Team Earnings Increase Y/Y in Q2, Revenues Decline

Team, Inc. TISI delivered mixed second-quarter 2024 financial results, characterized by margin expansion despite a decline in revenues.

The company's focus on cost-cutting and efficiency improvements helped mitigate the impacts of decreased activity in its key business segments — Inspection and Heat Treating ("IHT") and Mechanical Services ("MS").

While revenues fell 4.5% year over year, enhanced margins and disciplined expense management enabled Team to narrow its net loss and improve operating income, highlighting the effectiveness of its strategic initiatives amid a challenging market environment.

Q2 Results

TISI reported second-quarter 2024 loss per share of 45 cents, narrower than a loss of $2.55 in the year-ago quarter.

The company generated revenues of $228.6 million, marking a 4.5% decline from the prior-year quarter's $239.5 million.

Strong quarterly earnings were driven by lower operating expenses and enhanced margins across several regions. The positives were partially offset by decreased revenues in the MS and IHT segments, down 6% and 3% year over year, respectively. Specifically, the MS segment experienced a revenue drop due to lower project activity and timing issues, whereas the IHT segment's revenue fell due to reduced activity in Canada and international markets.

Segmental Performances

Team's second-quarter 2024 results reflect mixed performances across its IHT and MS business segments.

IHT: The segment reported revenues of $113.2 million, a 3% decline from $116.7 million in the same prior-year period. The revenue drop was mainly caused by a $5.4-million decrease in Canada's nested and turnaround services, and a $0.7-million decline in other international regions. However, these decreases were partially offset by a revenue increase in U.S. operations, which performed well.

Despite the revenue decline, the segment's operating income surged 90.3% to $12.5 million from $6.5 million in the prior-year quarter. This significant improvement was driven by cost reductions across all regions and better margins in U.S. operations.

MS: The segment experienced a more substantial revenue decline of 6% to $115.4 million from $122.8 million in the second quarter of 2023. This decrease was primarily led by lower project activity in the United States, Canada and other international regions.

Consequently, the segment's operating income dropped 16.4% to $10.6 million from $12.7 million in the prior-year period. The decline in operating income was mainly attributed to reduced earnings from international and Canada operations, partially offset by a modest increase in U.S. operations.

Profitability

Operating income showed a positive trend, increasing to $11.2 million from $4.6 million in second-quarter 2023.

Team managed to improve its gross margin by 240 basis points to 27.8%, translating to a $2.6-million increase to $63.6 million. This improvement was driven by higher-margin projects, better pricing and the company's ongoing cost-reduction initiatives. The adjusted EBITDA rose 25% year over year to $21.8 million (representing 9.5% of revenues) from 7.3% in the prior-year period.

The company significantly narrowed its net loss to $2.8 million from the $15.8 million net loss recorded in second-quarter 2023. This positive shift was mainly led by lower operating expenses and enhanced margins across several regions.

Expense Analysis

TISI made significant strides in reducing its expenses in the second quarter of 2024. Total operating expenses were $165.1 million, down 7.6% from $178.6 million in the prior-year period. This reduction was primarily driven by the company's ongoing cost-cutting initiatives aimed at enhancing operational efficiency and improving margins.

Selling, general, and administrative (SG&A) expenses decreased 7% to $52.4 million from $56.3 million in second-quarter 2023. The decline in SG&A expenses was driven by lower professional fees and overall cost reductions, underscoring the company's disciplined approach to managing its overhead costs.

Cash & Debt

As of Jun 30, 2024, Team reported total liquidity of $40.1 million, which includes $17.9 million in cash and cash equivalents, and $22.2 million in undrawn availability under its credit facilities. This represents a decrease from $35.4 million in cash and cash equivalents at the end of 2023.

The company's total debt increased to $320.1 million, up from $311.4 million at the end of 2023. The rise in debt was primarily due to $6.4 million of paid-in-kind interest during the period and the addition of a new equipment finance facility in March 2024. Consequently, Team's net debt — defined as total debt less cash and cash equivalents — stood at $297.6 million as of Jun 30, 2024.

Management Guidance

TISI reiterated its 2024 guidance. It projects revenues between $850 million and $900 million, with a gross margin between $235 million and $265 million. The company also reaffirmed its adjusted EBITDA guidance of $58-$68 million, anticipating a 48% improvement at the midpoint from that reported in 2023. This guidance underscores the company's confidence in sustaining margin expansion and top-line growth through continued cost discipline and targeted commercial initiatives.

Other Developments

In the second quarter, Team launched several targeted commercial initiatives aimed at driving revenue growth within its core markets and expanding into new segments such as aerospace and midstream. These efforts included the strategic addition of senior operations leaders dedicated to these sectors, with early successes noted in the aerospace market. The company's state-of-the-art aerospace facility in Cincinnati reported a 46% year-over-year revenue increase, reflecting strong demand and the benefits of recent investments to enhance capacity.

TISI's strategic focus on improving its job mix and growing higher-margin service lines is expected to contribute positively to its financial performance, positioning the company for continued growth in the second half of 2024.

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