Team, Inc. Reports Third Quarter 2021 Results

SUGAR LAND, Texas, Nov. 12, 2021 /PRNewswire/ -- Team, Inc. (NYSE: TISI), a global leading provider of integrated, digitally-enabled asset performance assurance and optimization solutions, today reported its financial results for the third quarter ended Sept. 30, 2021.

"Our top line results failed to meet expectations due to a combination of factors that impacted our third quarter performance, including weather-related disruptions, challenging market dynamics, and an uneven market recovery," said Amerino Gatti, TEAM's Chairman and Chief Executive Officer. "While the Inspection and Heat Treating (IHT) segment delivered 5% year-over-year revenue growth, the Mechanical Services (MS) and Quest Integrity segments experienced numerous project delays. Our performance was also impacted by a delayed start to our fall turnaround projects and power outages along the Gulf Coast from Hurricane Ida, forcing refining and petrochemical facilities offline.

"During the quarter, we continued to face margin pressure from inflationary costs in several areas, such as raw materials and transportation, as well as increased costs associated with enhanced hiring programs and technician training.  In addition, we absorbed higher expenses associated with the elimination of the temporary cost actions that were put in place in late March 2020.  We also experienced a decline in higher margin service lines and overall activity.

"TEAM remains focused on cost discipline as the company looks for ways to reduce its internal cost structure and mitigate inflationary pressures to improve margins. We have begun working with our clients to proactively adjust pricing to reflect the increased cost environment amid tightening market conditions. In the quarter, TEAM implemented several internal initiatives to lower costs by reducing operating expenses, corporate overhead, and supply chain costs, however, these reductions are expected to be offset by increased professional and advisory fees. 

"The delayed fall turnaround projects kicked off in late September and trended even higher in October, as both our domestic and international activity levels significantly increased. The step change in activity levels coupled with the billing and collection cycle created a large seasonal working capital deficit. The new $50 million subordinated term loan which closed on November 9, 2021 improves our working capital position and, with our existing term loan financial covenants waived until September 30, 2022, provides us with additional financial flexibility.     

"Looking ahead, we expect to capitalize on recent market tailwinds, while remaining focused on our capabilities and long-term strategic growth. Despite the uneven economic recovery, we continue to further diversify our revenue into new markets, increase our footprint in the aerospace and defense sectors, and advance our technology ventures. We remain encouraged by the fundamental outlook for our industry across all our geographic regions and multiple end markets and expect to benefit from a robust industry over the next several years," concluded Mr. Gatti.

Financial Results

Consolidated net loss in the third quarter of 2021 was $91.2 million ($2.94 loss per diluted share) compared to a loss of $9.1 million ($0.30 loss per diluted share) in the third quarter of 2020. Consolidated Adjusted EBITDA, a non-GAAP measure, was $1.0 million for the third quarter of 2021 compared to $18.2 million for the prior year quarter.

Consolidated revenue for the third quarter of 2021 was $217.4 million, in-line with $219.1 million in the prior year quarter. In the third quarter of 2021, consolidated gross margin was $53.3 million, or 24.5%, compared to $63.7 million, or 29.1%, in the same quarter a year ago.  Gross margin was negatively impacted by inflationary cost pressures, including items such as materials and labor, and a relative increase in lower margin service lines. 

SG&A for the third quarter of 2021 was $67.6 million, up $6.5 million, or 10.6%, from the third quarter of 2020. The company's adjusted measure of net income/loss, consolidated Adjusted EBIT, was a loss of $10.2 million in the third quarter of 2021 compared to positive $5.6 million in the prior year quarter. 

Third quarter 2021 reported results include certain net charges not indicative of TEAM's core operating activities, including a non-cash goodwill impairment charge of $55.8 million for MS, $1.7 million of professional and severance costs and $2.7 million for accrued legal matters and other legal fees. Net of tax, these items totaled $60.0 million, or $1.94 per diluted share.

Adjusted net loss, consolidated Adjusted EBIT, and consolidated Adjusted EBITDA are non-GAAP financial measures that exclude certain items that are not indicative of TEAM's core operating activities. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is at the end of this release.

Segment Results

The following table illustrates the composition of the company's revenue and operating income (loss) by segment for the quarters ended Sept. 30, 2021 and 2020 (in thousands):

IHT delivered year-over-year revenue growth, which was up 5.0% due to increased activity levels. IHT's operating income declined 60.3% year-over-year as increased material costs and higher operating costs negatively impacted the segment's margin. 

MS's revenue declined by 5.2% year-over-year as the segment realized several project deferrals and a delayed start to its fall turnaround projects.  The sharp decline of operating income was primarily due to a goodwill impairment charge during the quarter as well as a lower margin revenue mix and inflationary pressures on raw materials and labor costs. 

Quest Integrity's results include a 5.7% year-over-year decline in revenue and a 43.4% decline in operating income.  The decrease in Quest Integrity's revenue and operating income was primarily related to several large projects that were delayed into the fourth quarter and 2022.

Cash and Debt

Consolidated cash and cash equivalents were $17.0 million at Sept. 30, 2021. The company's gross debt was $403.0 million at Sept. 30, 2021, compared to $357.3 million at Dec. 31, 2020.  TEAM is in compliance with its financial covenant requirements.

Going Concern

Revenues during the three months ended Sept. 30, 2021 did not meet the company's expectations.  TEAM has suffered recurring losses and reductions in activities which has put pressure on the company's near-term liquidity needs.  Subsequent to quarter-end, TEAM had limited borrowing capacity to fund its increasing working capital needs. 

The company's borrowing capacity and cash are not expected to be sufficient to fund its planned operations for at least twelve months beyond the date of its financial statements for the third quarter of 2021, which raises doubt about the company's ability to continue as a going concern. Management evaluated its current financial condition and liquidity sources, including current cash balances, forecasted cash flows, the company's obligations due within twelve months of the date its financial statements for third quarter of 2021 are issued and its debt obligations in evaluating TEAM's ability to continue as a going concern.

While TEAM has taken actions to address its near-term liquidity needs by reducing costs, improving operations, and entering into a new subordinated term loan, management has concluded that there is substantial doubt about the ability for the company to continue as a going concern for at least twelve months following the date our financial statements for the third quarter of 2021 are issued.  

Non-GAAP Financial Measures

The non-GAAP measures in this earnings release are provided to enable investors, analysts and management to evaluate TEAM's performance excluding the effects of certain items that management believes impact the comparability of operating results between reporting periods. These measures should be used in addition to, and not in lieu of, results prepared in conformity with generally accepted accounting principles (GAAP). A reconciliation of each of the non-GAAP financial measures to the most directly comparable historical GAAP financial measure is contained in the accompanying schedule for each of the fiscal periods indicated.

Conference Call and Webcast Details

Team, Inc. will host a conference call on Friday,  Nov. 12, 2021 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) to review its third quarter 2021 results.

By Phone: Dial 1-877-407-5794 inside the U.S. or 1-201-389-0869 outside the U.S. at least 10 minutes before the call. A telephone replay will be available through Nov. 19, 2021 by dialing 1-877-660-6853 inside the U.S. or 201-612-7415 outside the U.S. using the Conference ID 13725126#.

By Webcast: The call will be broadcast over the web and can be accessed on TEAM's website, www.teaminc.com under "Investor Relations." Please log on at least 10 minutes in advance to register and download any necessary software. A replay will be available shortly after the call.

About Team, Inc.

Headquartered in Sugar Land, Texas, Team Inc. (NYSE: TISI) is a global leading provider of integrated, digitally-enabled asset performance assurance and optimization solutions. We deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability and operational efficiency for our client's most critical assets. Through locations in more than 20 countries, we unite the delivery of technological innovation with over a century of progressive, yet proven integrity and reliability management expertise to fuel a better tomorrow. For more information, please visit www.teaminc.com.

Certain forward-looking information contained herein is being provided in accordance with the provisions of the Private Securities Litigation Reform Act of 1995. We have made reasonable efforts to ensure that the information, assumptions and beliefs upon which this forward-looking information is based are current, reasonable and complete. However, such forward-looking statements involve estimates, assumptions, judgments and uncertainties. There are known and unknown factors that could cause actual results or outcomes to differ materially from those addressed in the forward-looking information. Although it is not possible to identify all of these factors, they include, among others, the duration and magnitude of the COVID-19 pandemic and related economic effects, the Company's liquidity and ability to obtain additional financing, the Company's ability to continue as a going concern, and such known factors as are detailed in the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, each as filed with the Securities and Exchange Commission, and in other reports filed by the Company with the Securities and Exchange Commission from time to time. Accordingly, there can be no assurance that the forward-looking information contained herein, including projected cost savings, will occur or that objectives will be achieved. We assume no obligation to publicly update or revise any forward-looking statements made today or any other forward-looking statements made by the Company, whether as a result of new information, future events or otherwise, except as may be required by law.

TEAM, INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
(Unaudited)

The Company uses supplemental non-GAAP financial measures which are derived from the consolidated financial information including adjusted net income (loss); adjusted net income (loss) per diluted share, earnings before interest and taxes ("EBIT"); adjusted EBIT (defined below); adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") and free cash flow to supplement financial information presented on a GAAP basis.

The Company defines adjusted net income (loss), adjusted net income (loss) per diluted share and adjusted EBIT to exclude the following items: costs associated with our OneTEAM program, costs associated with the Operating Group Reorganization, non-routine legal costs and settlements, restructuring charges, certain severance charges, goodwill impairment charges and certain other items that we believe are not indicative of core operating activities. Consolidated adjusted EBIT, as defined by us, excludes the costs excluded from adjusted net income (loss) as well as income tax expense (benefit), interest charges, foreign currency (gain) loss, and items of other (income) expense. Consolidated adjusted EBITDA further excludes from consolidated adjusted EBIT depreciation, amortization and non-cash share-based compensation costs. Segment adjusted EBIT is equal to segment operating income (loss) excluding costs associated with our OneTEAM program, costs associated with the Operating Group Reorganization, non-routine legal costs and settlements, restructuring charges, certain severance charges, goodwill impairment charges and certain other items as determined by management. Segment adjusted EBITDA further excludes from segment adjusted EBIT depreciation, amortization, and non-cash share-based compensation costs. Free cash flow is defined as net cash provided by (used in) operating activities minus capital expenditures. Net debt is defined as the sum of the current and long-term portions of debt, including finance lease obligations, less cash and cash equivalents.

Management believes these non-GAAP financial measures are useful to both management and investors in their analysis of our financial position and results of operations. In particular, adjusted net income (loss), adjusted net income (loss) per diluted share, consolidated adjusted EBIT, and consolidated adjusted EBITDA are meaningful measures of performance which are commonly used by industry analysts, investors, lenders and rating agencies to analyze operating performance in our industry, perform analytical comparisons, benchmark performance between periods, and measure our performance against externally communicated targets. Our segment adjusted EBIT and segment adjusted EBITDA is also used as a basis for the Chief Operating Decision Maker to evaluate the performance of our reportable segments. Free cash flow is used by our management and investors to analyze our ability to service and repay debt and return value directly to stakeholders.

Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures and should be read only in conjunction with financial information presented on a GAAP basis. Further, our non-GAAP financial measures may not be comparable to similarly titled measures of other companies who may calculate non-GAAP financial measures differently, limiting the usefulness of those measures for comparative purposes. The liquidity measure of free cash flow does not represent a precise calculation of residual cash flow available for discretionary expenditures. Reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure are presented below.

Contact:
Kevin Smith
Vice President, Investor Relations
(281) 388-5551

SOURCE Team, Inc.