Team (TISI) Q1 2025 Earnings Call Transcript

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Date

Tuesday, May 13, 2025 at 11 a.m. ET

Call participants

• President and Chief Executive Officer — Keith Tucker
• Chief Financial Officer — Nelson Haight

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Takeaways

• Capital structure refinancing -- Management closed a refinancing in March 2025 that lowered the blended interest rate by more than 100 basis points and extended term loan maturities to 2030.
• Term loans -- The new first-lien term loan facility includes a $175 million funded term loan maturing in 2030 and a $50 million delayed draw term loan, subject to conditions.
• Debt repayment -- $158 million of outstanding debt was repaid, including delayed draw term loans, equipment and real estate loans under the ABL facility, and a portion of the previous senior secured term loan; the remaining prior term loan balance converted to a $97.4 million second-lien term loan maturing in 2030.
• Revenue -- Revenue was essentially flat year over year, with a 6.8% increase in the Inspection & Heat Treating segment and an 8.8% increase in U.S. core operations for IHT; midstream end-market revenues grew nearly 15%.
• Segment performance -- Mechanical Services segment saw revenue delays and lower callouts, shifting activity and offsetting gains in IHT.
• Adjusted EBITDA -- Adjusted EBITDA was $5.3 million; Inspection & Heat Treating segment posted a 39% year-over-year improvement, driven by nearly 22% growth in higher-margin heat treating services and 64% growth from Cincinnati laboratory services.
• Gross margin -- Gross margin stood at 23.8%.
• SG&A expenses -- Selling, general, and administrative expenses fell by about $2 million compared to the prior year, and adjusted SG&A expenses accounted for 22.7% of consolidated revenue.
• Adjusted net loss -- Adjusted net loss was $14.9 million and flat compared to the prior year.
• Cost savings actions -- New actions launched are expected to contribute annualized cost savings of approximately $10 million, with full-year impact expected in 2026.
• Canadian operations -- Steps have been implemented to improve performance through both growth initiatives and cost structure refinement.
• Management EBITDA guidance -- Management expects at least 15% year-over-year growth in adjusted EBITDA for the full year and is targeting an adjusted EBITDA margin of at least 10%.
• Tariff policy monitoring -- Management is closely watching tariff policy impacts, citing strong activity levels at the start of the second quarter and expecting top-line and adjusted EBITDA growth across both segments in that period.

Summary

Team (NYSE:TISI) has restructured its debt, reducing interest costs and extending maturities through 2030, immediately improving liquidity and financial flexibility. The Inspection & Heat Treating segment delivered notable revenue and profit expansion, while cost discipline continued through reductions in selling, general, and administrative expenses and rollout of additional cost-saving measures. Management highlighted a mix of ongoing efficiency programs and commercial initiatives aimed at driving margin expansion and full-year top-line growth despite operational delays in other segments. Future guidance calls for double-digit adjusted EBITDA growth and continued improvement across international operations, particularly Canada.

• Leadership confirmed the company has increased adjusted EBITDA annually since 2021, projecting continued progression.
• The Cincinnati, Ohio lab’s 64% revenue growth was singled out as a high-margin driver within the segment.
• Annualized cost reduction efforts are expected to materially benefit both cash flow and operating margins starting in 2025, with full impact next year.
• While management is monitoring tariffs and macro uncertainty, stated “diversified portfolio” strength underpins confidence in navigating potential headwinds.

Industry glossary

• ABL credit facility: An asset-based lending credit line, secured by company assets, often tied to borrowing base calculations.
• Term loan: A debt instrument generally with a fixed repayment schedule and set maturity, frequently used in refinancing transactions to consolidate other borrowings.
• Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, excluding expenses deemed non-representative of ongoing operations.

Full Conference Call Transcript

Keith Tucker: Thank you, Nelson. Welcome, everyone, and thank you for joining us to review our first quarter of 2025 operational and financial highlights. During the first quarter of 2025, we continue to make progress against our strategic roadmap designed to better position Team for success and improve financial performance. Over the past two years, we have worked to simplify our business, expand our margins and address our capital structure and balance sheet. Our success to date on these initiatives helped Team to well-positioned to grow the top-line and market share.

The tangible improvements we have delivered in operating performance and cash flow generating over the past two years were key to completing the refinancing we announced in March 2025, which simplified our capital structure, lowered our blended interest rate by more than 100 basis points and extended our term loan maturities out to 2030. Nelson will go into more detail about this, but I believe the hard work from all of our employees at Team has helped to make our success possible. Turning to the first quarter of 2025. We continued to deliver solid results. We made significant progress against one of our core commercial initiatives, growing revenue from midstream end markets by nearly 15% in the quarter.

Our Inspection & Heat Treating segment delivered strong top-line growth with revenue up 6.8% over the prior year and up 8.8% in our core U.S. operations. In our Mechanical Service segment, lower callout revenue and delays in project and turnaround activity shifted revenue into future periods, which offset the growth in our IHT segment. Overall, revenues were essentially flat year-over-year, but I want to remind you that, our work is seasonal, and while winter is usually our slowest time, we also experienced negative impacts to the top-line from adverse weather in January that adversely impacted our customers and our activity levels. Having said that, we expect to see increases in year-over-year activity for the full year 2025.

We delivered adjusted EBITDA for the first quarter of $5.3 million. Notably, our Inspection & Heat Treating segment generated a 39% year-over-year improvement in adjusted EBITDA, driven by year-over-year revenue growth of nearly 22% in our higher margin heat treating services and 64% from our laboratory testing and inspection services facility in Cincinnati, Ohio. We continue to see benefits from our cost discipline in the first quarter with our selling, general and administrative expense lower by about $2 million versus the prior year period. We remain focused on driving revenue growth, strict cost discipline and improving operational execution.

As previously discussed, in the first quarter, we kicked off a series of actions targeting further improvement in costs and operating efficiency, that are expected to yield annualized cost savings of around $10 million. In addition, we have implemented steps to improve the performance of our Canadian operations. These action are mix of top-line growth initiative and improvements to our cost structure and margin. We expect to begin to see the results from these actions in our 2025 results with the full year impact realized in 2026.

Looking ahead, while we continue to closely monitor the potential impact of tariff policies and related effect on our end markets, we've experienced strong activity levels to start the second quarter and expect second quarter top-line growth over the prior year, across both segments and improved adjusted EBITDA levels. 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. 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 would like to turn it over to Nelson to discuss our financial accomplishments.

Nelson Haight: Thank you, Keith. Before I go into our first quarter results, I would like to discuss in more detail the recent actions we've taken to strengthen our balance sheet. As Keith mentioned in March, we closed the refinancing transaction that lowered our blended interest rate by over 100 basis points, simplified our capital structure and extended our term loan maturities out to 2030. Our new first lien term loan facility consists of a funded $175 million term loan that matures in 2030 and a $50 million delayed draw term loan available to company subject to satisfying certain conditions.

We used the initial proceeds to repay about $158 million of outstanding debt, consisting of our delayed draw term loan and equipment and real estate loans under our ABL credit facility and a portion of the outstanding balance of our prior senior secured term loan. All remaining outstanding debt under the prior senior secured term loan rolled over into a new $97.4 million second lien term loan also maturing in 2030. The completion of this transaction addressed all our near-term maturities and lowered our cost of capital while also providing the company financial flexibility, as the company's performance continues to improve. Turning now to our first quarter financial results.

Our revenue was essentially flat year-over-year and our gross margin was 23.8%. Our adjusted selling, general and administrative costs, which excludes expenses not representative of our ongoing operations and non-cash amounts such as depreciation and share-based compensation declined by almost $1 million and represented 22.7% of consolidated revenue. Our adjusted net loss for the quarter was $14.9 million also essentially flat with the first quarter of 2024. We delivered solid adjusted EBITDA of $5.3 million and continue to focus on expanding our margins through cost discipline and a focus on growing higher margin work. Since 2021, we have increased our adjusted EBITDA every year, and we believe that we will continue that trend in 2025.

As Keith noted, we have continued to build off our strategic road map. And during the first quarter, we launched the next phase, targeting further cost optimization and improved workforce utilization. We expect this phase of our ongoing program to generate sustainable improvements to margins and cash flow, and are targeting annualized cost savings of at least $10 million. We are in a significantly improved position compared to where we were three years ago, and I remain confident in our ability to continue building off our progress to date and improving our overall financial and operating performance. We expect to continue delivering improvements in our results that will ultimately lead to growth in shareholder value.

With that, let me now turn it back over to Keith for some closing comments.

Keith Tucker: Thanks, Nelson. Over the past several years, we've made significant progress against our strategic plan, designed to drive improved operational and financial performance. We expect to continue building off that progress in 2025. For the full year, we expect to see year-over-year growth in revenue, improved performance from our Canadian 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 lead to further growth in shareholder value. Our progress to date would not be possible without our outstanding and experienced workforce, that is working every day to safely execute our strategic plan and unlock the inherent value here at Team.

I am 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'm a firm believer in our capabilities, talented employees and our leadership team. We have delivered improved results over the past three 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.

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