TEAM, Inc. (NYSE: TISI) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 14, 2024. Team provides specialty industrial inspection, heat-treating, mechanical maintenance and repair services through its Inspection and Heat Treating (IHT) and Mechanical Services (MS) segments.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $199.6 million | $202.3 million | Down 1.3% |
| Gross margin | $48.7 million (24.4%) | $47.0 million (23.2%) | Up $1.7 million |
| Operating loss | $6.4 million | $7.7 million | Loss narrowed $1.4 million |
| Net loss | $17.2 million | $24.7 million | Loss narrowed $7.5 million |
| Loss per share | $3.89 | $5.69 | Loss per share narrowed |
| Operating cash flow | $1.9 million | $(17.8) million | Improved $19.6 million |
| Free cash flow (non-GAAP) | $(1.1) million | $(20.5) million | Improved |
Interest expense, net fell to $12.1 million from $16.7 million, mainly because prior-year accelerated debt-cost amortization and repaid debt were partly offset by interest on newer borrowings, higher ABL rates and increased paid-in-kind interest. Non-GAAP adjusted EBITDA was $6.5 million versus $4.2 million; management’s non-GAAP measures exclude specified items and should be considered alongside GAAP results.
Segments and material changes
- IHT revenue declined 2.3% to $99.4 million, reflecting weaker U.S. and Canadian call-out and turnaround activity, partly offset by aerospace work. Segment operating income rose 9.8% to $5.2 million.
- MS revenue declined 0.3% to $100.2 million. Lower Canadian revenue from nonrecurring prior-year projects was mostly offset by growth in the U.S. and other international markets. Segment operating income rose 28.1% to $4.1 million.
- Company operating loss included $2.6 million of identified non-core expenses, versus $2.0 million a year earlier. Excluding those items, operating loss was $3.8 million versus $5.7 million.
- Gross margin improved despite slightly lower revenue; the filing attributes segment profit improvement primarily to lower direct costs, improved margins and activity in certain markets. Management also noted continuing inflation in materials, transportation and labor.
Liquidity, debt and financial position
- At March 31, cash and cash equivalents were $24.2 million, including $19.2 million unrestricted and $5.0 million restricted. Cash was $35.4 million at year-end 2023. Available borrowing capacity was approximately $16.7 million; total liquidity was $36.7 million as of May 10, including $15.4 million cash and $21.3 million undrawn availability.
- Total debt and finance lease obligations were $307.2 million, including $7.1 million current, compared with $311.4 million at December 31, 2023. Debt facilities carry substantial interest costs; stated rates include 10.09% on ABL revolver borrowings, 13.5% cash/PIK split on the Uptiered Loan and 12% cash on the Incremental Term Loan, subject to facility terms.
- Current assets were $298.2 million and current liabilities $171.0 million; shareholders’ equity was $26.3 million, below $50 million. The company reported compliance with debt covenants at quarter-end.
- Operating cash flow turned positive, supported by working-capital changes, including lower receivables and prepayments, partly offset by payments of accrued insurance, taxes and legal claims. Financing cash use was $9.8 million, largely reflecting debt repayments and issuance costs.
Outlook, risks and contingencies
- No quantitative revenue or earnings guidance is provided. Management says its forecasted working capital, operating cash flows and borrowing availability should fund operations, debt service and covenant compliance for one year after issuance, while cautioning actual results may differ materially from projections.
- On March 14, 2024, NYSE notified the company it was below the continued-listing standard because both average market capitalization and reported equity were below $50 million. Team submitted a compliance plan April 29; NYSE review was pending. Trading continued during the cure period, but the company gives no assurance it will regain compliance or avoid delisting.
- Team accrued $39.0 million for the Most wrongful-death litigation, estimating possible outcomes of $13 million to approximately $51 million; it says insurance is expected to cover further claims after retentions and deductibles. The filing reports total accrued contingencies of approximately $44.6 million, of which about $5.6 million is uninsured.
- It accrued $5.5 million for repayment of foreign-government pandemic wage subsidies following notices of noncompliance. Other disclosed risks include high leverage, liquidity and refinancing needs, interest rates, inflation, customer demand and payment timing, project delays, litigation, and NYSE listing requirements.
Investor verification priorities
- Track NYSE’s decision on the compliance plan and the company’s progress toward the applicable listing standards.
- Verify cash generation, unrestricted liquidity, borrowing availability, covenant headroom and refinancing options against the high-cost debt burden and maturities.
- Monitor the Most litigation appeal and settlement, insurance recoveries, and repayment schedule for the subsidy accrual.
- Assess whether improved segment margins and cash flow persist despite lower revenue and continuing cost inflation; review GAAP results separately from adjusted measures.