Team, Inc. (TISI), a global leader in specialty industrial services, has undergone a transformative journey over the past few years, positioning itself for a promising future. With a strong track record spanning over a century, the company has weathered challenges and is now executing a strategic roadmap to unlock the inherent value within its franchise.

In 2022, when the current CEO, Keith Tucker, took the helm, Team, Inc. faced a number of internal and external hurdles that had significantly impacted its profitability. Internally, the company had an overly complex corporate structure with multiple focus areas and lacked overall discipline. Externally, the company was losing market share, facing customer pressure due to consolidation, and grappling with the overall instability of the market exacerbated by global economic factors and the COVID-19 pandemic.

One of Tucker's first priorities was to outline a strategic roadmap that would allow Team, Inc. to navigate the downturn in its business and better position the company for future success. The initial phase of this plan focused on stabilizing the business, which included rebuilding the Board, strengthening the executive management team, and rightsizing the organization while retaining its technicians and subject matter experts. Late in 2022, the company sold its Quest business for $279 million, simplifying its asset portfolio and providing significant cash to improve its balance sheet. The company then proceeded to pay down $225 million in debt, further strengthening its financial flexibility.

The next phase of the strategic roadmap centered on refocusing Team, Inc. The company focused on expanding its margins and cash flow from operations by optimizing its cost structure and improving operational efficiency. It identified and began eliminating approximately $30 million in costs, while also performing a comprehensive review of its portfolio and commercial strategy. This review revealed numerous opportunities to leverage the company's technical expertise into high-growth and attractive margin service lines and end markets, as well as opportunities to grow its market share in both current and adjacent end markets.

Now in the execution stage, Team, Inc.'s ability to continue expanding margins and lowering costs is paramount to its growth in 2024 and beyond. The work done over the past 2.5 years has yielded encouraging results, and the leadership team is committed to building on and improving these results as the company moves forward.

Business Overview

Team, Inc. is a global leader in providing integrated solutions for critical industries. The company's revenue is evenly split between its two segments: Inspection and Heat Treating (IHT) and Mechanical and Onstream Services (MS). The IHT segment provides conventional and advanced non-destructive testing services, pipeline integrity management services, and field heat treating services, as well as associated engineering and condition assessment services. The MS segment offers solutions designed to serve clients' unique needs during both the operational (onstream) and off-line states of their assets, including leak repair, emissions control, hot tapping, and valve management solutions.

The company markets its services to a diverse array of industries, including Chemical and Petrochemical (30% of revenue), Refining (25%), Power and Energy (18%), Manufacturing and Processing (16%), Pipeline and Storage (7%), and Aerospace and Defense (4%). Team, Inc. has a strong presence in the United States and Canada, accounting for over 80% of its revenue, with increasing opportunities in Europe, Asia Pacific, the Middle East, and South America.

Team, Inc.'s unique operating model provides for a nearly constant presence at its customer sites, allowing the company to offer integrated solutions in three distinct client demand profiles: Call Out and Emergency Services, Nested or Run and Maintain Services, and Turnaround Projects Services. This integrated solutions offering includes inspection to assess condition, engineering assessment to determine fitness for purpose, and mechanical services to repair, re-rate, or replace based on the client's needs.

Financials

In the first quarter of 2024, Team, Inc. reported revenue of $199.6 million, a slight decrease of 1.3% compared to the prior-year period. However, the company's focus on improving its cost structure and operational efficiency has yielded positive results, with gross margin expanding by 120 basis points to 24.4% and adjusted EBITDA increasing by 55% to $6.5 million. These impressive results were delivered in what is typically the company's slowest quarterly period of the year, and management expects this financial and operating momentum to continue throughout 2024.

For the full year 2024, Team, Inc. is guiding for adjusted EBITDA of $58 million to $68 million, representing a 48% improvement at the midpoint over 2023 and a 279% increase over 2022. The company also expects its adjusted EBITDA margin to be between 6.5% and 8% in 2024, exceeding its pre-COVID levels. Management believes there is a path to growing margins to 10% and is determined to capture that additional profitability.

Liquidity

Over the past two years, Team, Inc. has been able to simplify and strengthen its balance sheet while extending maturities on its debt. The company's next debt maturity is in August 2025, and it is already working to extend or refinance that portion of its capital structure. Furthermore, with improved cash flow and adjusted EBITDA generation, the company should be able to increase its liquidity, pay down debt, and further deleverage its balance sheet.

Geographic Performance

In terms of geographic performance, the United States and Canada account for over 80% of Team, Inc.'s revenue, with the remaining revenue coming from Europe, Asia Pacific, the Middle East, and South America. The company sees strong recognition and growth potential internationally, with established European and Middle Eastern markets and fast-growing Asia Pacific and South American markets.

Segment Performance

Looking at the company's segment performance, the IHT segment reported revenue of $99.4 million in the first quarter of 2024, a decrease of 2.3% compared to the prior-year period, primarily driven by decreased call-out and turnaround activities in the U.S. and Canada regions, partially offset by an increase in Aerospace activity. The MS segment reported revenue of $100.2 million, a decrease of 0.3% compared to the prior-year period, mainly due to a $4.3 million decrease in Canada operations, which was mostly offset by a $1.2 million increase in U.S. operations and a $2.8 million increase in other international operations.

Despite the relatively flat year-over-year revenue, Team, Inc. delivered impressive profitability improvements in the first quarter of 2024. The IHT segment's operating income increased by 9.8%, primarily driven by lower direct costs and improved margins. The MS segment's operating income increased by 28.1% compared to the prior-year period, with the U.S. and other international operations seeing increases of $1.9 million and $0.6 million, respectively, driven by higher activity and improved margins, partially offset by a $1.6 million decrease in Canada.

Conclusion

In conclusion, Team, Inc. has made significant strides in stabilizing and refocusing its business, and the company is now in the execution stage of its strategic roadmap. With a strong track record of innovation, a highly skilled workforce, and a relentless focus on safety, quality, and reliability, Team, Inc. is poised to capitalize on the opportunities ahead and deliver improved financial performance and shareholder value. The company's guidance for 2024, which calls for a 48% increase in adjusted EBITDA at the midpoint and continued margin expansion, underscores the progress the company has made and the confidence in its ability to execute its strategic plan.