Team, Inc. (TISI)

Executive Summary / Key Takeaways

• Balance Sheet Rebirth: Team, Inc. has executed a dramatic capital structure overhaul in 2025, reducing its blended interest rate by over 100 basis points, extending maturities to 2030, and securing $75 million in preferred equity from Stelllex Capital, transforming a precarious liquidity position into $73.2 million of total liquidity as of November 2025.

• Margin Expansion in Action: The company's strategic pivot toward higher-margin work and relentless cost discipline is delivering tangible results, with IHT segment adjusted EBITDA margins expanding 160 basis points year-to-date to 13.1% and consolidated adjusted EBITDA growing 13% year-over-year despite modest revenue growth, demonstrating operational leverage.

• Integrated Service Moat: TISI's unique combination of Inspection and Heat-Treating (IHT) with Mechanical Services (MS) creates a one-stop solution that reduces customer downtime and enables cross-selling, providing a qualitative competitive advantage over pure-play inspection rivals like Mistras Group , though scale limitations remain a constraint against larger competitors.

• Execution Risk Remains: While the transformation is progressing, the company faces a $39 million litigation overhang from the Kelli Most case, persistent working capital challenges that consumed $38.4 million in cash year-to-date, and heavy exposure to cyclical energy markets that comprise approximately 70% of revenue, requiring flawless operational execution to sustain momentum.

• Valuation at an Inflection Point: Trading at $14.91 with an enterprise value of $404.55 million (9.2x TTM EBITDA), TISI trades at a premium to specialized peers like Mistras (8.5x EBITDA) but commands a premium to distressed competitors, reflecting the market's cautious optimism about the turnaround's durability and the company's ability to achieve its 10%+ EBITDA margin target.

Setting the Scene: The Specialist in Industrial Asset Integrity

Team, Inc., founded in 1973 and headquartered in Sugar Land, Texas, occupies a critical niche in the industrial services ecosystem. The company provides the essential but unglamorous work of keeping heavy industry assets running safely and efficiently through two integrated segments: Inspection and Heat-Treating (IHT) and Mechanical Services (MS). This isn't a story about revolutionary technology disrupting an industry—it's about operational excellence, financial discipline, and the strategic value of being a one-stop shop for asset integrity.

The IHT segment delivers conventional and advanced non-destructive testing , pipeline integrity management, and field heat-treating services primarily to process, pipeline, and power sectors. The MS segment provides leak repair, emissions control, hot tapping , and on-site field machining solutions that keep assets operational during turnarounds or unplanned outages. What makes this business model economically interesting is the synergy: IHT identifies problems while MS fixes them, often during the same customer engagement, creating a seamless value proposition that reduces customer downtime and captures more wallet share per project.

This integrated approach positions TISI differently than pure-play competitors. While Mistras Group focuses heavily on advanced NDT technologies and Oceaneering International dominates offshore subsea inspections, TISI's combination of inspection and immediate repair capabilities creates a stickier customer relationship. A refinery operator doesn't need to coordinate separate vendors for inspection and repair—TISI provides both, often while the facility remains operational. This operational integration translates into higher customer retention and the ability to command premium pricing for bundled services, though the company's smaller scale limits its bargaining power with the largest national oil companies.

The company's history explains its current positioning. After decades of steady growth, TISI faced a perfect storm in recent years: pandemic-related disruptions, a $222 million jury verdict in the Kelli Most litigation (later vacated in May 2024, but re-filed in March 2025), and balance sheet strain from prior acquisitions. These challenges forced a strategic reckoning that began in 2023 and accelerated through 2025, transforming the company from a financially distressed operator into a disciplined competitor focused on margin over market share.

The Transformation Journey: From Distressed to Disciplined

The most significant development for TISI investors isn't a new technology or massive contract—it's the comprehensive repair of the company's capital structure. In March 2025, management closed a refinancing transaction that lowered the blended interest rate by over 100 basis points and extended term loan maturities to 2030. This wasn't a minor adjustment; it was a lifeline that addressed all near-term maturities and reduced annual interest expense by an estimated $2-3 million based on the company's debt levels at the time.

The financial engineering continued in September 2025 with a $75 million private placement of preferred stock and warrants to Stelllex Capital Management. This transaction served multiple strategic purposes: it repaid approximately $67 million of debt, strengthened the balance sheet, and provided a delayed draw feature allowing up to an additional $30 million through September 2027. CFO Nelson Haight's comment that "our success since 2022 in improving our financial and operating performance helped make these transactions possible" reveals a critical insight: the company earned its way to better terms through operational improvement, not financial engineering alone.

Why does this matter? Because the cost of capital directly impacts competitive positioning. With debt-to-equity of 10.98 as of the latest TTM data, TISI still carries significant leverage, but the improved terms provide breathing room to invest in growth initiatives rather than service debt. The extended maturities eliminate refinancing risk through 2030, while the reduced interest margins free up cash flow for working capital and capital expenditures. This financial flexibility is essential for competing against better-capitalized rivals like Oceaneering and Fluor , who can fund larger projects and invest more heavily in technology.

The ABL credit facility amendment in September 2024, which increased commitments from $130 million to $150 million and extended maturity to October 2028, further demonstrates lenders' growing confidence. The facility's interest rate margin reduction to 0.38% per annum, effective January 2026, is contingent on EBITDA performance—aligning lender incentives with operational execution. This covenant structure motivates management to maintain discipline while providing additional liquidity for seasonal working capital demands, a critical feature in the cyclical industrial services sector.

Operational Turnaround: Margin Expansion Through Mix and Discipline

The capital structure repair provided the foundation, but the operational turnaround is what justifies investor confidence. TISI's strategy since 2023 has focused on three pillars: simplifying the business, expanding margins, and improving the balance sheet. The results are evident in the segment performance data.

The IHT segment has become a margin expansion engine. Year-to-date through Q3 2025, IHT revenue grew 9.4% to $350.4 million while adjusted EBITDA surged 24.5% to $46.0 million, driving margin expansion of 160 basis points to 13.1%. This outperformance stems from a deliberate shift toward higher-margin work. Management highlighted that revenue from higher-margin heat treating services grew nearly 26% year-over-year in Q2 2025, while the Cincinnati laboratory testing facility delivered 64% growth. These aren't random fluctuations—they're the result of strategic portfolio pruning and a focus on value over volume.

The MS segment tells a more nuanced story. While Q3 2025 revenue grew 7.8% to $111.2 million and adjusted EBITDA increased 12.6% to $10.2 million, year-to-date EBITDA declined 14.5% to $28.7 million due to international weakness. The segment's margin compression from 10.5% to 8.9% year-to-date reflects the challenge of fixed costs against variable demand, particularly in international markets where project timing creates "lumpiness" in revenue recognition, as CFO Haight noted in Q2.

Why this divergence matters: it reveals management's capital allocation discipline. Rather than chasing low-margin mechanical services revenue to boost top-line growth, the company is prioritizing inspection and heat-treating work that delivers superior returns. This mix shift is structural, not cyclical, and it positions TISI to achieve its target of at least 10% consolidated EBITDA margins—a level that would place it in the upper tier of industrial services providers.

The Canadian operations exemplify this turnaround. After years of underperformance, Canadian IHT revenue grew 8.9% in Q3 2025 and 31% in Q2, while Canadian MS revenue increased $3.4 million in Q3. CEO Keith Tucker noted "multiple quarters of growth in Canadian operations, indicating increasing traction from ongoing initiatives." This matters because it demonstrates management's ability to fix broken businesses, a critical skill for a company with TISI's geographic footprint. The $10 million annualized cost savings program launched in Q1 2025, targeting SG&A optimization and workforce utilization, is already bearing fruit, with adjusted SG&A expenses declining to 20.8% of revenue in Q3 2025 from 21.7% a year prior.

Competitive Positioning: Integrated Model vs. Specialized Rivals

TISI's competitive moat isn't based on proprietary technology alone—it's the integration of inspection and repair services that creates customer stickiness. This positioning becomes clear when comparing the company to its publicly traded peers.

Against Mistras Group (MG), TISI's integrated model offers end-to-end solutions while MG focuses primarily on advanced NDT and monitoring. MG's Q3 2025 gross margin of 33.9% exceeds TISI's 26.1%, reflecting its technology premium and aerospace diversification. However, TISI's ability to immediately repair identified defects captures additional revenue per customer engagement that MG must subcontract or forgo. This integration advantage is most valuable in turnaround scenarios where minimizing downtime is paramount, allowing TISI to capture premium pricing for bundled services.

Oceaneering International (OII) presents a different competitive dynamic. OII's 36% EBITDA margins in its offshore segments reflect the specialized nature of subsea robotics and the high barriers to entry in that market. TISI doesn't compete directly in offshore, but OII's scale and technological leadership in remote inspections highlight TISI's vulnerability in technology adoption. While TISI's Quest Integrity tools provide specialized pipeline assessments, the company lags in AI-driven predictive analytics, a gap that could become more problematic as digital transformation accelerates across the industrial sector.

Matrix Service Company (MTRX) offers the closest comparison in mechanical services, but with a construction-oriented approach that generates lower margins (9.1% gross margin in its latest quarter). TISI's focus on specialized repairs rather than large-scale construction projects yields higher margins but limits revenue scale. MTRX's 28% revenue growth in its latest quarter outpaces TISI's 5-7% guidance, reflecting its exposure to infrastructure build-out rather than maintenance—different markets with different cyclicality.

Fluor Corporation (FLR), through its Stork subsidiary, competes in integrated maintenance but at a scale that dwarfs TISI. FLR's $3.4 billion quarterly revenue and global EPC capabilities give it advantages in securing master service agreements with supermajors. However, TISI's focused, asset-specific approach enables greater agility and lower overhead, potentially yielding higher margins on smaller projects that FLR might find uneconomical.

The key takeaway: TISI's integrated model creates a defensible niche in onshore asset integrity, but its smaller scale and technology gaps limit its ability to compete for the largest contracts or adopt cutting-edge digital tools as quickly as better-capitalized rivals. This positioning supports steady, modest growth (5% revenue guidance) with improving margins, but not the explosive expansion that drives premium valuations.

Financial Performance: Evidence of Strategy Working

The financial results through Q3 2025 provide compelling evidence that TISI's strategy is delivering. Consolidated revenue grew 6.7% year-to-date to $671.7 million, while adjusted EBITDA increased 4.5% to $74.7 million. More importantly, the quality of earnings improved dramatically. Excluding non-core items, operating income surged 80.7% to $17.9 million for the nine-month period, demonstrating the operational leverage inherent in the business model.

Cash flow generation remains the primary concern. Net cash used in operating activities was $28.1 million year-to-date, a $29.2 million deterioration from the prior year period. CFO Haight attributed this to "non-recurring refinancing and transaction fees and related expenses as well as negative working capital impacts specifically around accounts receivable and payables." The working capital usage of $38.4 million represents a $23.9 million increase in cash consumption compared to 2024, reflecting both business growth and collection timing issues.

This matters because sustainable free cash flow generation is the ultimate validation of any turnaround. While management expects working capital trends to reverse in Q4 2025, investors must monitor whether this occurs. The company's ability to generate cash will determine its capacity for debt paydown, which currently stands at $302.8 million as of September 30, 2025, down from $325.1 million at year-end 2024. With net debt-to-EBITDA of approximately 4.0x (using TTM adjusted EBITDA of ~$75 million), TISI remains leveraged but on a improving trajectory.

The interest expense reduction from lower rates is already visible, with net interest expense declining $0.6 million year-to-date. This savings will accelerate in 2026 as the full benefit of the March 2025 refinancing flows through. Combined with the $10 million cost savings program, these initiatives should drive 200-300 basis points of EBITDA margin expansion if revenue holds steady, putting the 10% margin target within reach by 2026.

Outlook, Guidance, and Execution Risk

Management's guidance for 2025—approximately 5% revenue growth and 13% adjusted EBITDA growth—reflects confidence in the operational leverage of the business model. CEO Tucker stated, "We see top-line growth over the prior year across both segments and improved adjusted EBITDA levels for the second half of 2025," with expectations that "$6 million of those savings [from the $10 million program] flow through in the second half of 2025."

This guidance implies a significant acceleration in adjusted EBITDA growth for Q4 2025, which would mark the strongest quarterly performance in recent history. Achieving this requires flawless execution on three fronts: realizing the remaining cost savings, maintaining the favorable revenue mix toward higher-margin IHT work, and reversing the working capital outflows that have plagued the year-to-date results.

The execution risk is material. The Kelli Most litigation, with $39 million accrued as of September 2025, represents a potential cash outflow that could strain liquidity. While the company maintains insurance coverage and has successfully vacated the original $222 million verdict, the re-filed lawsuit in Kansas District Court creates uncertainty. Any adverse development could derail the turnaround narrative and pressure the stock.

Energy sector concentration remains a structural vulnerability. Approximately 70% of revenue ties to oil & gas, refining, and petrochemical markets that are cyclical and facing long-term transition risks. While management is "monitoring U.S. tariff policy and have identified opportunities to improve our supply chain," the company's exposure to commodity price volatility and refinery utilization rates is inherent to its business model. A downturn in energy capex could quickly reverse the margin expansion story.

The Canadian operations improvement, while encouraging, must be sustained across multiple quarters to prove it's not just a cyclical bounce. Similarly, the working capital normalization promised for Q4 2025 needs to materialize to validate management's assertion that free cash flow generation will improve.

Valuation Context: Pricing in Execution

At $14.91 per share, Team, Inc. trades at an enterprise value of $404.55 million, representing 9.2x TTM adjusted EBITDA. This multiple sits at a premium to Mistras Group's 8.5x EBITDA, despite TISI's improving margins, reflecting the market's caution about the company's execution history and leverage.

The valuation metrics reveal a company in transition. The negative price-to-book ratio of -3.84 and return on equity of -210.92% are artifacts of prior losses and balance sheet restructuring, not indicative of future earnings power. More relevant are the enterprise value-to-revenue ratio of 0.46x and the gross margin of 26.07%, which compare favorably to Matrix Service's 0.21x EV/revenue and 5.65% gross margin, highlighting TISI's superior operational efficiency.

The company's market capitalization of $68.18 million represents just 0.08x TTM revenue, a multiple that suggests deep value if the turnaround sustains. However, the high debt-to-equity ratio of 10.98 and net debt position constrain equity value until leverage is reduced. The $30 million delayed draw commitment from Stelllex, available through September 2027, provides a backstop but also potential dilution through warrant exercises.

Peer comparisons underscore the opportunity and risk. Mistras trades at 0.54x revenue with 33.9% gross margins, reflecting its technology premium and aerospace diversification. Oceaneering commands 0.92x revenue with 20.4% gross margins, benefiting from offshore market recovery. TISI's valuation implies the market expects margin expansion but remains skeptical about growth sustainability and execution consistency.

Conclusion: A Credible Turnaround with Measured Upside

Team, Inc. has engineered a remarkable transformation from a financially distressed industrial services provider to a disciplined operator with improving margins, reduced cost of capital, and a strengthened balance sheet. The integrated IHT and MS business model creates a defensible niche in onshore asset integrity, while the $10 million cost savings program and focus on higher-margin work provide a clear path to the targeted 10%+ EBITDA margin.

The central thesis hinges on execution. Can management deliver the promised Q4 working capital reversal? Will the Canadian operations sustain their improvement? Can the company navigate the Kelli Most litigation without material cash impact? And perhaps most importantly, can TISI diversify its customer base away from cyclical energy markets while maintaining its operational efficiency?

The stock's valuation at 9.2x EBITDA and 0.46x revenue appears reasonable for a company demonstrating operational leverage, but it doesn't price in significant multiple expansion. Upside comes from sustained margin improvement and debt reduction, which would drive equity value as leverage normalizes. Downside risk stems from execution missteps, litigation setbacks, or energy sector downturns that could quickly reverse the progress made.

For investors, the key variables to monitor are free cash flow generation in Q4 2025, the trajectory of Canadian operations, and any developments in the Most litigation. If TISI can deliver on these fronts while maintaining its cost discipline, the company will have earned its place as a viable industrial services compounder. If not, the turnaround story risks becoming another cautionary tale in the volatile world of asset-heavy services.