Executive Summary / Key Takeaways

• Team, Inc. is executing a multi-year strategic turnaround focused on simplifying the business, improving the capital structure, expanding margins, and driving growth in its specialty industrial services segments (IHT and MS).
• A significant milestone was achieved with the successful refinancing in March 2025, which simplified the debt structure, extended maturities to 2030, and lowered the blended interest rate, enhancing financial flexibility.
• First quarter 2025 results showed mixed segment performance, with strong growth in the higher-margin Inspection and Heat Treating (IHT) segment offsetting a decline in Mechanical Services (MS) due to project timing and weather impacts, resulting in flat overall revenue year-over-year.
• Ongoing cost discipline and operational efficiency initiatives, including a new phase targeting approximately $10 million in annualized savings, are contributing to margin expansion and are expected to drive future profitability improvements.
• Management is guiding for full-year 2025 year-over-year revenue growth and at least 15% year-over-year growth in adjusted EBITDA, signaling confidence in continued operational execution and progress towards a targeted adjusted EBITDA margin of 10% or more.

Setting the Scene: A Century of Service and Strategic Renewal

Team, Inc. is a global provider of specialty industrial services, offering a comprehensive suite of mechanical, heat-treating, and inspection solutions critical for ensuring the safety, reliability, and operational efficiency of customer assets across heavy industries. Founded in 1973, the company boasts a history spanning over a century, marked by a culture of innovation that has introduced pioneering techniques and technologies to the industry, such as the SmartStop technology for hot tapping and line intervention applications. This proprietary system enhances safety and productivity by utilizing a self-energizing dual seal within a single fitting, reducing required pipe alterations.

The company operates through two primary segments: Inspection and Heat Treating (IHT) and Mechanical Services (MS). IHT provides conventional and advanced non-destructive testing, pipeline integrity management, and field heat treating, driven by stringent regulations and aging infrastructure. MS offers onstream and off-line solutions, including leak repair, emissions control, hot tapping, and field machining, designed to minimize downtime and maximize production. Team's integrated service model, combining inspection, engineering assessment, and mechanical repair, allows it to address customer needs comprehensively, from standard services to advanced asset integrity management. Services are delivered across distinct demand profiles: turnaround/project, call-out, and nested/run-and-maintain, providing operational flexibility and recurring revenue streams.

Serving a diverse array of industries including Energy (refining, power, renewables, nuclear, offshore, LNG), Manufacturing, Midstream, Infrastructure, and Aerospace/Defense, Team's broad market exposure helps mitigate risks associated with downturns in any single sector. However, around 2022, the company faced significant challenges, including market share loss, customer consolidation pressure, and internal structural complexities, exacerbated by global economic factors and the pandemic. In response, a strategic roadmap was initiated, focused on stabilization and refocusing the business. This involved streamlining operations, strengthening leadership, and divesting non-core assets like the Quest business for $279 million, which provided crucial capital to pay down $225 million in debt and enhance financial flexibility. The current phase emphasizes margin expansion and profitable growth through operational efficiency and targeted commercial initiatives.

Technological Differentiation and Competitive Positioning

Team's competitive standing is shaped by its specialized service offerings, global footprint, and technological capabilities, operating within a landscape dominated by larger, more diversified players like Baker Hughes (BKR), Halliburton (HAL), Schlumberger (SLB), and Emerson Electric (EMR). While these competitors offer broader integrated solutions and possess greater scale and financial resources, Team differentiates itself through deep expertise in specific niche services and a strong localized presence.

Team's core technologies, such as its advanced non-destructive testing methods and proprietary mechanical solutions like SmartStop, provide tangible operational benefits. For instance, while specific quantifiable metrics comparing all technologies directly to competitors are not detailed, the company highlights that its Quest Integrity tools for pipeline management can offer better detection accuracy in certain applications compared to broader industry standards. The strategic intent behind ongoing technological development is to enhance the efficiency and effectiveness of its services, aiming to improve performance metrics and maintain a competitive edge in specialized areas.

Compared to larger rivals, Team's smaller scale can result in higher operating costs, potentially impacting margins. Competitors like SLB and EMR, with their focus on digital and automation technologies, often offer faster data processing or greater overall system efficiency in areas like emissions control or predictive maintenance. For example, some competitor digital inspection tools are noted as providing significantly faster data analysis. Team's strategy to counter these disadvantages involves leveraging its extensive global network of over 220 locations to provide rapid, localized response and build strong customer relationships, which can translate into higher customer loyalty and recurring revenue, potentially boosting margins in regional markets.

The company is also actively pursuing expansion into attractive adjacent markets like aerospace and renewable energy, where its specialized inspection and heat treating capabilities are valuable. While competitors' breadth of offerings and intellectual property could pose limitations, Team's targeted commercial initiatives aim to accelerate growth in these areas by focusing on specific, high-margin opportunities. The competitive landscape is dynamic, with ongoing technological advancements, particularly in AI and automation, favoring larger players with significant R&D budgets. Team's ability to maintain and grow its market share will depend on its continued focus on operational execution, cost discipline, and strategic investment in technology and service differentiation within its chosen niches.

Recent Performance Reflecting Strategic Progress

Team's first quarter 2025 results provided a snapshot of the company's performance amidst its strategic transformation and typical seasonal patterns. Total revenues were $198.7 million for the three months ended March 31, 2025, essentially flat compared to $199.6 million in the prior year period. This flat top-line performance was a result of mixed results across its operating segments.

The Inspection and Heat Treating (IHT) segment demonstrated strong performance, with revenues increasing by 6.8% year-over-year to $106.2 million. This growth was primarily driven by increased activity in U.S. operations, including higher turnaround and capital projects, and notable strength from the Aerospace facility. The segment's focus on higher-margin work, such as heat treating services (up nearly 22% year-over-year) and laboratory testing and inspection services (up 64% from the Cincinnati facility), contributed to a significant 39% increase in adjusted EBITDA for the segment, reaching $11.6 million.

Conversely, the Mechanical Services (MS) segment experienced a revenue decline of 7.7% year-over-year, totaling $92.4 million. This decrease was mainly attributed to lower turnaround activities and callout projects in the U.S. and international regions, with some revenue shifting to future periods. The segment's adjusted EBITDA decreased significantly to $3.5 million from $9.1 million in the prior year period.

Consolidated adjusted EBITDA for the first quarter of 2025 was $5.3 million, down from $6.5 million in the prior year period. The reported net loss widened to $29.7 million, or $6.61 per share, compared to a net loss of $17.2 million, or $3.89 per share, in the first quarter of 2024. This wider net loss was significantly impacted by a non-cash loss on debt extinguishment of $11.9 million related to the March 2025 refinancing. Excluding non-core expenses, the operating loss showed an improvement year-over-year, reflecting ongoing cost discipline. Selling, general and administrative expenses, on an adjusted basis, represented 22.7% of consolidated revenue, a slight improvement from the prior year.

Strengthening the Balance Sheet and Liquidity

A pivotal development in the first quarter of 2025 was the successful completion of comprehensive debt refinancing transactions on March 12, 2025. This initiative was a core component of the company's strategic roadmap and was enabled by the tangible improvements in operating performance and cash flow generation achieved over the preceding two years. The refinancing significantly simplified the capital structure, lowered the blended interest rate by more than 100 basis points, and extended the term loan maturities out to 2030, addressing all near-term maturities.

The transaction involved entering into a new First Lien Term Loan Credit Agreement, consisting of a funded $175 million term loan and a $50 million delayed draw term loan, and a Second Amended and Restated Second Lien Term Loan Credit Agreement, comprising a $97.4 million term loan and a $10 million delayed draw term loan. Proceeds from the initial First Lien Term Loans were utilized to repay approximately $158 million of outstanding debt under prior agreements, including the Corre Delayed Draw Term Loan, MERE Loans, and a portion of the Corre Uptiered Loan. The existing ABL Credit Agreement was also amended to align with the new debt structure.

As of March 31, 2025, the company reported total debt and finance lease obligations of $353.6 million. Importantly, management confirmed compliance with all debt covenants as of the quarter end. The refinancing has provided enhanced financial flexibility.

As of May 8, 2025, total liquidity stood at $23.8 million, comprising unrestricted cash, restricted cash, and undrawn availability under credit facilities. This included approximately $15.2 million of undrawn availability under various credit facilities as of that date.

While net cash used in operating activities was $28.7 million for the three months ended March 31, 2025, compared to net cash provided of $1.9 million in the prior year period, this was primarily driven by negative working capital impacts, including an increase in accounts receivable and lower accrued liabilities and accounts payable, which can fluctuate based on project timing and collections. Net cash provided by financing activities was $11.2 million, reflecting the net impact of the refinancing transactions.

The company also maintains off-balance sheet arrangements, including a Substitute Insurance Reimbursement Facility providing up to approximately $19 million in letters of credit.

Strategic Execution and Outlook

Building on the foundation laid over the past two years, Team is now focused on driving profitable growth and achieving its financial targets. A key element of this phase is continued strict cost discipline and improving operational execution. A new series of actions targeting further cost optimization and improved workforce utilization was launched in the first quarter of 2025, expected to yield annualized cost savings of around $10 million. Steps are also being implemented to improve the performance of Canadian operations, which experienced softness in recent periods, through a mix of top-line growth initiatives and cost structure improvements.

The company is seeing traction from its commercial initiatives, notably achieving nearly 15% revenue growth from midstream end markets in the first quarter of 2025. Management believes its diversified portfolio across multiple industries and geographic footprint positions it well to navigate macroeconomic uncertainties.

Looking ahead, management is confident in the company's trajectory. They expect to see increases in year-over-year activity for the full year 2025. Specifically, they anticipate second quarter top-line growth over the prior year across both segments and improved adjusted EBITDA levels. For the full year 2025, the company is committed to delivering year-over-year revenue growth and targeting at least 15% year-over-year growth in adjusted EBITDA. This guidance is underpinned by expectations for continued operational improvements, cost discipline, and enhanced performance from Canadian operations. Management is also targeting further meaningful progress towards achieving an adjusted EBITDA margin of at least 10% in the near future, building on the 6.4% margin achieved in 2024.

Risks and Challenges

Despite the strategic progress and positive outlook, Team faces inherent risks and challenges. The ability to generate sufficient cash from operations and maintain compliance with debt covenants remains critical, although the recent refinancing has improved the maturity profile. The company is exposed to negative market conditions, including inflationary pressures on operating costs, potential impacts from tariffs, and broader economic uncertainties, which can affect customer demand and project timing. Delays in major projects and seasonal variations, including those influenced by weather, can lead to unpredictable fluctuations in financial results.

Competition is intense, with larger, more technologically advanced players potentially limiting Team's ability to expand into certain new markets. The company's significant debt and leverage, while improved by the refinancing, could still impact future financing options and the ability to manage interest rate increases. The risk of non-payment or delays in payment from customers is also a factor.

Legal proceedings, such as the Kelli Most litigation, pose potential liabilities, although the company has accrued for this claim and anticipates insurance coverage will mitigate the financial impact beyond the deductible. An accrued liability related to pandemic-related government subsidies also represents an uninsured cost. The successful execution of strategic initiatives, including cost savings and improvements in Canadian operations, is not guaranteed and depends on various operational factors.

Conclusion

Team, Inc. is in the midst of a significant strategic turnaround, marked by tangible progress in simplifying its business, strengthening its balance sheet, and improving operational efficiency. The successful refinancing in March 2025 stands as a testament to the improvements achieved over the past two years, providing a more stable financial foundation and enhanced flexibility to pursue growth initiatives. While the first quarter of 2025 presented mixed results influenced by seasonality and project timing, the underlying trends in the higher-margin IHT segment and the focus on cost discipline underscore the traction gained from the strategic roadmap.

Management's outlook for full-year 2025, projecting revenue growth and at least 15% adjusted EBITDA growth, signals confidence in the continued execution of operational improvements and commercial initiatives. The pursuit of a double-digit adjusted EBITDA margin highlights the potential for further profitability expansion. Despite facing competitive pressures from larger rivals and inherent industry risks, Team's specialized expertise, global footprint, and commitment to innovation position it to capitalize on opportunities in core and adjacent markets. For investors, the story is one of a company actively reshaping its future, with the success of ongoing cost optimization and growth initiatives being key factors to monitor as it strives to unlock value and achieve its stated financial targets.