Keith D. Tucker - Chief Executive Officer

Nelson M. Haight - Executive Vice President and Chief Financial Officer

Good day, and welcome to the Team, Inc. Second Quarter Update Conference Call.

Today, all participants will be in a listen-only mode. [Operator Instructions] Please note that today's event is being recorded.

I would now like to turn the conference over to Nelson Haight, CFO. Please go ahead, sir.

Nelson M. Haight

Thank you, operator. Good morning, everyone, and welcome to the Team, Inc. discussion about our second quarter 2024 operational and financial results.

On the discussion today are Keith Tucker, our Chief Executive Officer; and myself Nelson Haight, the 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 speaks as of their respective dates.

As a reminder, a reconciliation of the non-GAAP financial measures referenced during this call is available in our earnings release.

With that, I will turn it over to Keith Tucker, our Chief Executive Officer.

Keith D. Tucker

Thank you, Nelson. Welcome, everyone, and thank you for joining to review our recent accomplishments and our second quarter results.

In May, as a reintroduction to Team, we posted an updated presentation with commentary by Nelson and me. I would encourage everyone to listen to it as it provides additional information on our strategy and market leading capabilities.

Team has a rich history and an impressive track record in our industry. However, when I took over as CEO in 2022, we faced a number of the internal and external challenges. Over the past two years, we have been executing a strategic roadmap in order to better position Team to succeed in the future. We have simplified the business, worked to address our capital structure and balance sheet, improved our margins, and we are well-positioned to grow once again.

With respect to our second quarter results, we built-off the positive momentum we established during the first quarter and demonstrated continued progress in lowering costs, expanding margins and improving cash flow generation.

For the Q2, gross margin dollars grew nearly $3 million to $63.6 million and our gross margin improved 240 basis points over the prior year period. Our adjusted selling, general and administrative expense, which is a rough measure of cash SG&A costs were $2 million lower over the prior year period and these factors contributed to an adjusted EBITDA margin for the quarter that expanded to 9.5% of consolidated revenue and adjusted EBITDA of $21.8 million up 25% from the 2023 period. Our ongoing efforts to lower costs have led to margin expansion that we believe we can continue to build upon.

As we have noted previously, our goal is been to grow adjusted EBITDA margins to 10% or more and our first half results are a significant step towards achieving this goal. While we remain focused on cost discipline and operational execution, during the second quarter, we launched a series of targeted commercial initiatives designed to drive revenue growth within our core markets, accelerate our expansion into higher growth and higher margin in markets such as aerospace and midstream and strengthen our commercial discipline. These initiatives continue to gain traction and we expect to see meaningful progress in the second half of 2024.

We continue to see strong demand at our state-of-the-art aerospace facility in Cincinnati, with revenue up 46% and we recently approved an incremental investment in that facility that will further expand our aerospace capacity by the end of 2024. Our results are also benefiting from an improving job mixed driven by an increased focus on higher margin revenue streams with stronger pricing.

I'm also pleased to note, that we recently made strategic additions to our Operations Management team in the Midstream and Aerospace segments to further drive growth in these attractive high margin sectors. We expect these actions together with our continued emphasis on cost efficiency to further strengthen our financial position and accelerate our cash flow growth, ultimately leading to enhanced shareholder value.

Looking ahead to the second half of 2024, we see strong activity levels across both our segments, particularly in turnaround activity and project related work and expect further improvement in margin performance as well as improved financial performance versus the first half of 2024 from our international and Canadian operations. We expect these factors together with growing traction on our commercial initiatives to provide topline growth in the second half of 2024 as compared to the prior year. All of these efforts have resulted in solid operational performance and improving financial results, and we remain sharply focused on continuing this trajectory and strengthening our balance sheet.

I want to take this opportunity to point out that our full-year 2024 adjusted EBITDA guidance is between $58 million and $68 million representing a 48% improvement at the midpoint over 2023. With our strong second quarter and first half results, we remain on-track to hit this guidance and continue on this positive trajectory.

With that, I would like to turn it over to Nelson, to discuss our financial accomplishments.

Nelson M. Haight

Thank you, Keith, and thank you for joining our call.

Our second quarter 2024 results confirm our progress made to-date in improving our margins. Despite slightly lower year-over-year revenue, our gross margin, operating income and adjusted EBITDA all increased significantly. We improved our gross margin by 240 basis points to 27.8%. Our operating income increased by almost 150%. We improved cash flow from operating activities by $19 million and adjusted EBITDA grew by 25% to $21.8 million on a year-over-year basis. Our consolidated net loss for the quarter was $2.8 million, a $13 million improvement over the 2023 period.

We believe that our solid first half 2024 financial and operational performance will continue into the second half of the year. We are confident in the strategic roadmap we laid out in May to improve our cost structure and streamline our operations. We expect our ongoing program will further demonstrate a sustainable benefit to margins and cash flow.

As Keith pointed out, over the last two plus years we work to stabilize the business and focus our efforts on the execution of our strategic roadmap, the results of which can be seen in our improved profitability. We have increased our adjusted EBITDA every year since 2021 with a compounded annual growth rate of 34% from 2020 to the midpoint of our 2024 guidance, which we are well on our way to achieving given our strong second quarter and first half 2024 results.

In addition, our adjusted EBITDA margin has improved dramatically over the same period and our margin at the midpoint of our 2024 guidance would represent the highest margin at least six years. More importantly, we see a clear path toward achieving our goal of a 10% or more adjusted EBITDA margin in the near future.

We expect improved cash flow and EBITDA generation to provide increased liquidity that would further strengthen the balance sheet, while also lowering our leverage ratio and allowing for debt pay down. We continue to work on these priorities and are already working on our plan to address our next debt maturity which is in August of 2025.

I would like to thank our supportive stakeholders who not only know our business, but see the inherent potential and are aligned with our strategic roadmap. We have started the year off on the right foot and we expect to build on this positive momentum which can be seen in our 2024 full-year outlook. We are focused on high grading our project portfolio with further cost savings and margin expansion efforts that will continue to grow our margin and adjusted EBITDA and allow for incremental revenue growth to be highly margin accretive.

As Keith stated earlier, we are projecting a 48% increase in adjusted EBITDA at the midpoint of our 2024 outlook as compared to 2023. We are in a much improved position now compared to where we were three years ago, and I'm confident in our ability to continue the successful execution of our strategic vision. We're excited to deliver improved 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.

We are encouraged with the progress that we have made and the trajectory of our business. As you can see, we have accomplished a lot, but this leadership team believes there is quite a bit more to play for here. We have a committed and experienced workforce that is squarely focused on executing our strategic plan and unlocking the value we believe is inherent in this franchise.

I'm 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. I'm a firm believer in Team, our operational capabilities, talented employees and this leadership team. I want to thank our employees for their dedication, hard work and commitment to safe operations. None of this would be possible without them.

In closing, I believe that there is a meaningful opportunity to further unlock the value that is inherent in Team. We have gone through a period of underperformance without a clear strategy and a clear focus and we are not only fixing that, but we are delivering improving results. The work we've done over the past two and a half years has yielded some encouraging results and we believe that we are well-positioned to sustainably and profitably grow Team for the remainder of 2024 and into the future.

Thank you for joining us today and your continued interest in Team.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.