Team, Inc.

Greetings and welcome to the Team Incorporated second quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kevin Smith, Senior Director of Investor Relations. You may begin.

Thank you, Stacey. Welcome, everyone, to Team's second quarter 2021 earnings conference call. With me on today's call are Anne-Marie Nogatti, our Chairman and Chief Executive Officer, and our Chief Financial Officer, Susan Ball. This call is also being webcast and can be accessed through the audio link under the Investors Relations section of our website at teaminc.com. Information recorded on this call speaks only as of today, August 4, 2021. Therefore, please be advised that any time-sensitive information is may no longer be accurate as of the date of any replay listening or transcript reading. There will be a replay of today's call, and it will be available via webcast by going to the company's website, teaminc.com. In addition, a telephonic replay will be available until August 11th. The information on how to access these replay features was provided in yesterday's earnings release. Before we continue... I would like to remind you that this call contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act of 1995, including statements of expectations, future events, or future financial performance. Forward-looking statements involve inherent risks and uncertainties, and we caution investors that a number of factors could cause actual results to differ materially from those contained in any forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's annual report on Form 10-K and in the company's other documents and reports filed or furnished with the Securities and Exchange Commission. The company assumes no obligation to publicly update or revise any forward-looking statements, except as may be required by law. Ann Marino will begin by highlighting significant events in the second quarter and providing an update of our business. Susan will then detail our results, and before we take your questions, Ann Marino will discuss the company's outlook. I would now like to turn the call over to Ann Marino.

Thank you, Kevin, and good morning, everyone. We remain cautiously optimistic on the strength of the global recovery. However, as the second quarter demonstrated, the recovery is proving to be uneven with disruptive stops and starts both domestically and internationally. Vaccine rollouts are gaining momentum and driving an overall increase in mobility and economic activity. Domestic petroleum demand has experienced a dramatic increase with recent levels that are in line or above the comparable weeks in 2019. In fact, US gasoline demand recently set a record as motorists were eager to travel during the 4th of July holiday. Likewise, the TSA reported new post-pandemic records in domestic air travel. While the recent emergence of COVID variants is concerning and requires close monitoring, the overall pace of the domestic recovery is strong. International is a different story. Business remains challenging with lower vaccination rates impacting teams' ability to travel and service our clients' assets. In these areas, the rebound in gasoline and air travel has been muted. After more than a year of operating in a pandemic with reduced global mobility, we have seen a step change in consumption demand for travel as COVID-related restrictions were lifted. causing cost inflation in raw materials, transportation and labor. TEAM was not immune from the underlying inflationary pressures and higher costs associated with the ramp up in overall economic activity. The second quarter started strong in April with activity levels benefiting from several large turnaround projects. May and June also realized improvements from increased economic activity with the easement of worldwide pandemic restrictions. The team was able to benefit from the backlog of delayed maintenance projects, reporting consolidated revenue for the quarter at the upper end of our expectations. Although second quarter revenue improved over 2020 levels, we continue to experience an uneven global recovery across segments with varying demand for our products and services. IHT and Quest are currently recovering at a faster pace than mechanical services. Now turning to our financial performance, consolidated revenue for the second quarter of 2021 was $238.9 million, up 26.2% from the same quarter in 2020, marking the first full year-over-year quarterly comparison of the COVID impact. The revenue increase reflects the opening of the U.S. economy as well as growth in select international markets. Gross margin was 26.3%, below the prior year quarter of 30.3%. Gross margin was negatively impacted by underlying cost inflation associated with the ramp-up in economic activity and lingering COVID pricing concessions. Adjusted EBITDA for the quarter was $9.1 million or 3.8% margin. There was a year-over-year margin decline driven by the inflationary cost environment and the reinstatement of the 2020 temporary cost initiatives. We also increased our investment in training certifications, completing more than 35,000 training hours when compared to the second quarter of 2020, an increase of more than $1 million. Turning to our segment overview, I will begin with mechanical services. Revenues were up 4.7% over 2020's depressed activity levels. MS completed work on several large turnarounds during the quarter, increasing revenue by 11.2% sequentially. MS continues to experience large project deferrals and a competitively priced market. During the quarter, many large turnaround projects were delayed until later this year or pushed into 2022. MS margins were also negatively impacted by inflationary cost pressures. MS experienced year-over-year growth in the areas of fabrication, pulp and paper, powering utilities, and renewable energy. As we reported yesterday, after three field tests, TEAM commercialized its new patent-pending SmartStop isolation technology. The latest test was successfully completed on a 16-inch flare line at a refinery. TEAM's proprietary SmartStop technology eliminates the need for complicated hydraulics or pivot points that are failure mechanisms in competitive line intervention tools. This new technology features a self-energized dual seal system within a single standard line stop fitting, reducing the number of pipe alterations required to perform an isolation. SmartStop will increase operational safety, further strengthening our competitive advantages in the hot tapping market. Now turning to our inspection and heat treating segment. IHT continues to perform well due to the run and maintain nature of the segment. Revenues were up 46% year-over-year. Similar to MS, IHT also realized inflationary cost pressures when coupled with the COVID price concessions negatively impacted IHT's margins for the quarter. IHT experienced year-over-year growth in the areas of refining, chemical and petrochemical, pulp and paper, and power and utilities. As the economy continues to open and plant utilizations rise, we have seen a steady increase in demand for our nested technicians. During the quarter, we were awarded two embedded contracts, one at a refinery and the other at a petrochemical plant. Our nested operations utilization is currently running at approximately 93% of pre-COVID levels. In addition, TEAM was awarded a long-term asset integrity program with a large investment grade midstream company. The scope of the project includes pipeline and facility mechanical integrity services. We will partner with the client to develop and implement a structured approach to asset integrity, supporting safer and more reliable operations across the client's large distributed pipeline infrastructure. IHT continues to diversify its end markets. As an example, we were recently awarded a nested contract to provide radiography and phased array ultrasonic testing for a private space flight company. TEAM has technicians on site providing services, and we expect the scope of the project to grow over time. Quest Integrity's revenue realized strong sequential growth, up 50.7% over the first quarter, and 51.4% increase over the comparable quarter in 2020. Due to Quest's visible project backlog, we began to more aggressively recruit globally in order to proactively manage the anticipated increase in demand. Quest was recently awarded several large full-service pipeline inspection projects at domestic oil and gas production facilities, midstream assets, and refineries. In addition, Quest won a unique multi-year contract in Australia, which upon successfully completing the inspections, could open a new end market for Quest's integrated solution offerings. Quest continues to see strong demand in the offshore subsea market. During the quarter, Quest successfully completed an offshore inspection project in West Africa. The client's pipeline had significant internal diameter changes, making the inspection extremely challenging. Quest proprietary high-resolution tools are uniquely capable of inspecting pipelines with these characteristics. Given Quest's success, we anticipate an increase in deep water activity in this region. From a geographic perspective, despite the COVID-related challenges that have limited our ability to travel to client worksites, we realized year-over-year growth in many parts of the world. In Canada, we experienced year-over-year growth and the focused efforts to improve workforce utilization and drive down indirect costs allowed us to expand gross margin and deliver a higher year-over-year adjusted EBITDA. During the quarter, Canada was particularly affected by COVID outbreaks, forcing project delays in Western Canada that limited further revenue and margin expansion. As vaccine rates increase, Canada's economic activity will grow which should bode well for our end markets. Our Canadian team received the Alberta Boilers Safety Association approval for composite alterations. Team is uniquely positioned as the only full-service provider that has been awarded this certification. Many European countries also implemented COVID-related lockdowns through April and May before opening up in June. Despite the challenging environment, Teams European operations realized incremental year-over-year revenue and adjusted EBITDA growth. The Middle East remains volatile, as some countries have struggled with vaccine rollouts. For example, UAE has the highest vaccination rates in the Middle East and one of the highest in the world, allowing for more robust economic recovery, while other countries still have imposed quarantine restrictions, limiting travel in and out of the country. We were recently awarded a new five-year contract supporting on-stream leak-sealing call-out work with a large NOC client in Qatar. In addition, we were awarded a multi-year hot-tapping service contract for a multinational chemical manufacturing company in Saudi Arabia, helping build our market share in the kingdom. I will now turn it over to Susan for a more detailed financial review. Susan?