TEAM, Inc. (NYSE: TISI) — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars unless stated otherwise.
Business context
TEAM provides industrial inspection, engineering assessment, maintenance and repair services through Inspection and Heat Treating (IHT), Mechanical Services (MS) and Quest Integrity. Its customers span energy, refining, petrochemical, power, manufacturing, infrastructure and other heavy industries. No customer represented 10% or more of revenue.
Financial performance
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $874.6 million | $852.5 million |
| Gross margin | $214.4 million; 24.5% of revenue | $238.7 million; 28.0% of revenue |
| Operating loss | $126.0 million | $217.4 million |
| Net loss | $186.0 million | $237.2 million |
| Basic and diluted loss per share | $6.01 | $7.74 |
| Net cash from (used in) operations | $(35.5) million | $52.8 million |
| Capital expenditures | $17.6 million | $20.0 million |
| Free cash flow (non-GAAP) | $(53.1) million | $32.8 million |
| Adjusted EBITDA (non-GAAP) | $6.4 million | $40.0 million |
Revenue rose 2.6% year over year; excluding a $15.0 million favorable foreign-exchange impact, it increased about $7.0 million. IHT revenue increased 10.8% to $415.4 million; MS fell 3.5% to $378.8 million; Quest Integrity fell 5.8% to $80.4 million. Gross margin dollars and margin rate declined despite higher revenue. The reported operating-loss improvement largely reflects a $191.8 million IHT goodwill impairment recorded in 2020; FY 2021 included $64.6 million of goodwill impairment. Excluding management-identified non-core items, adjusted operating loss widened to $42.1 million from $12.2 million.
For the fourth quarter, the filing reports a net loss of $43.1 million, adjusted net loss of $27.7 million, adjusted EBITDA of $1.6 million and free cash flow of $(4.8) million. The provided filing text does not provide a clear standalone fourth-quarter revenue value.
Liquidity, debt and capital structure
At December 31, 2021, cash and cash equivalents were $65.3 million, including $4.1 million restricted for term-loan interest; available borrowing capacity under the then-current ABL facility was approximately $4.2 million. Cash from operations was negative $35.5 million for the year. Current assets were $353.1 million and current liabilities were $184.1 million.
Year-end debt and finance lease obligations had a carrying value of $405.9 million, including $62.0 million under the ABL, $214.2 million under the term loan, $36.4 million under the subordinated term loan and $87.7 million carrying value for convertible notes. The notes had $93.1 million principal outstanding and mature August 2023. Contractual debt maturities, excluding finance leases, totaled $455.3 million, including $93.1 million in 2023 and $62.0 million in 2024. The term loan’s effective interest rate was 20.9% at year-end; the subordinated term loan’s stated rate was 12%. Management estimated a 100-basis-point rate increase would add about $3.1 million to annual interest expense and reduce operating cash flow by the same amount.
After year-end, on February 11, 2022, TEAM refinanced its ABL with commitments of up to $130 million revolving and up to $35 million delayed-draw term loans, and arranged additional financing and a $10 million common-stock issuance to Corre investors. The company said these transactions improved near-term liquidity and provided runway for a turnaround and possible strategic alternatives. The new financing is conditional and carries restrictive covenants and high-cost delayed-draw borrowing. Certain debt maturities may accelerate in connection with the convertible notes’ April 2023 trigger date.
Material changes, outlook and risks
- Management cited continued pressure from labor, materials and transportation inflation, lower activity and pricing pressure. IHT benefited from increased turnaround and project work; MS was affected by reduced maintenance activity and fewer non-recurring projects; Quest Integrity faced lower activity, including COVID-related travel restrictions.
- TEAM reported recurring operating losses and stated that pre-financing forecasts showed insufficient cash flow to meet near-term liquidity needs and maintain covenant compliance within a year. After the February 2022 financing and covenant relief through March 31, 2023, management concluded its forecast showed adequate funding for operations and obligations for one year after issuance. It cautioned that future liquidity and covenant compliance are not assured.
- The filing provides no specific revenue, earnings or cash-flow guidance. Management described vaccine availability, easing restrictions, reopening economies and higher commodity prices as positive recovery indicators, while emphasizing substantial uncertainty around COVID-19 and market conditions.
- NYSE notified TEAM on February 2, 2022 that its average share price was below the $1.00 minimum. TEAM had six months to regain compliance and was considering measures including a possible reverse stock split. Delisting could affect liquidity and financing and could trigger a repurchase offer on the convertible notes.
- A Texas jury returned a $222 million wrongful-death verdict in June 2021. TEAM is challenging the judgment; it estimated a possible outcome range of $13 million to approximately $51 million and accrued its best estimate of probable loss. Aggregate accruals for the disclosed matters were about $44 million, with about $5 million not covered by insurance; the company recorded an insurance receivable for covered amounts.
- Other notable items include a $64.6 million non-cash goodwill impairment, deferred employer payroll taxes of $14.1 million (half paid in January 2022; the balance due at year-end 2022), and $3.2 million of other deferred foreign payroll-related expenses and taxes due in 2022.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor reported controls effective as of December 31, 2021. The auditor identified goodwill impairment and going-concern assessment as critical audit matters. TEAM paid no dividends in 2021 or 2020.
Key facts for investors to verify
- Whether operating cash flow and free cash flow improve, and whether revenue growth can restore gross margins and adjusted EBITDA.
- Actual borrowing availability and use under the February 2022 financing, its costs and conditions, covenant compliance, and the company’s cash runway.
- Plans and capacity to address the $93.1 million convertible-note principal due in 2023 and related maturity-trigger provisions.
- Progress in resolving the $222 million jury verdict, final insurance recoveries and any changes to the estimated loss or uninsured exposure.
- NYSE listing compliance status, any reverse-stock-split action, and potential dilution from the February 2022 equity issuance and outstanding warrants.
- Whether customer demand, inflation, COVID-related disruption and future goodwill impairment assumptions differ materially from management’s forecasts.