As a global leader in specialty industrial services, TEAM, Inc. (TISI) has demonstrated its resilience and adaptability in the face of a dynamic market landscape. The company’s comprehensive suite of conventional, specialized, and proprietary mechanical, heat-treating, and inspection services has earned it a prominent position in the industry, serving a diverse array of heavy industries.
TEAM’s Business Overview and History
Founded in 1971 and headquartered in Sugar Land, Texas, TEAM has evolved over the years to become a trusted provider of critical asset integrity and reliability management solutions. The company operates through two primary segments: Inspection and Heat Treating (IHT) and Mechanical Services (MS).
The IHT segment offers conventional and advanced non-destructive testing services, pipeline integrity management, field heat treating, and associated engineering and condition assessment services. These services cater to the needs of the process, pipeline, and power sectors, as well as the aerospace industry. The MS segment, on the other hand, provides a range of onstream and off-line maintenance, turnaround, and outage services, including leak repair, emissions control, hot tapping, and valve management solutions.
TEAM has navigated through various industry cycles, weathering both periods of growth and challenges. In the early 2000s, the company embarked on a series of strategic acquisitions to expand its capabilities and geographic reach, particularly in the inspection and mechanical services segments. This expansion allowed TEAM to offer a more comprehensive set of solutions to its customers in the energy, manufacturing, and other industrial sectors.
The late 2000s and early 2010s presented challenges for TEAM as the global economic downturn impacted demand for its services. In response, the company focused on streamlining its operations and reducing costs. More recently, in 2021, TEAM underwent a significant restructuring, which included the sale of certain business units, in an effort to simplify the organization and improve its financial performance.
Throughout its history, TEAM’s focus on safety, quality, and innovation has been a key factor in its long-term success. The company continues to serve a diverse customer base across various industries, maintaining its position as a leading provider of specialty industrial services.
Financial Performance and Ratios
As of the most recent 10-Q filing in 2024, TEAM reported total revenue of $638.98 million for the first nine months of the year, a decrease of 1.5% compared to the same period in the prior year. The company’s net loss for the nine-month period was $31.08 million, a significant improvement from the $52.60 million net loss recorded in the corresponding period of 2023.
TEAM’s financial ratios have shown notable improvements as well. The current ratio, a measure of short-term liquidity, stood at 1.80 as of September 30, 2024, up from 1.65 at the end of 2023. The quick ratio, which excludes inventory, was 1.57, indicating the company’s ability to meet its short-term obligations. The debt-to-equity ratio, a key solvency metric, decreased from 7.66 at the end of 2023 to 6.90 as of the latest reporting period.
For the most recent fiscal year (2023), TEAM reported revenue of $862.62 million, with a net loss of $75.72 million. Operating cash flow for 2023 was negative $10.99 million, and free cash flow was negative $21.42 million. In the most recent quarter (Q3 2024), the company reported revenue of $210.76 million, a net loss of $11.13 million, operating cash flow of $5.61 million, and free cash flow of $3.91 million.
Year-over-year revenue growth in Q3 2024 was 2%, driven by a 6% increase in revenue from the U.S. Inspection and Heat Treating (IHT) and Mechanical Services (MS) segments, partially offset by lower revenue from the Canadian segments.
Operational Highlights and Challenges
TEAM’s strategic initiatives have yielded positive results, with the company reporting improved operating income of $7.93 million for the first nine months of 2024, compared to $4.41 million in the same period of the prior year. This improvement was driven by enhanced gross margins and continued cost discipline across the organization.
However, the company has faced certain challenges, particularly in its Canadian operations and select international regions, which have underperformed and impacted the overall financial results. To address these issues, TEAM has implemented a series of actions, including top-line growth initiatives and cost-structure improvements, which are expected to yield tangible benefits starting in the fourth quarter of 2024 and continuing into 2025.
Guidance and Outlook
For the full year of 2024, TEAM has revised its guidance, expecting total revenue to be in the range of $845 million to $860 million, with a gross margin between $220 million and $228 million, and adjusted EBITDA of $53 million to $55 million. The company remains focused on driving further margin expansion and cash flow growth, targeting an adjusted EBITDA margin of at least 10% in the coming years.
Looking ahead to 2025, TEAM anticipates continued operational and financial momentum, projecting low-to-mid single-digit revenue growth, improved performance from its Canadian operations, and meaningful progress towards its adjusted EBITDA margin goal. These initiatives, coupled with the company’s ongoing cost discipline, are expected to enhance shareholder value in the long run.
TEAM has been increasing its adjusted EBITDA every year since 2021. In the first nine months of 2024, TEAM generated nearly $40 million in adjusted EBITDA, a 21% improvement over the first nine months of 2023. The company’s goal has been to grow its adjusted EBITDA margins to 10% or more, and through the first nine months of 2024, they are over 6%, which is noted as an important step towards achieving this goal.
Risks and Challenges
While TEAM has made significant strides in strengthening its financial position and operational efficiency, the company continues to face certain risks and challenges that could impact its future performance. These include:
Regulatory Changes: Evolving regulations governing the company’s operations could result in unexpected costs and compliance challenges.
Competition and Pricing Pressure: TEAM operates in a highly competitive industry, where pricing pressure and the ability to maintain market share are crucial factors.
Talent Acquisition and Retention: The company’s success is heavily dependent on its ability to attract, develop, and retain skilled personnel, particularly in the technical and managerial roles.
Liquidity and Debt Obligations: TEAM’s ability to maintain sufficient liquidity and meet its debt obligations is critical to its long-term sustainability.
Financials
TEAM’s financial performance has shown signs of improvement, with a narrowing net loss and enhanced operating income for the first nine months of 2024. The company’s revenue, while slightly down year-over-year, remains substantial at $638.98 million. The gross margin has improved, contributing to the better operating income figures. TEAM’s focus on cost discipline and margin expansion strategies appears to be yielding positive results, as evidenced by the improved financial metrics.
Liquidity
TEAM’s liquidity position has strengthened, as indicated by the improved current and quick ratios. The current ratio of 1.80 and quick ratio of 1.57 suggest that the company has adequate resources to meet its short-term obligations. The reduction in the debt-to-equity ratio from 7.66 to 6.90 indicates progress in managing the company’s leverage, although it remains relatively high at 17.95. As of September 30, 2024, TEAM had $19.09 million in cash and cash equivalents, $4.20 million in restricted cash, and $28 million in available borrowing capacity under its various credit agreements. TEAM’s ability to maintain and further improve its liquidity will be crucial for its long-term financial stability and operational flexibility.
Segment Performance
Inspection and Heat Treating (IHT) Segment
The IHT segment provides a range of conventional and advanced non-destructive testing services primarily for the process, pipeline, and power sectors. This includes pipeline integrity management services and field heat treating services, 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. Additionally, IHT provides comprehensive non-destructive testing services and metallurgical and chemical processing services to the aerospace industry, covering a range of components including finished machined and in-service components. The IHT segment also offers advanced digital imaging services, including remote digital video imaging.
In the third quarter of 2024, the IHT segment generated $107.60 million in revenue, up 3.6% from the prior year quarter. This increase was primarily driven by a $6.70 million rise in U.S. revenue due to higher activity in nested and turnaround services, partially offset by a $3.00 million decrease in Canada operations revenue from lower nested and turnaround services. The IHT segment’s operating income increased by $3.45 million, or 53.8%, compared to the prior year quarter, mainly due to improved gross margins and lower costs in the U.S. operations.
For the first nine months of 2024, the IHT segment recorded $320.29 million in revenue, a slight decrease of 0.7% from the same period in 2023. This was primarily driven by a $10.50 million decline in call-out and turnaround activities in Canada and other international regions, partially offset by an $8.40 million increase in U.S. operations revenue. Operating income for the IHT segment increased by $9.82 million, or 55.5%, over the first nine months of 2023, due to improved gross margins and lower costs.
Mechanical Services (MS) Segment
The MS segment provides a range of solutions designed to serve customers’ unique needs during both the operational on-stream and off-line states of their assets. The on-stream services include the company’s range of standard to custom-engineered leak repair and composite solutions, emissions control and compliance, hot tapping and line stopping, and online valve insertion solutions, which are delivered while assets are in an operational condition to maximize customer production time. The off-line services, which are primarily delivered during asset shutdowns, include specialty maintenance, turnaround and outage services designed to minimize customer downtime, such as on-site field machining, bolted-joint integrity, vapor barrier plug testing, and valve management solutions.
In the third quarter of 2024, the MS segment generated $103.15 million in revenue, a slight increase of 0.3% compared to the prior year quarter. This was driven by a $2.30 million rise in U.S. operations revenue due to higher turnaround activity and valve services, partially offset by a $1.20 million decrease in Canada operations and a $0.80 million decrease in other international regions revenue. Operating income for the MS segment decreased by $2.02 million, or 31.2%, primarily due to lower revenue and project mix in the international regions and Canada operations.
For the first nine months of 2024, the MS segment reported $318.69 million in revenue, a decrease of 2.3% from the same period in 2023. This was mainly attributable to a $7.60 million decline in Canada operations due to projects from the 2023 period that did not repeat. Operating income for the MS segment decreased by $3.21 million, or 14.3%, over the first nine months of 2023, driven by the lower revenue in Canada and other international operations.
Conclusion
TEAM, Inc. has navigated through a challenging market environment, demonstrating its ability to adapt and execute a strategic roadmap focused on improving financial performance and enhancing shareholder value. While the company has faced certain operational and financial hurdles, its renewed focus on cost discipline, margin expansion, and targeted growth initiatives position it well for future success. The company’s two operating segments, IHT and MS, have shown mixed performance in the third quarter and first nine months of 2024, with IHT demonstrating growth in revenue and profitability, while MS faced some headwinds from lower activity in certain regions.
TEAM’s ability to navigate the market conditions and continue to provide value-added services to its diverse customer base across the energy, manufacturing, and infrastructure industries will be crucial to its future performance. The company’s revised guidance for 2024 and positive outlook for 2025, including expectations of low-to-mid single-digit revenue growth and improved performance from Canadian operations, suggest a cautiously optimistic stance. As TEAM continues to leverage its technical expertise and diversified service offerings, investors will closely monitor the company’s progress in achieving its long-term goals and enhancing its competitive position within the specialty industrial services landscape.
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