Team (TISI) Q2 2025 Earnings Call Transcript

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Date

Wednesday, Aug. 13, 2025 at 11 a.m. ET

Call participants

• President & Chief Executive Officer — Keith D. Tucker
• Executive Vice President & Chief Financial Officer — Nelson M. Haight

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Takeaways

• Revenue growth -- 8.5% year-over-year increase, totaling nearly $20 million, with consolidated gross margin up 7.1%.
• Adjusted EBITDA -- Rose 12.4% year over year to $24.5 million, with margin up 40 basis points to 9.9% of revenue.
• Inspection and Heat Treating segment -- Revenue advanced 15%, driven by a 13% increase in the U.S. and a 31% jump in Canada.
• IHT segment margin -- Adjusted EBITDA margin expanded by 118 basis points, supported by a 26% uplift in higher-margin heat treating revenues.
• Mechanical Services segment -- U.S. revenue grew 7%, offsetting international softness and driving a total 2% segment increase.
• SG&A reduction -- Adjusted SG&A expense, as a percentage of revenue, declined to 18.9% from 19.8% in the prior-year quarter.
• Transformation actions -- Around $10 million in annualized cost savings targeted, with about $6 million expected to be realized in the second half of 2025.
• Liquidity position -- $49 million in liquidity at quarter-end, composed of $16.6 million in cash and $32.7 million in undrawn credit availability.
• Adjusted net loss -- Narrowed to $900,000 for the quarter, improving $1.1 million year over year.
• Refinancing transaction -- Completed in March 2025, lowered blended interest rate by over 100 basis points and pushed term loan maturities to 2030.
• Leadership appointment -- Dan Dolson named Executive Vice President, Chief Strategy & Transformation Officer, to drive transformation efforts.
• Full-year 2025 outlook -- Management reiterated expectation for at least 15% adjusted EBITDA growth and progress toward a 10%+ adjusted EBITDA margin.

Summary

Team (NYSE:TISI) reported an improved financial profile marked by year-over-year revenue and margin expansion, along with advancements in balance sheet flexibility. The company strengthened its capital structure by refinancing debt, lowering interest costs, and extending maturities, creating headroom for operational execution. A new executive hire underscores an increased commitment to transformation and cost control initiatives expected to drive further profit improvement.

• Leadership stated continued monitoring of U.S. tariff policy with ongoing review of supply chain and sourcing strategies to mitigate any potential material cost pressures.
• Management highlighted a "healthier" balance sheet, margin gains, and a multi-year track record of annual adjusted EBITDA growth since 2021.
• Team anticipates continued top-line and margin gains in the second half of 2025, with full-year adjusted EBITDA targeted to increase at least 15%.
• Operational focus remains on workforce utilization, strict cost discipline, and expansion of higher-margin service offerings to sustain improvements.

Industry glossary

• Non-destructive evaluation (NDE): Testing and inspection techniques that assess the properties of a material, component, or system without causing damage.
• Phased array ultrasonic testing: An advanced ultrasonic method for material inspection, enabling detection and sizing of flaws in complex structures.
• Hot tapping: The process of connecting to a pipeline or vessel while it remains in service, avoiding the need for shutdowns.

Full Conference Call Transcript

Keith D. Tucker: Thank you, Nelson. Welcome, everyone, and thank you for joining us to review our second quarter operational and financial highlights. We delivered strong results in the second quarter as we saw significant growth in revenue, gross margin and adjusted EBITDA. Revenue grew 8.5% or almost $20 million year-over-year, with gross margin increasing by 7.1% and adjusted EBITDA up by 12.4%. As you can see, the growth in our adjusted EBITDA outpaced our top line growth which is a testament to the solid progress we continue to make in our ongoing cost and margin improvement program.

Drilling down into the segments, we saw 15% overall revenue growth in Inspection and Heat Treating, driven by an increase of over 13% in the U.S. We also saw our Canada operations deliver year-over-year revenue growth of 31%, demonstrating the mounting traction of our ongoing initiatives to strengthen commercial and financial performance of this business. This performance, together with a nearly 26% year-over-year revenue increase in our higher-margin heat trading revenue helped to drive 25% growth in IHT segment adjusted EBITDA and a 118 basis point improvement in our IHT segment adjusted EBITDA margin.

In our Mechanical Services segment, our U.S. operations led the way with a year-over-year increase in revenue up 7%, offsetting short-term revenue weakness in our international business and helping to drive the 2% growth we saw in total MS revenue. Our adjusted EBITDA for the second quarter increased by 12.4% year-over-year to $24.5 million, with adjusted EBITDA margin up 40 basis points to 9.9% of our consolidated revenue. We continue to see benefits from our cost discipline in the second quarter, lowering our adjusted selling, general and administrative expense which excludes expenses not representative of Team's ongoing operations such as nonrecurring fees and noncash expenses to 18.9% of consolidated revenue versus 19.8% in the second quarter of 2024.

We remain focused on driving revenue growth, strict cost discipline and improving operational execution. In the second quarter of 2025, we completed a series of actions targeting further improvement in our SG&A and other costs that are expected to yield annualized cost savings of around $10 million. We expect to see about $6 million of those savings flow through in the second half of 2025. In the second quarter, we also began to see some results from our targeted actions to improve the financial and commercial performance of our Canadian operations, particularly in the top line, and we expect to see continued year-over- year improvement in the second half of 2025.

A few weeks ago, we announced the appointment of Dan Dolson as Executive Vice President, Chief Strategy & Transformation Officer to lead our transformation efforts moving forward. We believe dedicated leadership overseeing our ongoing transformation program will accelerate revenue growth and our ability to capture additional cost savings. Our management team is committed to achieving the goals of our transformation plan and we have already identified additional opportunities to improve margin and efficiency that we will pursue in the second half of 2025. We believe all of these ongoing actions will help lead to top line growth and further improvements to our cost structure and margins.

While we are beginning to see the results from these actions in our 2025 results, we expect to see the full year impact in 2026. Looking ahead, we continue to monitor U.S. tariff policy and have identified opportunities to improve our supply chain and material sourcing to help mitigate any potential cost pressure. We believe our diversified portfolio of service offerings across multiple industries and our geographic footprint positions us to better navigate recent macroeconomic uncertainty around tariff policies. We see top line growth over the prior year across both segments and improved adjusted EBITDA levels for the second half of 2025.

Our management team is focused on the things that we can control, which are continued cost discipline and execution on our commercial initiatives and we remain committed to delivering top line growth for the full year and at least 15% year-over-year growth in adjusted EBITDA. With that, I'd like to turn it over to Nelson to discuss our financial accomplishments.

Nelson M. Haight: Thank you, Keith. Before I go into our second quarter financial results, I would like to discuss in more detail the recent actions we've taken to strengthen our balance sheet. As we discussed on the last call, in March 2025, we closed a refinancing transaction that lowered our blended interest rate by over 100 basis points, simplified our capital structure and extended our term loan maturities to 2030. The completion of this transaction addressed all of our near-term maturities and lowered our cost of capital while also providing the company financial flexibility as our performance continues to improve.

At June 30, 2025, we had increased our total liquidity to $49 million, consisting of consolidated cash of $16.6 million and $32.7 million of undrawn availability under various credit facilities. Turning now to our second quarter financial results. Despite a bit of lumpiness in our revenue recognition in certain international locations on our mechanical services side, our overall revenue was up 8.5% over the prior year period generating a $4.5 million increase in our gross margin, which stood at 27.5% for the quarter. We experienced a slight increase in our adjusted selling, general and administrative costs which exclude expenses not representative of our ongoing operations and noncash amounts.

But when those expenses are expressed as a percentage of consolidated revenue, we saw the benefits from our improving cost leverage with a 90 basis point year-over-year reduction to 18.9% of consolidated revenue. Our adjusted net loss for the quarter was down to $900,000, an improvement of $1.1 million compared to the second quarter of 2024. We grew second quarter adjusted EBITDA to $24.5 million and have generated nearly $30 million in adjusted EBITDA through the first half of 2025, outpacing the first half of 2024 by about 5%.

Since 2021, we have increased our adjusted EBITDA every year, and we have set a goal of at least 15% growth in adjusted EBITDA for full year 2025, and we believe that our continued focus on expanding our margins through cost discipline and growing higher-margin work will help us accomplish this goal with even stronger year-over-year results in the second half of the year. As Keith noted, we have continued to build up our strategic road map and are targeting further improvements in SG&A and other costs, workforce utilization in the top line.

We expect this next phase of our ongoing program to generate sustainable improvements to margins and cash flow and believe that dedicated leadership to these initiatives will help sharpen our focus and allow us to achieve these goals faster and more efficiently. Over the last 3-plus years, we've made significant progress in improving the financial position and operating performance of the company. The balance sheet is healthier, margins have improved and the top line is growing while the company continues to safely deliver best-in-class technical solutions to our customers.

With our employees' continued focus and dedication, I'm confident in our ability to build off our progress to date with further improvements in our overall financial and operating performance that will ultimately lead to growth and shareholder value. With that, let me turn it back over to Keith for some closing remarks.

Keith D. Tucker: Thanks, Nelson. We continue to make progress against our strategic roadmap. And over the past 2 years, we have worked to streamline our business, expand our margins, simplify our capital structure and improve our balance sheet. Looking ahead, we expect to continue seeing strong operational and financial results in the second half of 2025. For the full year, we expect to see year-over-year growth in the top line, continued improved performance from our Canadian and other international operations, at least 15% year-over- year growth in adjusted EBITDA and further meaningful progress towards our adjusted EBITDA target margin of at least 10%, all of which we believe will enhance shareholder value.

Our success to date is a direct result of the hard work of all our employees at team. I'm very proud of our safety culture and our focus on continuous improvement because at the end of the day, our people are our most vital asset, and no job is too important not to be done safely. In closing, I remain confident about our future because I am a firm believer in our capabilities, talented employees and our leadership team. We have delivered improving results over the past 3 years, and we remain committed to continuous improvement in margin, cost discipline and cash flow generation.

I believe that we are well positioned to sustainably and profitably grow Team well into the future. Thank you for joining us today and for your continued interest in Team.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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