Team, Inc.

Good morning and welcome to the Team, Inc. Third Quarter Update Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. I will now 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 third quarter 2024 operational and financial results. On the discussion today are Keith Tucker, our CEO, 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 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 CEO.

Thank you, Nelson. Welcome, everyone, and thank you for joining us to review our recent accomplishments and our third quarter results. As we are approaching the end of the year, I want to highlight some of the significant accomplishments that we've made thus far in 2024. Over the past two years, we've been executing a strategic roadmap designed to better position team for success and improve financial performance in the future. We have simplified the business, worked to address our capital structure and balance sheet, improved our margins, and are now well positioned to grow once again. Our results so far in 2024 reflect tangible progress in the execution of this strategy. We have increased our margins and adjusted EBITDA, lowered our costs, and continue to work to identify and implement additional cost reductions and margin enhancements. I'm encouraged by the progress we've made so far and the overall trajectory of our business, and I am thankful for all the employees at TEAM that have helped to make this possible. Turning to our third quarter, we continue to deliver solid results with positive free cash flow and year-over-year improvements in revenue, operating income, adjusted EBITDA, and lower expenses. For the third quarter, revenue was up 2% compared to Q3 2023, mainly due to a 6% increase in revenue from our U.S. inspection and heat treating and mechanical services segments. driven by strong turnaround and nested activity. This U.S. revenue growth was partially offset by lower year-over-year revenue from both of our Canadian segments due to lower turnaround and nested activity and less project work. We made continued progress in our cost management program with selling, general, and administrative expense for the third quarter nearly $4 million lower versus the prior year period. And on an adjusted basis, which excludes non-cash and non-recurring items, down 30 basis points from 2023 to 21.7% of revenue. In the third quarter, we delivered adjusted EBITDA of $11.3 million, driven by strong performance in our U.S. operations. And through the first nine months of 2024, We generated nearly 40 million of adjusted EBITDA, a 21% improvement over the first nine months of 2023. Our ongoing actions to lower costs have led to margin expansion that we believe we can continue to build upon. As we had noted previously, our goal has been to grow adjusted EBITDA margins to 10% or more, and through the first nine months, we are over 6%, which is an important step towards achieving this goal. We have made meaningful progress thus far in 2024, and we believe there is more to accomplish. To that end, we remain focused on strict cost discipline, driving revenue growth and improving operational execution. Importantly, in September, we launched a series of actions that in the near term are expected to yield annualized cost savings of between $6 million and $8 million. In addition, we are in the midst of implementing a number of actions 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 see the results from these actions reflected in our performance beginning in the fourth quarter and continuing into 2025. Our results also benefited from an improved job mix, driven by our increased focus on higher margin revenue streams with stronger pricing as demonstrated by the 41% increase in heat treating revenue and 32% increase in aerospace revenue in the third quarter. 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. Looking ahead to the fourth quarter of 2024, we continue to experience healthy activity levels across both of our segments and expect further improvement in margin performance and financial performance versus 2023. We expect these factors together with additional traction on our commercial initiatives to provide positive momentum as we enter 2025. With that, I would like to turn it over to Nelson to discuss our financial accomplishments.

Thank you, Keith. Our third quarter 2024 results demonstrate the ongoing progress we are making on generating positive cash flow, adjusted EBITDA, and improving our margins. As Keith discussed, we saw year-over-year increases in revenue, operating income, and adjusted EBITDA. Our gross margin for the third quarter was 25.4%, but more importantly, we generated positive free cash flow of $3.9 million through a combination of better financial performance, improved working capital management, and a tightly focused capital program. Our consolidated net loss for the quarter decreased to $11.1 million, a $1 million improvement over the 2023 period. We are confident in the strategic roadmap we laid out earlier this year to improve our cost structure and streamline our operations, and we are continuing to implement additional improvements. We expect our ongoing program will further demonstrate sustainable improvements to margins and cash flow. As Keith pointed out, over the last two years, we have worked to stabilize the business and focus our efforts on the execution of our strategic roadmap, the results from which can be seen in our improved financial results. 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 seven straight quarters. We have generated almost $40 million of adjusted EBITDA thus far in 2024 and nearly $50 million on a trailing 12-month basis. In addition, our adjusted EBITDA margin has improved dramatically over the same period, and we see a clear path forward towards 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, which should further strengthen the balance sheet while also reducing our leverage ratio and allowing for debt paydown. In September 2024, we successfully amended and extended our ABL credit facility on attractive terms that improved accessibility and pricing, further strengthening our balance sheet. As we continue to drive top line and adjust the improvement, we continue to look for opportunities to further improve our capital structure and view this ABL renewal as a successful first step. I'd like to thank our financial partners for their continued support and confidence and team. We believe that we are in a significantly improved position now compared to where we were three years ago, and I am 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. With that, let me now turn it back over to Keith for some closing comments.

Thanks, Nelson. We are encouraged with the progress that we've made. and the overall trajectory of the business. But this leadership team believes there's more that we can do. Regarding our full year outlook, I want to note that due to the underperformance we are currently working to address in our Canadian business, and to a lesser extent, certain international operations, we are revising our full year operating and cash flow guidance for 2024. We now see total company revenue of between 845 million and 860 million, a gross margin of between 220 and 228 million, and adjusted EBITDA of between 53 and 55 million. Our capital expenditure guidance remains unchanged. Turning to 2025, we see continued operational and financial momentum. Based upon the early traction of our commercial initiatives, and continued focus on cost discipline, we expect to see low to mid single-digit revenue growth, improved performance from our Canadian operations, and further meaningful progress towards our targeted adjusted EBITDA margin of at least 10%, all of which we believe will lead to further growth in 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 this leadership team. We continue to deliver improving results as we execute the strategy we outlined to the market in May. The work we've done over the past two and a half years has yielded some encouraging results, which are evident in our 2024 performance, and I believe that 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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.