TEAM, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021. TEAM provides inspection, heat-treating, mechanical, maintenance, and asset-integrity services through its IHT, Mechanical Services (MS), and Quest Integrity segments. Unless indicated otherwise, dollar amounts below are in millions.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $217.4 | $219.1 | $650.9 | $645.2 |
| Gross margin | $53.3; 24.5% | $63.7; 29.1% | $159.8; 24.5% | $178.6; 27.7% |
| Operating income (loss) | $(70.5) | $2.3 | $(100.8) | $(215.0) |
| Net income (loss) | $(91.2) | $(9.1) | $(143.0) | $(222.3) |
| Diluted loss per share | $(2.94) | $(0.30) | $(4.62) | $(7.27) |
| Adjusted EBITDA (non-GAAP) | $1.0 | $18.2 | $4.8 | $27.0 |
Q3 revenue declined 0.8%. IHT revenue rose 5.0% to $101.5 million, while MS fell 5.2% to $96.4 million and Quest Integrity fell 5.7% to $19.5 million. Nine-month revenue increased 0.9%; growth in IHT was offset by declines in MS and Quest Integrity. Management attributed pressure to project delays, lingering price concessions, Hurricane Ida disruptions, and inflation in labor, materials, and transportation.
Q3 operating loss included a $55.8 million non-cash goodwill impairment charge for MS. Excluding management-identified non-core expenses, Q3 operating loss was $10.2 million versus adjusted operating income of $5.6 million a year earlier; the comparable nine-month adjusted operating loss was $32.2 million versus $11.8 million. Interest expense was $10.0 million in Q3 and $29.0 million year to date, higher than the comparable periods, primarily due to borrowing costs under the current facilities.
Cash flow, debt, and liquidity
- Nine-month operating cash flow was a use of $35.9 million, compared with cash provided of $20.2 million in 2020. Capital expenditures were $12.4 million; reported free cash flow, a non-GAAP measure, was negative $48.2 million.
- Cash was $17.0 million at September 30, 2021, versus $24.6 million at December 31, 2020. Current liabilities were $181.9 million, compared with current assets of $321.2 million.
- Debt and finance lease obligations totaled $363.6 million, including $54.1 million drawn on the ABL facility, $216.9 million on the term loan, $86.9 million net carrying value for convertible notes ($93.1 million principal), and $5.8 million of finance leases. The term loan’s effective rate was 11.95%.
- ABL availability was approximately $27 million, with $24.4 million of letters of credit outstanding. The company said it was covenant-compliant at quarter-end, but would not meet the ABL fixed-charge coverage ratio if an accelerated triggering event had occurred.
Outlook, risks, and unusual items
The filing provides no quantified revenue or earnings guidance. Management described continued operating losses, inflationary cost pressure, constrained borrowing capacity, and uncertain customer demand. It stated that forecasts showed insufficient operating cash flow to maintain ABL covenant compliance and repay debt if due, and concluded that these conditions raised substantial doubt about TEAM’s ability to continue as a going concern. Cost reduction and operational improvement efforts were underway, and the company was pursuing strategic alternatives.
After quarter-end, TEAM entered into a $50 million delayed-draw subordinated loan facility, borrowed $22.5 million on November 9, 2021, and expected to borrow a further $27.5 million subject to conditions. The loan carries 12% interest. Related amendments waived certain term-loan covenants through September 30, 2022, with modifications thereafter, and required warrant and governance actions. These transactions address near-term liquidity but do not assure adequate future liquidity or debt-service capacity.
Other significant matters include a Texas wrongful-death jury verdict of $222 million. TEAM said it was challenging the verdict, estimated possible outcomes at $13 million to approximately $51 million, and accrued its estimate of the probable loss. It recorded a corresponding insurance receivable; approximately $5 million of aggregate legal accruals were not covered by insurance. The EPA has alleged potential waste-compliance violations at seven facilities; the company could not estimate possible penalties. The filing also cites ongoing COVID-related uncertainty and foreign-exchange and variable-interest-rate exposure.
Most important facts for investors to verify
- Whether the post-quarter financing and covenant amendments provide sufficient liquidity, and whether the additional subordinated borrowing closes as expected.
- Current ABL borrowing availability, covenant headroom, cash needs, and the company’s ability to meet debt service and maturities.
- Actual operating trends and margins by segment, particularly MS, and whether project activity and pricing recover while inflationary costs persist.
- Developments in the $222 million verdict, insurance coverage and recovery, and the potential financial impact of the EPA matter.
- Assumptions underlying the $55.8 million goodwill impairment and whether further impairment or valuation allowances are needed.