TEAM, Inc. (NYSE: TISI) — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. TEAM provides specialty industrial inspection, heat-treating, maintenance and repair services through its Inspection and Heat Treating (IHT) and Mechanical Services (MS) segments. The 2022 comparison includes continuing operations unless noted; TEAM sold its Quest Integrity business in November 2022.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $862.6 million | $840.2 million |
| Gross margin | $211.2 million; 24.5% | $201.6 million; 24.0% |
| Operating loss | $13.3 million | $39.8 million |
| Net loss from continuing operations | $75.7 million | $150.1 million |
| Net cash used in operating activities | $11.0 million | $57.9 million |
| Capital expenditures | $10.4 million | $24.7 million |
| Non-GAAP adjusted EBITDA | $42.5 million | $16.7 million |
| Non-GAAP free cash flow | $(21.4) million | $(72.3) million |
Revenue rose 2.7%; the filing attributes growth to higher activity in U.S. IHT and international MS, partly offset by lower Canadian activity and $2.3 million of unfavorable foreign-exchange effects. IHT revenue increased 1.7% and MS revenue increased 3.7%. Segment operating income improved to $24.2 million for IHT and $27.8 million for MS. Corporate and shared-support operating loss narrowed to $65.3 million from $77.8 million.
GAAP operating loss included $16.3 million of identified non-core expenses, principally professional fees and other costs ($9.1 million), legal costs ($5.6 million) and severance ($1.6 million). Excluding these items, management’s non-GAAP operating measure was $3.0 million of income, versus a $19.4 million loss in 2022. Interest expense fell to $55.2 million from $85.1 million, while debt-extinguishment loss declined to $1.6 million from $30.1 million.
Balance sheet, debt and liquidity
- At year-end, cash and cash equivalents were $35.4 million; total current assets were $322.1 million and current liabilities were $174.9 million.
- Debt and finance lease obligations totaled $311.4 million, including $305.7 million of debt net of unamortized discounts and issuance costs. Shareholders’ equity was $45.6 million, down from $117.8 million.
- TEAM reported $31.3 million of available borrowing capacity at December 31, 2023 ($21.3 million under the ABL revolver and $10.0 million under the delayed-draw term loan) and stated it was covenant-compliant.
- As of March 5, 2024, the company reported $24.0 million of cash, excluding $4.9 million restricted, and $12.1 million of undrawn facilities, or $36.1 million of total liquidity.
- FY2023 operating cash use was $11.0 million. Management cited the net loss, partly offset by noncash depreciation and amortization, debt-cost amortization and PIK interest. Cash declined by $22.6 million during the year.
The June 2023 refinancing raised $87.4 million of new funding before fees and discounts, repaid the APSC term loan and the 5.00% convertible notes, and extended the ABL maturity to August 2025. The new and amended financing includes substantial interest costs, collateral and covenant restrictions; the Corre term loan bears 12% stated interest, with PIK interest applying to the uptiered loan under specified terms.
Outlook, risks and notable items
- Outlook: No specific revenue or earnings guidance is provided in the supplied filing text. Management said it believes working capital, forecast operating cash flows, facility availability and capital-expenditure financing can fund operations and debt service for the following year, while cautioning that this depends on estimates and assumptions. Management described oil and gas prices as expected to be relatively stable in 2024 but noted uncertainty from interest rates, inflation, geopolitical events and supply chains.
- Liquidity and leverage: The company identifies its ability to generate operating cash, access borrowing and remain within debt covenants as key risks. Failure to meet obligations or covenants could permit lenders to accelerate debt. Management said financing amendments removed the substantial doubt about going concern disclosed in prior periods; liquidity nevertheless remains dependent on operating performance and lender access.
- Legal and government repayment contingencies: The Most wrongful-death litigation has an estimated possible outcome range of $13 million to approximately $51 million; TEAM accrued its best estimate and recorded an associated insurance receivable, stating that remaining claims are expected to be funded by insurance after retentions. The company also accrued $5.5 million for repayment of foreign pandemic-related wage subsidies and intends to appeal. Aggregate accruals for the matters discussed were approximately $45.1 million, of which approximately $6.1 million was not covered by insurance.
- Subsequent financing changes: On March 6, 2024, amendments to the term-loan and ABL agreements changed covenant definitions and permitted a sale-leaseback transaction closed concurrently; the amendments waived mandatory prepayment related to that transaction. The filing text provided here does not state the transaction proceeds or full economic terms.
- Other risks: Demand depends on industrial and energy-sector activity, turnaround timing, client payment and contract renewals. The company also highlights inflation and labor costs, staffing and safety, competition, interest-rate exposure, NYSE listing standards, environmental and climate regulation, cybersecurity and international operations.
- Reporting and governance: KPMG issued an unqualified opinion on the financial statements and identified income-tax accounting as a critical audit matter. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control. No cash dividends were paid in 2023 or 2022.
Key facts investors should verify
- Current cash, borrowing-base availability, covenant headroom, interest burden and maturities after the March 2024 amendments and sale-leaseback.
- Whether operating cash flow and free cash flow improve sufficiently to support debt service, capital needs and working capital.
- Final outcomes, insurance recoveries and cash-payment timing for the Most litigation and pandemic-subsidy repayment appeals.
- Underlying segment demand, pricing and margins, particularly the durability of international MS growth and the recovery in IHT activity.
- Potential dilution and control implications: Corre-affiliated holders held approximately 39.8% of voting power as of March 5, 2024, and warrants and equity awards remain outstanding.