TEAM, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. Unless noted, operating results below are continuing operations (Inspection and Heat Treating, or IHT, and Mechanical Services, or MS); Quest Integrity is presented as discontinued operations. The filing was signed November 8, 2022.
Business context and key financial results
TEAM provides inspection, heat treating, maintenance, repair and asset-integrity services to industrial customers. On November 1, 2022, after the reporting date, it completed the sale of Quest Integrity to Baker Hughes.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $218.3m | $197.9m | $628.9m | $591.0m |
| Gross margin | $56.0m (25.7%) | $44.5m (22.5%) | $149.3m (23.7%) | $132.8m (22.5%) |
| Operating loss | $(1.7)m | $(72.2)m | $(34.9)m | $(108.0)m |
| Net loss from continuing operations | $(26.6)m | $(90.4)m | $(93.2)m | $(146.9)m |
| Net loss per share, continuing operations | $(0.62) | $(2.92) | $(2.25) | $(4.75) |
| Interest expense, net | $26.7m | $9.9m | $63.7m | $28.8m |
Q3 revenue rose 10.3%, with IHT up 8.7% and MS up 12.1%. Nine-month revenue increased 6.4%, led by MS. The Q3 gross margin improved year over year. Operating losses narrowed substantially, but comparisons include a $55.8m MS goodwill impairment in 2021 and no corresponding charge in 2022. Management also reported improved segment activity and cost efficiencies, alongside persistent cost inflation.
Cash flow, debt and liquidity
- Cash flow statements include discontinued operations: operating cash used was $46.4m for the nine months, investing cash used was $13.8m and financing cash provided was $63.3m. Capital expenditures were $21.0m. Management’s non-GAAP continuing-operations free cash flow was negative $67.9m.
- At September 30, cash and cash equivalents were $56.4m, including $30.7m unrestricted and $25.7m restricted. The company reported $20.5m of undrawn facility availability in its September 30 liquidity discussion.
- Gross debt and finance lease obligations were $511.2m, compared with $405.9m at December 31, 2021. Of the September balance, $506.4m was classified as current because of debt maturity-trigger provisions. The $97.4m principal balance on 5.00% convertible notes was due August 1, 2023 before subsequent exchanges.
- Interest costs were elevated: the Atlantic Park term loan’s effective rate was 25.72%, and the subordinated term loan’s was 46.79%, including accelerated amortization of financing costs. Variable-rate debt exposed the company to further rate increases.
- After the Quest Integrity sale, net proceeds were approximately $270m; about $238m was applied to term debt, fees and accrued interest. As of November 4, TEAM reported $76.0m cash, of which $6.8m was restricted, and $13.7m of undrawn availability, or $82.9m total liquidity.
Material changes, outlook and risks
- Going concern: Management concluded that substantial doubt existed about TEAM’s ability to continue as a going concern. It stated that forecast resources were not sufficient to fund operations, meet covenants and satisfy obligations, particularly the convertible notes. The notes’ principal had to be reduced to $10m, or equivalent cash held, by the amended June 17, 2023 trigger date; otherwise, cross-defaults could make other debt payable on demand. The company was exploring refinancing, extensions, asset sales and other financing, with no assurance of success.
- Subsequent financing and sale actions: In October 2022, TEAM exchanged approximately $57m of notes plus accrued PIK interest for increased subordinated term loans, leaving approximately $41.2m of notes outstanding. The sale and subsequent debt amendments changed the liquidity and maturity position after quarter-end; those developments do not eliminate the filing’s stated financing risks.
- No numerical guidance: The filing provides no quantified earnings or revenue guidance. Management said additional financing would be required to fund operations over the next 12 months and beyond, while also stating it believed liquidity and operating cash flows would be adequate for 2022.
- Legal contingency: In the Most wrongful-death litigation, a jury had returned a $222m verdict; TEAM appealed and said affirmation of that amount was not probable. It estimated possible outcomes of $13m to approximately $51m and recorded an accrual based on its most likely probable-loss estimate. Aggregate accruals for the discussed legal matters were approximately $44m, with about $5m not covered by insurance, according to the filing. A separate California wage-and-hour settlement awaited court approval; an EPA matter was settled for $0.2m.
- NYSE listing: TEAM received a November 2 notice for again falling below the $1.00 average share-price listing standard. It also remained subject to a market-capitalization/shareholders’ equity deficiency plan. The company warned that delisting could impair liquidity and financing and could trigger a note repurchase obligation. Shareholders approved a reverse-stock-split proposal on November 2.
- Other stated risks include inflation, labor and supply-chain costs, rising interest rates, customer payment delays, foreign-exchange exposure, COVID-19 and broader economic volatility, and potential supply-chain effects from the Ukraine conflict. Management said disclosure controls were effective as of September 30.
Important facts for investors to verify
- Whether TEAM can meet the June 2023 debt trigger and August 2023 note maturity requirements, maintain covenant compliance and obtain further extensions or refinancing.
- How the Quest Integrity sale proceeds, debt repayment and amendments affect debt balances, interest expense, restricted cash and actual available liquidity after quarter-end.
- Whether continuing operations can generate positive operating cash flow and sustain margin improvements after the divestiture.
- The outcome and insurance recovery of the Most litigation, and any changes to the company’s recorded legal accruals.
- Progress toward NYSE listing compliance, including the share-price cure and the market-capitalization/equity plan.