Team, Inc. (TISI) Q4 2024 Earnings Report, Transcript and Summary

Good morning, and welcome to the Team, Inc. Fourth Quarter and Full Year 2024 Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Nelson Haight, CFO. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Team, Inc.'s discussion about our fourth quarter and full year 2024 operational and financial results. On the discussion today are Keith Tucker, our Chief Executive Officer; and myself, Nelson Haight, Chief Financial Officer. I want to remind you that management's commentary today may include forward-looking statements, including without limitation, those regarding revenue, gross margin, operating expense, other income and expense, taxes, adjusted EBITDA, cash flow, and future business outlook, which by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the risk factors that could cause actual results to differ, please refer to the Risk Factors section of Team, Inc.'s latest annual and quarterly filings filed with the Securities and Exchange Commission, along with our associated earnings release. Team assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. With that, I will turn it over to Keith Tucker, our Chief Executive Officer.

Thank you, Nelson. Welcome, everyone, and thank you for joining us to review our 2024 accomplishments and recent highlights from the first quarter of 2025. Over the past two years, we have been executing a strategic road map designed to better position Team for success and improved financial performance. We simplified the business, worked to address our capital structure and balance sheet, improved our margins and are now well-positioned to grow our top line and expand our market share. Our results in 2024 reflect the increasing impact of our operational and commercial initiatives, with year-over-year expansion in our margins and adjusted EBITDA, driven by our ongoing focus to identify and implement additional cost reductions and margin enhancements. In March 2025 we successfully refinanced our capital structure, lowering our blended interest rate by more than 100 basis points, and extending our term loan maturities out to 2030. The tangible improvements we have delivered in operating performance and cash flow generation over the past 2 years were key to completing this refinancing. Nelson will go into more detail about this but I believe the hard work from all of the employees at Team has helped to make our success possible. Turning to the fourth quarter. We continue to deliver solid results generating positive free cash flow and year-over-year improvements in operating income, adjusted EBITDA and our expense base. For the fourth quarter, revenue was nearly flat compared to the prior year period. Despite the slightly lower revenue, our operating income in both segments increased by 45.4% and 51%, respectively. Our focus on higher margin opportunities in both segments, coupled with sustainable cost reductions led to the significant improvement in operating income. Our continued progress in the previously announced cost management program can be seen in our selling, general and administrative expense for the fourth quarter, which was lower by more than $4 million versus the prior year period. This helped drive our adjusted EBITDA higher, nearly $5 million, to $14.6 million. And for the full year 2024, we generated over $54 million of adjusted EBITDA, a roughly 28% improvement over 2023. We made meaningful progress in 2024, and we believe there is more to accomplish in 2025. To that end, we remain focused on driving revenue growth, strict cost discipline and improving operational execution. Importantly, we recently launched a series of actions that, in the near term, are expected to yield annualized cost savings of around $10 million. In addition, we are in the midst of implementing steps to drive improvements in the performance of our Canadian operations. These actions are a mix of top-line growth initiatives and steps to improve our cost structure and margins. We expect to begin to see these results from these actions in our 2025 results, with the full impact realized in 2026. Looking ahead to 2025, we continue to experience healthy activity levels across both of our segments and expect further improvement in margin and financial performance versus the increases that we saw in 2024. We remain keenly focused on maintaining our positive margin trajectory and cash flow generation through both top-line growth initiatives and continued cost discipline, which will further strengthen our financial position and accelerate our cash flow growth, ultimately leading to enhanced shareholder value. We expect these factors, together with additional traction on our top-line commercial initiatives, to provide positive momentum in 2025. With that, I would like to turn it over to Nelson to discuss our financial accomplishments.

Thank you, Keith. Before I go into our strong fourth quarter and full-year financial results, I would like to discuss in more detail the actions we have taken to strengthen our balance sheet over the past 2 years. In June of 2023, we announced a refinancing that, among other things, allowed us to pay off our convertible notes and simplified our capital structure. In September of 2024, we successfully amended our ABL credit facility, extending the maturity to September 2027, improving the pricing and expanding availability. At year-end 2024, we had $325 million in total debt and $77 million of total liquidity. On March 12, as Keith mentioned, we closed a refinancing transaction that lowered our blended interest rate by over 100 basis points, turned out our capital structure and extended term loan maturities to 2030. We entered into a new first-lien term loan facility comprised of a funded $175 million term loan that matures in 2030, and a $50 million delayed draw term loan available to the company subject to satisfying certain conditions. We used these proceeds to repay $157.7 million of outstanding debt, consisting of our delayed draw term loan, and equipment and real estate loans, under our ABL credit facility, as well as a portion of the outstanding balance of our existing senior secured term loan facility. All remaining outstanding debt under the existing senior secured term loan was rolled over into a new $97.4 million second-lien term loan, also maturing in 2030. With the completion of this transaction, we have addressed all of our near-term maturities, lowered our cost of track capital and provided financial flexibility as the company's performance continues to improve. Turning now to our 2024 financial results. The improvements in team's financial performance over the last 2 years have placed the company in a much stronger position. In 2024, although our revenue was down about 1% year-over-year, our adjusted EBITDA was up almost 28% to $54.3 million. Our margins continue to expand as we are seeing the tangible impact of our cost-cutting initiatives and emphasis on higher-margin work. I want to point out that we have increased our adjusted EBITDA every year since 2021. And since the first quarter of 2023, we have delivered improved year-over-year quarterly adjusted EBITDA for 8 straight quarters. Overall, our selling, general and administrative costs were down almost $11 million compared to 2023, which contributed to our ability to generate $13.3 million of free cash flow in 2024. Our consolidated net loss for the year decreased by almost 50% to $38.3 million, a $37.5 million improvement over the prior year. As Keith pointed out, over the last 2 years, we've worked to stabilize the business and focused our efforts on the execution of our strategic road map. Our continued success should help us build confidence in the strategic road map we laid out earlier as we this year our cost-improvement initiatives and streamlined our operations. We are continuing to implement additional improvements and recently expanded our initiatives to further optimize costs and workforce utilization, targeting annualized cost savings of at least $10 million. We expect our ongoing program to generate sustainable improvement to margins and cash flow. Our adjusted EBITDA margin, which was 6.4% for 2024, has significantly improved over the last 3 years, and we believe that we are on the right trajectory toward achieving our goal of a 10% or more adjusted EBITDA margin. Furthermore, we expect our improved cash flow and EBITDA generation to provide increased liquidity and further strengthen the balance sheet, while also reducing our leverage ratio and allowing for future debt paydown. As you can see from our results and recent refinancing, we believe we are in a significantly improved position compared to where we were 3 years ago, and I remain confident in our ability to continue successfully executing our strategic vision, and improving our overall financial and operating performance. We are excited to continue to deliver strong results that we expect will lead to growth and shareholder value. And with that, let me turn it back over to Keith for some closing comments.

Thanks, Nelson. We are proud of the many accomplishments that we have made these past several years. While we are very encouraged with the progress that we have made, and the overall operational and financial accomplishments we have delivered, this leadership team believes there is more that we can do. We see growing operational and financial momentum heading into 2025, and based upon the early traction of our commercial initiatives and continued focus on cost discipline, we expect to see multiple positive results. These include mid-single-digit revenue growth, improved year-over-year performance from our Canadian operations, and with our current expectation at least 15% year-over-year growth in 2025 adjusted EBITDA, further meaningful progress towards our targeted adjusted EBITDA margin of at least 10%, all of which we believe will lead to further growth and shareholder value. I am grateful for such an outstanding and experienced workforce that is working to safely execute on our strategic plan and unlock the inherent value here at Team. I am very proud of our safety culture and our focus on continuous improvement because at the end of the day, our people are our most vital asset and no job is too important not to be done safely. In closing, I remain very excited about our future because I am a firm believer in our capabilities, talented employees and our leadership team. We have delivered encouraging results over the past 3 years and remain committed to continuous improvement in margin, cost discipline and cash flow generation. And I believe we are well positioned to sustainably and profitably grow Team well into the future. Thank you for joining us today and for your continued interest in Team.