TEAM, Inc. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022; filed March 14, 2023. TEAM provides industrial inspection, heat-treating, maintenance and repair services. Following the November 1, 2022 sale of Quest Integrity, continuing operations comprise Inspection and Heat Treating (IHT) and Mechanical Services (MS). Prior-year continuing-operations figures are recast to exclude Quest Integrity.
Financial performance
| Metric | FY 2022 | FY 2021 | Change / context |
|---|---|---|---|
| Revenue, continuing operations | $840.2 million | $794.2 million | Up 5.8%; unfavorable FX reduced 2022 revenue by $15.0 million |
| Gross margin | $201.6 million; 24.0% | $177.7 million; 22.4% | Margin improved about 1.6 percentage points |
| Operating loss | $39.8 million | $126.9 million | Improved, largely because 2021 included a $55.8 million MS goodwill impairment |
| Net loss from continuing operations | $150.1 million | $184.8 million | Loss narrowed; interest expense and debt-extinguishment costs remained substantial |
| Consolidated net income (loss) | $70.1 million | $(186.0) million | 2022 includes $220.2 million income from discontinued operations, including a $203.4 million sale gain |
| Cash from operating activities | $(57.9) million | $(35.5) million | Cash flow statements include discontinued operations |
| Capital expenditures | $24.7 million | $17.6 million | Cash-flow statement amounts |
| Free cash flow (company-defined) | $(72.3) million | $(55.8) million | Non-GAAP measure; defined as operating cash flow less capital expenditures |
| Cash and cash equivalents | $58.1 million | $65.3 million | 2022 includes $7.0 million restricted cash as separately disclosed in the debt note |
| Total debt and finance lease obligations | $285.9 million | $405.9 million | Most 2022 debt was classified current due to maturity-trigger provisions |
IHT revenue rose 1.7% to $422.6 million; MS revenue rose 10.2% to $417.6 million. Reported operating loss was $39.8 million; excluding management-defined non-core items, operating loss was $19.4 million, a non-GAAP measure. Consolidated adjusted EBITDA was $16.7 million versus $(6.3) million in 2021.
Liquidity, debt and material developments
- Quest Integrity was sold to Baker Hughes for approximately $279 million after adjustments. TEAM reported approximately $238 million of net proceeds used chiefly to repay $225 million of term-loan principal and related fees and interest; cash-flow statements report $260.8 million net sale proceeds.
- At December 31, 2022, debt included $99.9 million under the 2022 ABL facility, $31.6 million of APSC term loans, $107.9 million of subordinated term loans and $41.2 million principal on 5.00% convertible notes, plus $5.9 million of finance leases. The notes were due August 1, 2023.
- Amended financing terms required the notes balance to be reduced below $10 million by June 17, 2023. Failure could trigger early maturity of the term loan, an ABL borrowing-base reserve and repayment obligations on subordinated debt, with potential cross-defaults.
- At year-end, the company reported approximately $52.4 million of additional borrowing availability under the ABL and delayed-draw term loan. As of March 13, 2023, it reported $31.3 million cash, excluding $6.7 million restricted, and approximately $35.7 million undrawn facility availability, or $67.0 million total liquidity.
- The auditor’s report and management’s disclosure identify substantial doubt about TEAM’s ability to continue as a going concern. Management said forecast resources were insufficient to fund operations, maintain covenant compliance and meet obligations, particularly the notes. Refinancing, maturity extension, debt reduction, asset sales and other alternatives were being explored; success was not assured.
Management commentary, risks and unusual items
- Management cited higher U.S. turnaround and nested activity in IHT and increased U.S. and Latin American MS activity, partly offset by lower Canadian IHT revenue and non-repeating U.K. MS project work. Inflation in labor, materials and transportation continued to pressure costs.
- Interest expense rose $39.0 million to $85.1 million, principally reflecting accelerated amortization of financing costs as debt maturities could be triggered earlier. The company recorded a $30.1 million loss on partial term-loan repayment, including $12.4 million cash fees and premiums and $17.7 million non-cash write-offs.
- Debt carries variable rates and restrictive covenants. TEAM estimated a 100-basis-point rate increase would add about $1.3 million to annual interest expense based on year-end borrowings.
- A Texas wrongful-death jury verdict was $222.0 million. TEAM appealed, stated affirmation was not considered probable, and estimated possible outcomes of $13 million to approximately $51 million. It accrued about $42.3 million across the matters discussed, with approximately $3.3 million not covered by insurance; the claim and insurance recovery are subject to developments.
- The company recorded a $3.0 million charge for a California wage-and-hour settlement, paid in January 2023, and agreed to pay $0.2 million to settle EPA allegations involving waste-handling compliance at certain facilities.
- TEAM completed a one-for-ten reverse stock split in December 2022 after NYSE listing deficiencies. It reported regaining compliance with the minimum share-price requirement in January 2023, while continued compliance with other listing standards remained a risk.
- No specific financial guidance was provided. The filing highlights exposure to recession and client-industry demand, contract timing and termination, inflation, labor availability, receivable collection, safety and environmental liability, litigation, covenant compliance and refinancing access.
Important facts for investors to verify
- Whether the notes were reduced below the $10 million threshold by June 17, 2023, and whether the August 1, 2023 maturity was refinanced, extended or repaid.
- Subsequent liquidity, borrowing-base availability, covenant status and any lender waivers, amendments, defaults or cross-defaults.
- Updates to the going-concern assessment and whether operating cash flow and working-capital needs improved.
- Resolution of the wrongful-death appeal, final liability and insurance reimbursement; compare the recorded accrual with the disclosed possible-loss range.
- Underlying performance excluding Quest Integrity and non-GAAP adjustments, including whether revenue and margin gains translated into sustainable positive cash flow.