Team (TISI) Q1 2026 Earnings Call Transcript

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DATE

Thursday, May 14, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Gary L. Hill
• Executive Vice President & Chief Financial Officer — Nelson Haight

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TAKEAWAYS

• Revenue -- $215 million, up 8.3% year over year and the highest first-quarter level since 2019.
• Inspection and Heat Treating Segment Revenue -- Increased $9.8 million, or 8.6%, driven by higher project and call out activity in the U.S. and Canada.
• Mechanical Services Segment Revenue -- Rose $6.6 million, or 7.8%, supported by increased project and turnaround activity for both new and existing customers.
• Adjusted EBITDA -- Achieved $7.7 million, up 45.2%, with margin improving by 90 basis points to the segment's best Q1 since before 2019.
• Operating Income -- Gained $2.6 million, or 43.8% year over year, primarily due to revenue growth and reduced corporate costs.
• Adjusted SG&A Expense Rate -- Decreased by 150 basis points when measured as a percentage of revenue, despite a slight increase in the absolute expense amount.
• 2026 Full-Year Revenue Guidance -- $920 million to $945 million, reflecting approximately 4% growth at the midpoint over 2025 actuals.
• 2026 Gross Margin Guidance -- $240 million to $260 million, representing an 8% midpoint increase compared to 2025.
• 2026 Adjusted EBITDA Guidance -- $68 million to $73 million, a 16% midpoint increase over 2025.
• Cost Efficiency Plans -- Management anticipates additional targeted cost reduction amounts to be disclosed with the second-quarter earnings release.
• Free Cash Flow Focus -- Prioritizing improvements through more efficient working capital use and enhanced cash flow margins, with steady progress noted.
• Strategic Workforce Initiatives -- Implementation of a "hire to retire" career path program for technicians, described as a key industry differentiator.
• Growth Markets -- Management identified LNG, midstream, data centers, power, and aerospace as major areas of long-term growth potential, citing sector-specific catalysts.
• Commercial Strategy -- Management emphasized a disciplined approach targeting margin-accretive business and sustainable growth, rather than expansion at any cost.
• Operating Leverage Improvement -- Year-over-year margin expansion and adjusted EBITDA gains attributed to operating leverage and sustained cost efficiency efforts.
• Leadership Team Additions -- Management signaled plans for targeted senior leadership hires to support organizational capability and accountability.

SUMMARY

Team, Inc. delivered its strongest first-quarter revenue and adjusted EBITDA performance since before 2019, attributed to broad gains in the Inspection and Heat Treating and Mechanical Services segments. Management provided 2026 full-year guidance forecasting growth in revenue, gross margin, and adjusted EBITDA, while also highlighting new strategic and workforce initiatives. Leadership indicated that additional cost-reduction targets will be announced with the next quarterly update, pointing to continued operational improvements.

• Management described sectoral tailwinds impacting its targeted end markets, specifically noting the continued momentum in U.S. LNG, data center projects, and increased demand from commercial aerospace and defense.
• The company stated its intention to prioritize opportunities where its technical expertise and quality assurance are most valued, reinforcing a selective approach to market share gains.
• Operating income improvement was credited to both revenue growth and specific reductions in corporate costs, rather than to volume alone.
• Adjusted SG&A declining as a percentage of revenue, despite a nominal absolute increase, signals improved scalability and cost leverage according to management's commentary.
• Leadership underscored a sustained focus on free cash flow generation and debt reduction as key financial priorities for the year.
• Management highlighted plans to further invest in systems and process simplification to drive margin expansion and enhance organizational agility.

INDUSTRY GLOSSARY

• Call Out Activity: Dispatching service teams for urgent, unscheduled customer needs in industrial environments.
• Turnaround Activity: Planned maintenance or inspection events where production units are temporarily shut down for repairs or upgrades.
• Adjusted SG&A: Selling, general, and administrative expenses adjusted to exclude non-cash and non-recurring items, providing a clearer view of ongoing operational costs.
• Operating Leverage: The degree to which a company can increase operating income by growing revenue, reflecting cost structure efficiency.

Full Conference Call Transcript

Gary L. Hill: Thank you, Nelson. Welcome everyone and thank you for joining us on the call today. I am pleased with the solid start to 2026 that we were able to deliver from both an operational and financial perspective. First quarter 2020 revenue rose 8.3% year over year to $215 million our highest Q1 revenue since 2019. This growth was driven by robust performance across both our Inspection and Heat Treating and Mechanical Services segments. These results drove meaningful profitability gains. Including a 45.2% increase in adjusted EBITDA to $7.7 million and a 90 basis point improvement in adjusted EBITDA margin. Both are our best Q1 levels since prior to 2019.

Our last call was my first with Team, and I have been here about 100 days now. In that time, I have been able to meet with many of our hardworking employees, visit some of our worldwide locations, and have in-depth discussions with the leadership team and Board. I am going to share my observations with you and share the priorities, strategic vision and guidance for 2026 that are the result of these meetings. I want to start by saying that following these discussions, I am even more excited by the financial and operational potential and the opportunity to lead team. I believe that our strategic vision will help accelerate our delivery progressively better operational and financial results.

My first observation is about Teams' most important asset, our people. Our workforce truly has an unparalleled set of skills and technical expertise to tackle any issue that may arise for our customers. We have a dedicated service team that is customer focused and 100% committed to quality and safety. This is paramount to our success. Which is why 1 of the key points of our strategic vision is deepening our commitment to our workforce. We want to improve our retention rate we believe is already industry leading and we do that by protecting and investing in our people.

For example, we believe Team is the first in our industry to develop a from hire to retire career path program for our technicians that lays out the long term benefits from working at TEAM and is a key differentiator from our peers. Along with our leading benefit program, focused on total health and long-term wellness, we also want to strengthen engagement with our employees by encouraging open and honest communication which is why we conduct annual satisfaction surveys that provide actionable feedback on employee concerns.

We know how important our people are, and we want to make Team the employer of choice by ensuring our employees return home safely every day and remain committed to helping Team achieve our collective goals. Another observation is that we have good stability in our core markets of refining and petrochem, some very encouraging long term tailwinds in our targeted growth markets of LNG, midstream data centers, power and aerospace. While the Middle East conflict has had minimal direct impact on Team, it is impacting the oil and gas industry and there are some knock-on effects like increased refining run times thus pushing some turnaround scopes out later into the year.

Regardless of what we believe to be shorter-term headwind, long-term refining and petrochem remains a strong core opportunity given the age of refineries, their high utilization rates and their commercial need to remain online. Team can help with monitoring, repair and maintenance, often with minimal or no impact on run time. LNG and midstream have seen tremendous growth in the U.S. over the past decade and geopolitical events are driving natural gas demand and opportunities for U. S. LNG to supply new areas around the world. Expansion of existing facilities and greenfield development drive growing inspection mechanical services demand. Another relatively new area is the AI data center build out that is occurring.

The forecast demand for power related to AI fueled data center construction is unprecedented. Which should drive considerable inspection and mechanical services on the power side as well as the construction and maintenance side. We also believe strong growth in commercial aerospace and increased defense spending provides significant opportunities for our highly accretive laboratory inspection services which are key growth areas for TEAM going forward. On the last call, I spoke about opportunities to expand our wallet share with existing customers, and accelerate our growth in core and targeted end markets.

I also spoke of challenging our entire team to accelerate top line growth enhance efficiency and reduce costs to improve our operating leverage which should drive margin and EBITDA growth. I want our organization to be committed to improving the rate of progress in these key areas. First up is commercial. We want to prioritize healthy sustainable growth that is margin accretive and less cyclical. With our strong customer focus, proven technical expertise, geographic footprint, and breadth of service offering we are focused on expanding our market share in the targeted end markets I previously mentioned. We see a large opportunity for Team, and with a focused and disciplined effort, expect to capture market share.

We are also being more disciplined about the work we pursue focusing on opportunities where our technical capabilities and quality of execution are most valued. We are prioritizing healthy growth over growth at any cost. Next is our ongoing focus on cost efficiency. We have made meaningful progress in cost optimization over the past several years, but there is certainly an opportunity for further improvement particularly in supply chain, better integrating how our teams and locations work together further simplifying processes and investing in systems to lower costs all of which is intended to improve our scalability and expand margins.

We are defining the opportunity over and above the reductions previously announced and believe that in the second quarter earnings release, and conference call, we will have a bespoke set of targeted cost reduction amounts to convey to the market. Finally is our workforce, which I discussed in detail, but I want to further outline how we can improve there. We are targeting strategic additions to our already experienced leadership team that I believe will enhance our capabilities and elevate accountability across the organization. I want all our leaders to share that commitment and to work hand in hand with our workforce to deliver our strategic vision together.

I want to enhance communication in our analytics to accelerate and improve our decision making. We need to be nimble and capable of meeting our customers' needs in a changing market so that we can realize first mover advantages. Before I turn the call over to Nelson to go into the quarterly results in detail, I want to give a high level overview of our full year 2026 guidance. Our strategic vision and the priorities that I have discussed this morning should lead to a healthier growth in our revenue margins and adjusted EBITDA.

We are off to a good start in 2026 and we believe our full year revenue can grow about 4% at the midpoint of our guidance range of between $920 million and $945 million as compared to 2025 actuals. This revenue growth coupled with the margin expansion opportunities we are targeting, should help us substantially improve our free cash flow and adjusted EBITDA over the prior year. We are forecasting our gross margin in 2026 to be between $240 million and $260 million which is an 8% increase at the midpoint compared to 2025.

When you start compounding the top line growth with margin expansion and improved operating leverage, you see the impact with our 2026 adjusted EBITDA guidance increasing 16% at the midpoint to between $68 million and $73 million We have provided a framework of strategic priorities focused on our people, efficiency, leadership and commercial results that we will continue to refine and build upon. Expect more detail in the 2026.

Nelson Haight: With that, I would like to turn it over to Nelson to discuss our financial accomplishments. Thank you, Gary. As I mentioned on the last call, we have focused on simplifying the business, strengthening our capital structure and balance sheet, and improving our operating leverage and margins. While we still have work to do, we are now positioned to strategically grow our top line and expand our cash flow generation. The first quarter results for 2026 and our guidance for full year 2026 should accurately reflect the impact of our operational and commercial initiatives. With year over year expansion in our revenue margins and adjusted EBITDA driven by our ongoing focus on cost efficiency and margin accretive growth.

Turning to the first quarter, we continued to deliver solid results. Generating year over year improvements in revenue, operating income and adjusted EBITDA. As Gary mentioned, our first quarter revenue was up $16.4 million or 8.3% compared to the prior year period, which was the highest first quarter revenue since 2019. This increase was driven by $9.8 million or 8.6% increase in our Inspection and Heat Treating segment revenues which were boosted by increased project and call out activity in the U.S and Canada. Additionally, we saw a $6.6 million or 7.8% increase in our Mechanical Services segment. Which was supported by higher project and turnaround activity with both new and existing customers.

Operating income was up $2.6 million or 43.8% year over year, driven by stronger revenue in both The U. S. And Canada and lower corporate costs. As Gary mentioned, we are focused on winning higher margin opportunities in both segments that together with sustainable cost reductions should lead to continued improvement in operating income. Our progress in cost efficiency can be seen in our first quarter adjusted selling, general and administrative expense which excludes non cash items and expenses not representative of ongoing operations. While the absolute amount was slightly higher. Expressed as a percentage of revenue adjusted SG&A decreased by 150 basis points versus the prior year period. Pointing to improving scalability and leverage.

This helped drive our adjusted EBITDA higher by nearly $2.4 million to $7.7 million I believe that we are in a significantly improved financial position in 2026. As an organization, we are fixated on improving margins and growing adjusted EBITDA. 2026, we are prioritizing free cash flow generation through more efficient use of working capital and improved cash flow margins. And we will target further deleveraging in the business and debt pay down. Both our net loss and free cash flow are steadily improving and I remain confident in our ability to successfully execute on the strategy and priorities that Gary outlined earlier.

We look forward to continuing to build on these strong results that we expect will lead to growth in shareholder value.

Gary L. Hill: With that, let me provide some closing remarks. Thanks, Nelson. As you heard today, Team has delivered strong operational and financial results in 2026, and we are refining and implementing a strategic vision that we expect will continue delivering healthier growth in the top line margins and adjusted EBITDA. Over the past several years, Team has repositioned itself and made meaningful improvements in operations, safety, and its financial performance and balance sheet. Team has a unique culture, a storied history, strong customer relationships and numerous built in strengths already in place. I want to reinforce open communication and collaboration with stakeholders, employees, shareholders and customers to better drive progress and build on past successes.

Team boasts a proud history and a workforce renowned industry-wide for delivering safe, and technically superior customer service. This has established an outstanding foundation and my goal is to take this very strong company and make it even better through continuous improvement. We are implementing the steps necessary to accelerate that rate of improvement through focused initiatives and operational execution. I am very excited about our future because we have talented employees and differentiated offerings for our customers. We provided guidance for fiscal year 2026 that forecast meaningful growth of 4%, 8%, and 16% in revenue gross margin and adjusted EBITDA compared to 2025.

As you have heard today, every employee here is committed to delivering these improving results that will continue to strategically grow Team and unlock substantial value for our shareholders. Thank you for joining us today and for your continued interest in Team. The conference has now concluded.

Operator: Thank you for attending today's presentation. You may now disconnect.

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