TEAM, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; fourth-quarter figures are also summarized. TEAM provides industrial inspection, maintenance, repair and asset-integrity services through Inspection and Heat Treating (IHT), Mechanical Services (MS) and Quest Integrity.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $852.5 million | $1,163.3 million |
| Gross margin | $238.7 million; 28.0% of revenue | $327.7 million; 28.2% |
| Operating income (loss) | $(217.4) million | $(2.1) million |
| Net income (loss) | $(237.2) million; $(7.74) per diluted share | $(32.4) million; $(1.07) per diluted share |
| Adjusted EBITDA (non-GAAP) | $40.0 million; 4.7% margin | $80.3 million; 6.9% margin |
| Operating cash flow | $52.8 million | $58.8 million |
| Capital expenditures | $20.0 million | $29.0 million |
| Free cash flow (non-GAAP) | $32.8 million | $29.8 million |
Q4 2020: Revenue was $207.3 million versus $287.8 million in Q4 2019. Net loss was $14.9 million versus $7.2 million. Adjusted EBITDA was $13.1 million versus $23.2 million.
Segment revenue: IHT was $374.7 million, down 26.9%; MS was $392.5 million, down 26.7%; Quest Integrity was $85.3 million, down 25.8%. Excluding the $191.8 million IHT goodwill impairment, full-year operating loss was still pressured: adjusted operating income (non-GAAP) was a loss of $12.2 million, compared with income of $21.1 million in 2019.
Liquidity, debt and capital
- Year-end cash was $24.6 million, with approximately $59.5 million of available ABL borrowing capacity. Management stated cash and operating cash flows, together with financing availability, were expected to meet anticipated needs for at least 12 months.
- Reported debt and finance lease obligations totaled $312.5 million on a carrying-value basis. This included a $250 million term loan issued at a 3% original issue discount, $9.0 million drawn on the ABL facility, $93.1 million principal outstanding on 5% convertible notes due 2023, and finance leases.
- The new $150 million ABL facility matures in December 2024, subject to an earlier maturity trigger tied to the convertible notes. The $250 million term loan matures in December 2026, also subject to an earlier trigger; it carries variable rates and reported effective interest near 12% at year-end. The filing gives inconsistent effective-rate figures (11.93% and 12.06%); verify against the debt note.
- In December, TEAM used new financing to repay its prior credit facility and retire $136.9 million principal of convertible notes. The transaction included issuance of a warrant for up to 3.58 million shares at $7.75 per share. No cash dividends were paid in 2020 or 2019.
Material changes and unusual items
- Revenue fell 26.7% year over year as COVID-19, oil-market oversupply and lower client activity led to facility closures, postponed projects and reduced demand across all segments.
- TEAM recorded a $191.8 million non-cash goodwill impairment in IHT in Q1, fully impairing that reporting unit’s goodwill. No additional impairment was recorded in the year-end test.
- Cost reductions, furloughs, headcount actions and compensation reductions were implemented. Management reported $110 million of OneTEAM and other cost-reduction savings for 2020. Executive salary reductions and suspension of certain retirement-plan matching contributions continued into 2021.
- Government relief reduced operating expenses by $9.9 million and SG&A by $2.4 million in 2020. TEAM deferred $14.2 million of U.S. employer payroll taxes, with approximately half due in each of 2021 and 2022, and deferred another $4.6 million under foreign programs.
- Cash operating flow exceeded net loss largely because of non-cash impairment and depreciation, as well as working-capital cash inflows. Receivables declined to $194.1 million from $245.6 million.
- The company reported effective disclosure and financial-reporting controls at year-end and stated that a material weakness identified in 2019, involving oversight of foreign subsidiary operations and asset misappropriation by a former employee, was remediated during 2020. The auditor issued unqualified opinions on the financial statements and internal controls.
Outlook, risks and contingencies
TEAM provided no specific numerical revenue or earnings guidance. Management expected refining utilization to recover gradually during 2021, while warning that COVID-19 effects, oil-and-gas market conditions, project deferrals and pricing pressure could continue to weigh on results. The January 2021 reorganization created three operating groups focused on IHT, mechanical/onstream services, and asset integrity/digital services; reportable segments were unchanged.
Key risks include continued weakness in oil-and-gas and refining markets, customer payment delays, contract cancellations, competition and margin pressure, workforce retention, safety and legal claims, impairment of remaining goodwill or other assets, and the ability to generate cash and comply with debt covenants. The term loan requires a net leverage ratio no greater than 7.0:1 beginning with Q1 2022 and generally caps capital expenditures at $33 million per four-quarter period, subject to stated exceptions. A 100-basis-point rate increase is estimated to raise annual interest expense by either $1.2 million or $2.2 million in different filing passages; verify the applicable disclosure. Standby letters of credit totaled $19.5 million at year-end and reduce ABL availability. TEAM reported ongoing ordinary-course legal proceedings and stated it did not expect uninsured losses to materially affect the financial statements.
Investor verification priorities
- Confirm the term loan’s effective interest rate and the filing’s inconsistent sensitivity estimate for higher interest rates.
- Assess actual borrowing availability, covenant headroom and the notes-related early-maturity triggers, including the 2023 convertible-note maturity.
- Evaluate the sustainability of operating cash flow and free cash flow given lower revenue, deferred payroll taxes and working-capital movements.
- Track recovery in client activity, especially refining utilization, project postponements, segment margins and progress against cost-saving plans.
- Review the assumptions supporting the remaining goodwill and deferred tax assets, given the IHT impairment and $53.4 million valuation allowance.
- Consider potential dilution from the warrant and remaining convertible notes, and monitor the status of legal and internal-control matters.