulfill a contract are recorded as assets if they relate directly to a contract or a specific anticipated contract, the costs generate or enhance resources that will be used in satisfying performance obligations in the future and the costs are expected to be recovered. Costs to fulfill a contract recognized as assets primarily consist of labor and materials costs and generally relate to engineering and set-up costs incurred prior to the satisfaction of performance obligations. Assets recognized for costs to fulfill a contract are included in the “Prepaid expenses and other current assets” line of the condensed consolidated balance sheets and were not material as of June 30, 2021. Such assets are recognized as expenses as we transfer the related goods or services to the customer. All other costs to fulfill a contract are expensed as incurred.
Remaining performance obligations. As of June 30, 2021, there were no material amounts of remaining performance obligations that are required to be disclosed. As permitted by ASC 606, we have elected not to disclose information about remaining performance obligations where (i) the performance obligation is part of a contract that has an original expected duration of one year or less or (ii) when we recognize revenue from the satisfaction of the performance obligation in accordance with the right-to-invoice practical expedient.

3. RECEIVABLES
Accounts receivable consisted of the following (in thousands): 
June 30, 2021December 31, 2020
 (unaudited) 
Trade accounts receivable$181,462 $157,513 
Unbilled receivables44,616 46,471 
Allowance for credit losses(8,617)(9,918)
Total$217,461 $194,066 
Topic 326 - Credit Losses (“ASC 326”), which we adopted January 1, 2020, applies to financial assets measured at amortized cost, including trade and unbilled accounts receivable, and requires immediate recognition of lifetime expected credit losses. Significant factors that affect the expected collectability of our receivables include macroeconomic trends and forecasts in the oil and gas, refining, power, and petrochemical markets and changes in our results of operations and forecasts. For unbilled receivables, we consider them as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate. We have identified the following factors that primarily impact the collectability of our receivables and therefore determine the pools utilized to calculate expected credit losses: (i) the aging of the receivable, (ii) any identification of known collectability concerns with specific receivables and (iii) variances in economic risk characteristics across geographic regions.
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For trade receivables, customers typically are provided with payment due date terms of 30 days upon issuance of an invoice. We have tracked historical loss information for our trade receivables and compiled historical credit loss percentages for different aging categories. We believe that the historical loss information we have compiled is a reasonable basis on which to determine expected credit losses for trade receivables because the composition of the trade receivables is consistent with that used in developing the historical credit-loss percentages as typically our customers and payment terms do not change significantly. Generally, a longer outstanding receivable equates to a higher percentage of the outstanding balance as current expected credit losses. We update the historical loss information for current conditions and reasonable and supportable forecasts that affect the expected collectability of the trade receivable using a loss-rate approach. We have not seen a negative trend in the current economic environment that significantly impacts our historical credit-loss percentages; however, we will continue to monitor for changes that would indicate the historical loss information is no longer a reasonable basis for the determination of our expected credit losses. Our forecasted loss rates inherently incorporate expected macroeconomic trends. A loss-rate method for estimating expected credit losses on a pooled basis is applied for each aging category for receivables that continue to exhibit similar risk characteristics.
To measure expected credit losses for individual receivables with specific collectability risk, we identify specific factors based on customer-specific facts and circumstances that are unique to each customer. Customer accounts with different risk characteristics are separately identified and a specific reserve is determined for these accounts based on the assessed credit risk.
We have also identified the following geographic regions in which we distinguish our trade receivables: the (i) United States, (ii) Canada, (iii) the European Union, (iv) the United Kingdom, and (v) other countries. These geographic regions are considered appropriate as they each operate in different economic environments with different foreign currencies, and therefore share similar economic risk characteristics. For each geographic region we evaluate the historical loss information and determine credit-loss percentages to apply to each aging category and individual receivable with specific risk characteristics. We estimate future expected credit losses based on forecasted changes in gross domestic product and oil demand for each region.
We consider one year from the financial statement reporting date as representing a reasonable forecast period as this period aligns with the expected collectability of our trade receivables. Financial distress experienced by our customers could have an adverse impact on us in the event our customers are unable to remit payment for the products or services we provide or otherwise fulfill their obligations to us. In determining the current expected credit losses, we review macroeconomic conditions, market specific conditions, and internal forecasts to identify potential changes in our assessment.
The following table shows a rollforward of the allowance for credit losses (in thousands):
 June 30, 2021December 31, 2020
 (unaudited)
Balance at beginning of period$9,918 $9,990 
Adoption of accounting pronouncement ASC 3261