Team Q3 2026 Earnings Call Transcript

Team (NYSE:TISI) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Team reported third-quarter revenue of $220.4 million, a 2% decrease from the previous year, driven by a significant decline in mechanical services revenue due to deferred turnaround activities.

The company is in advanced discussions for a long-term aerospace agreement and a nuclear project in Europe, which could diversify and expand its service offerings.

Ongoing transformation efforts focus on leadership, commercial execution, and operational efficiency, with expected cost savings of $30-$38 million annually.

The Middle East conflict and deferral of maintenance activities have pushed expected revenue into early 2027, impacting short-term financial performance.

Future guidance for 2026 has been revised to $870-$890 million in revenue and $56-$59 million in adjusted EBITDA, reflecting deferred activities and current market conditions.

Full Transcript

OPERATOR

Good day and welcome to Team’s third quarter 2026 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note that this event is being recorded. I would now like to turn the conference over to Joseph Caminiti, Investor Relations. Please go ahead.

Joseph Caminiti (Investor Relations)

Thank you, Operator. Good morning, everyone, and welcome to Team’s third quarter 2026 earnings call. Joining me on today’s call are Gary Hill, Team’s Chief Executive Officer, and Clinton Roeder, Team’s Chief Financial Officer. Before we begin, I would like to remind everyone that management’s remarks today may contain forward-looking statements, including statements regarding revenue, gross margin, operating expenses, adjusted EBITDA, cash flow, and the company’s future business outlook. These statements are based on management’s current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially.

For a discussion of these risks, please refer to the Risk Factors section of Team’s most recent annual and quarterly reports filed with the Securities and Exchange Commission, as well as the company’s third quarter earnings release. Team undertakes no obligation to update any forward-looking statements, which speak only as of their respective dates. With that, I will turn the call over to Gary Hill, Team’s Chief Executive Officer.

Gary L Hill (Chief Executive Officer)

Good morning everyone and thank you for joining us. I’ll begin with an overview of our progress during the third quarter, including the continued advancement of Team’s operational and commercial transformation, before discussing the current operating environment and how we are positioning the business as we move into 2027. Clinton will then provide a more detailed review of our financial results, balance sheet, and updated full year outlook. Before discussing the quarter, I want to briefly highlight some recent commercial developments in aerospace. We are in advanced discussions with a leading global aerospace manufacturer on a potential long-term agreement that would expand the specialized services we provide from our aerospace facilities. Any financial contribution would build over several years, and we expect to be in a position to share more in the near term.

We are also in advanced discussions on a multi-year valve testing and inspection opportunity supporting a commercial nuclear project in Europe, which would extend our mechanical services business further into the nuclear power market. We expect to share more on this in the near term as well. Both opportunities draw on specialized capabilities we already have in our inspection and heat treating and mechanical services businesses. Additionally, we recently resolved a multi-year legal dispute with a large global integrated oil company that was previously one of our large customers, with historical revenue exceeding 20 million a year prior to this dispute. Now, with that dispute behind us, we expect to bring this customer back into our commercial planning, which gives us the opportunity to earn a greater share of its spend over time in line with our commercial strategy. We are already engaged in positive commercial discussions, and we are encouraged by the quick re-establishment of a relationship which had been prevented in recent years.

Turning to our broader transformation, during the third quarter we continued to make meaningful progress advancing the operational and commercial initiatives introduced on our last call. As a reminder, our transformation is centered on three key areas: leadership and accountability, commercial execution, and operational efficiency. Over the past several months, we have taken deliberate steps to strengthen our organizational structure, establish greater accountability, and improve the consistency of execution across the business.

Importantly, we remain on track with our transformation priorities and are encouraged by the progress made to date. Starting on the leadership front, we have continued to build on the organizational changes implemented earlier this year, with a focus on establishing clear ownership of our key priorities and improving coordination across our commercial, operational, and financial functions. On the commercial front, we are focused on identifying a leader for the transformation of our commercial sales organization. At the same time, we are making progress establishing a more disciplined and coordinated approach to how we identify, pursue, and execute customer opportunities.

This includes improving pipeline visibility, strengthening pricing and estimating practices, and bringing greater consistency to account management and project selection. Our goal is not simply to generate additional revenue, but to pursue profitable growth in markets where our technical expertise, execution capabilities, and safety record are most valued. As part of that effort, we recently centralized the quotations function to bring greater discipline and strategy to the function.

We are also driving our sales force to use our CRM tracking system so that we are better positioned to both compete for opportunities and forecast the work. A central component of that strategy remains expanding our presence beyond traditional refining and petrochemical markets. While those industries remain core to Team and represent meaningful long-term opportunities, we continue to see attractive prospects across aerospace, commercial nuclear power, LNG, utilities, and other industrial end markets. We are encouraged by the momentum building across these markets, which has helped partially offset softer turnaround activity within our traditional customer base.

As these commercial efforts continue to gain traction, we believe they will support a more balanced revenue mix and reduce our exposure to the timing of large turnaround and maintenance projects. Turning to operational efficiency, we have continued executing initiatives aimed at simplifying our business, improving productivity, and establishing a more efficient cost structure. Our efforts remain focused on several key areas including global footprint rationalization, organizational efficiency, procurement, labor fleet utilization, and improvements to the systems and processes supporting our operations. We have made meaningful progress in Europe and Canada, where we have undertaken actions to streamline our operations, consolidate facilities, and better align our organizational structure with the opportunities across those markets.

These actions, alongside our broader efforts to improve workforce productivity and reduce operating complexity, are important steps toward creating a leaner and more scalable operating model. We expect to complete additional initiatives through the remainder of the year, with the financial benefit of these improvements becoming increasingly evident as we move into 2027. While there is more work ahead, we are encouraged by the pace of execution and believe the progress we are making will position Team to generate stronger operating leverage as commercial activity grows.

Clinton will provide additional detail on our progress against the structural cost improvement targets introduced last quarter, including updated expectations for realized savings and the annualized benefits of the program. Shifting to the operating environment, third quarter results continue to reflect the deferral of planned turnaround and maintenance activity broadly across the industry in our core refining and petrochemical markets. As we discussed last quarter, elevated refinery utilization and favorable operating economics have continued to encourage customers to extend operating runs, delaying certain planned outages and maintenance projects. This dynamic has been particularly impactful within our mechanical services business, which carries greater exposure to higher-margin turnaround and outage-related work.

During the third quarter, turnaround revenue declined approximately 49% compared to the prior year period, following a decline of more than 50% observed through the first half of the year. The reduced contribution from this activity has continued to impact our revenue mix, labor utilization, and overall profitability. We think it is important to reiterate that this near-term headwind is expected to be transient to our financials based on our experiences in these markets.

This maintenance work can only be deferred for a finite period of time, and we currently expect much of it to begin returning in early 2027. At the same time, our inspection and heat treating business has remained comparatively resilient, supported by the recurring nature of inspection requirements and customers’ continued need to operate their assets safely and reliably. Even as facilities extend operating runs, ongoing inspections remain essential.

Combined with the growth we are generating across other industrial markets, this has helped partially offset the pressure from lower turnaround activity. We also continue to navigate disruptions associated with the ongoing conflict in the Middle East as the conflict has expanded in overall scope, including the Saudi region during the quarter, impacting our business in the third quarter more than it had prior. As conditions in the region have deteriorated, we have experienced additional challenges affecting customer activity and our ability to complete certain contracted projects. More recently, the expansion of the conflict has created further restrictions on access to customer facilities, resulting in additional work being pushed beyond the current year.

These developments are creating incremental pressure on our fourth quarter outlook, particularly as the timing of project completion remains difficult to predict. Importantly, as we said, we believe much of this activity has been deferred rather than lost. However, the timing of its eventual completion remains dependent on customer operating decisions and broader market conditions. Given this, we intend to retain necessary labor in order to be well positioned for the rebound in this activity as we progress into 2027 and ensure we don’t lose out on that opportunity.

Looking ahead, we continue to believe the underlying demand for Team’s specialized services remains intact. Refining and petrochemical facilities require ongoing inspection, maintenance, and repair to operate safely and efficiently, and there is a practical limit to how long certain maintenance activities can be deferred. We are seeing indications of increased turnaround and maintenance activity being planned for 2027, although the timing of that work will ultimately depend on customer operating schedules and refining utilization.

As those conditions normalize, we believe Team will be well positioned to capture opportunities across our core markets. Importantly, we expect to enter 2027 with a more efficient operating structure and an increasingly diversified commercial pipeline. The combination of structural cost improvements, stronger commercial execution, and expanding opportunities across high-value industrial markets should provide a more favorable foundation for profitability and cash generation as deferred turnaround activity eventually returns.

We believe these improvements will also allow Team to benefit from greater operating leverage across the business. While the timing of the recovery in our traditional markets remains uncertain, we are confident in the direction of our transformation and the actions we are taking to strengthen Team’s underlying earnings power. Our priorities remain clear: improve execution across the existing business, expand into attractive markets where capabilities are differentiated, and establish a more efficient operating structure capable of supporting sustained, profitable growth.

With that, I’ll turn the call over to Clinton for a more detailed discussion of our third quarter financial results and updated outlook.

Clinton W. Roeder (Chief Financial Officer)

Thank you, Gary, and good morning, everyone. Turning to our financial results, revenue was $220.4 million compared with $225 million in the prior-year period, a decrease of 2%. Revenue grew 8.3% in our international markets, which was more than offset by a decline of 4.4% in the United States, while Canada was relatively flat. Inspection and heat treating revenue was $127.1 million, an increase of 3.9% year over year, primarily due to increased non-turnaround revenue and call-out activity in those segments.

Segment operating income improved to $15.2 million from $14 million, reflecting a more favorable project mix. Mechanical services revenue was $93.3 million, a 9.1% decrease year over year, driven by lower turnaround and project revenue of $11.1 million in the U.S. and $1.2 million in Canada, partially offset by a $2.9 million increase in our other international regions. Segment operating income was $400,000 compared to $3.4 million in the prior-year period, reflecting the reduced activity levels in the U.S. and Canada.

On our last call, we indicated that we expected a portion of the deferred mechanical services activity to begin returning over the balance of the year. That did not materially occur in the third quarter, and as Gary noted, the escalation of the conflict in the Middle East has since pushed additional contracted work out and product sales likely beyond year end. Looking at the year-over-year change in our revenue, the downturn in turnaround activity with our refining and petrochemical customers accounts for more than 100% of the decline, and this is work that generally carries strong margins.

The good news is that we have been able to backfill much of that decline with growth in our key targeted markets. We expect that growth to become more evident and to further strengthen our consolidated results as the deferred refining and petrochemical revenue returns. Consolidated gross margin was $55.8 million, or 25.3% of revenue, compared with $58 million, or 25.8%, in the third quarter of 2025. The decline in nominal gross margin dollars reflects the lower contribution from higher-margin turnaround work within mechanical services, where our labor base does not flex with activity levels to the same degree as our inspection workforce, and the related impact on utilization. Selling, general and administrative expenses were $50.7 million, a decrease of $500,000, or 1.1%, from the prior-year period.

Reported SG&A included $7.4 million of non-cash and non-recurring items this quarter compared with $4.4 million a year ago, primarily legal costs and litigation reserve, severance and transition costs associated with workforce reductions, facility consolidation and lease terminations. Adjusted SG&A, which includes expenses not representative of Team’s ongoing operations, such as non-recurring professional, legal, financing and severance expenses, and non-cash expenses such as share-based compensation, decreased by $3.5 million, or 7.4%, to $43.3 million, or 19.7% of revenue, compared with 20.8% in the prior-year period.

Adjusted EBITDA was $15.7 million, or 7.1% of revenue, compared with $14.5 million, or 6.5%, in the third quarter of 2025, an increase of $1.2 million, or 8.2%, and up sequentially from $12.8 million in the second quarter. The increase was driven by inspection and heat treating, where segment adjusted EBITDA rose to $19.2 million from $17.3 million, partially offset by mechanical services, where segment adjusted EBITDA declined to $7 million from $7.8 million.

Corporate and shared support costs were essentially unchanged. Turning to our structural cost improvement program, during the quarter we advanced actions in Europe and Canada. Through the third quarter, we have realized approximately $9 million of savings, and we are raising our near-term expectations for our structural cost improvements, now expecting to capture between $15 and $18 million of benefit in 2026. We are increasing our expectation on the total amount we expect to capture through our efforts, with full program benefits now expected to range between $30 to $38 million at full annual run-rate, up from a range of $20 to $35 million.

Through the third quarter, we have incurred approximately $5 million of one-time implementation costs, including $1.8 million of transition costs and $2.3 million of severance in the quarter. These initiatives are largely within our control and are intended to create a more efficient cost structure and stronger operating leverage as customer activity improves. I think it’s important to note that our transformation initiatives, particularly on the cost side, are already having an impact, which has strengthened our confidence in the nominal amount of long-term structural cost improvement as well as the pace of capture. As we noted earlier, we finalized a one-time settlement with a former customer, and the cost associated with that is embedded within our SG&A results for the quarter. Stripping out this one-time settlement cost provides us good visibility into the progress we are making in driving our structural costs, and we believe this will be more fully evident in the results as we go forward.

Further, these actions support our ability to drive operating leverage and expand our EBITDA and operating margin. Turning to cash flow and the balance sheet, cash used in operating activities was $3.2 million in the quarter and capital expenditures were $2.6 million, resulting in a free cash flow of negative $5.8 million. Through the first nine months of the year, cash used in operating activities was $11.6 million, an improvement of $16.5 million compared with the prior-year period, driven primarily by working capital. We ended the quarter with total liquidity of approximately $43.5 million and net debt of $308.1 million.

During the quarter, we repaid $9.5 million under the ABL. Net working capital and cash generation remain key priorities. We are focused on improving order-to-cash, increasing accountability throughout the organization, and using future cash generation to further reduce debt. Turning to guidance, we are revising our full-year 2026 outlook to reflect the continued deferral of turnaround and maintenance activity in our core markets and the additional work pushed beyond year end following the escalation in the Middle East. We now expect revenue of $870–$890 million, gross margin of $226–$249 million and adjusted EBITDA of $56–$59 million. The difference compared to our 2025 results and our original 2026 guidance stems directly from these deferrals.

Our outlook assumes continued stability within inspection and heat treatment, no further escalation of the Middle East conflict, and the realization of the cost actions already taken. The timing of deferred work remains dependent on customer operating decisions and conditions in global fuel markets. As we move into 2027, we expect that structural cost actions, our working capital initiatives, and our commercial diversification efforts to provide a stronger foundation for profitability and cash flow generation as deferred maintenance activity returns. We remain focused on executing the transformation priorities Gary outlined and on delivering improved margins, adjusted EBITDA and cash generation. With that, I’ll turn the call back over to Gary.

Gary L Hill (Chief Executive Officer)

Thank you for taking the time this morning to dial in and participate in our call. We look forward to updating you on our transformation initiatives and growth as we move into 2027. Thank you.

Joseph Caminiti (Investor Relations)

Thank you, Gary and Clinton. As we announced earlier in the call, we invited investors to submit their questions ahead of time. We would like to thank those investors who took the time to do so, and we appreciate your continued engagement. We will only be taking questions today that were submitted in advance, starting with question one. What is the year-over-year impact from the quarter and year-to-date deferral of revenues and jobs? What is the timeline expectation for recouping those revenues?

Gary L Hill (Chief Executive Officer)

Turnaround revenue declined approximately 49% in the third quarter and is down approximately 51% year to date. The impact is mostly visible in our mechanical services, where lower oil and gas turnaround activity reduced third-quarter revenue by $11.1 million in the U.S. and $1.2 million in Canada. Year to date, mechanical services revenue is down $15.1 million, driven primarily by lower turnaround and project activity. On timing, we believe much of this work has been deferred rather than lost.

There’s a practical limit to how long this maintenance can be deferred, and we are seeing indications of increased turnaround activity being planned for 2027. We currently expect much of it to be returning in early 2027, with the exact timing dependent on customer operating schedules and refining utilization.

Joseph Caminiti (Investor Relations)

Thank you. And for our second question, how has the conflict in the Middle East affected the timing of this turnaround work, and what is helping to offset the decline in the meantime?

Gary L Hill (Chief Executive Officer)

Yes, conditions in the region have deteriorated. We’ve experienced additional challenges affecting customer activity and our ability to complete certain contracted projects. More recently, the expansion of the conflict has created further restrictions on access to customer facilities, resulting in additional work being pushed beyond the current year. It’s creating incremental pressure on our fourth-quarter outlook, and we’re working closely with customers on the exact timing of when we can gain access to the facilities.

Clinton W. Roeder (Chief Financial Officer)

Hi, this is Clinton. The inspection and heat treating revenue grew 3.9% to $127.1 million, primarily on project and call-out activity, and inspection remains essential even as customers extend operating runs. We’ve also been able to backfill much of the decline with growth in our key targeted markets.

Joseph Caminiti (Investor Relations)

Thank you, Gary and Clinton. Moving to the third question. As this work returns, how should we think about the effect on margins for the consolidated business as well as for the segment?

Clinton W. Roeder (Chief Financial Officer)

This is work that generally carries strong margins. Our mechanical service labor base does not flex with activity levels to the same degree as our inspection workforce, so lower volumes weigh on utilization. As deferred activity returns onto a more efficient cost structure, we believe Team will benefit from greater operating leverage. This will impact operating margins, EBITDA margins and drop-through to earnings. Keep in mind we are retaining labor in the current time frame in order to be best positioned to react and capture those revenues when they come back.

Joseph Caminiti (Investor Relations)

Thank you. And on to the next question. Can you give greater context on the new commercial agreements you are near to signing that you announced, and what is the relative size, and how big can you scale your business in those areas? Sure. This is—Gary, particularly—I’m sorry, I don’t want to cut you off—but particularly in the nuclear and aerospace. And are any of these also factored into guidance for the year or into 2027?

Gary L Hill (Chief Executive Officer)

Sure. This is Gary. Both opportunities are still in advanced discussion, so I want to be careful not to get ahead of them. In aerospace, the potential long-term agreement with a leading global aerospace manufacturer would expand the specialized services we provide from our aerospace facilities. Any financial contribution would build over several years. In nuclear, we are discussing a multi-year valve testing and inspection opportunity supporting a commercial nuclear project in Europe.

Because these agreements aren’t yet signed, we’re not going to size them today. Our updated 2026 guidance does not depend on either one, and we would expect any contribution to build over time. Both of them draw on capabilities we already have, and we expect to be in a position to share more in the future here.

Clinton W. Roeder (Chief Financial Officer)

Yes, this is Clinton. Two things changed since our last call. We expected a portion of the deferred mechanical services activity to begin returning over the balance of the year and that did not materially occur in the third quarter. The escalation of the conflict in the Middle East has since pushed additional contracted work and product sales likely beyond year end. The difference compared to our original guidance stems directly from these deferrals; on confidence, our updated range of 56 million to 59 million of adjusted EBITDA reflects our expectation that the recovery in this activity largely shifts into early 2027. It assumes continued stability within the inspection and heat treating, no further escalation of the Middle East conflict, and the realization of the cost actions already taken. For 2027, we are not providing guidance today. The building blocks are the return of deferred turnaround and maintenance activity, structural cost benefits that we now expect to reach $30 million to $38 million at full annual run rate, and continued growth in our key targeted markets.

We expect that growth to become more evident and to further strengthen our consolidated results as the deferred refining and petrochemical revenue returns. Yes, this is Clinton. Our order of operations starts with the business. The first priority is executing the transformation, where we now expect 30 to 38 million of structural cost benefits at full annual run rate alongside our working capital initiatives. We expect those actions to provide a stronger foundation for profitability and cash flow generation as we move into 2027, and we intend to use future cash generation to further reduce debt. We ended the quarter with total liquidity of approximately 43.5 million and net debt of 308.1 million.

We are reviewing our ABL and other credit agreements, arrangements, and what our potential alternatives may be to make sure we have the flexibility to invest and grow the business. Of course, our progress with the transformation and the credit market conditions, including interest rates, will impact what the capital structure possibilities are for us. As earnings and our cash flow improve, Team will be in a stronger position to address its capital structure, and we will update investors as that work progresses.

Yeah, the clearest way to see it is in our adjusted results, which exclude those items. Our third quarter results included a one-time charge of 2 million related to a legal settlement, along with 1.8 million of transformation costs and 2.3 million of severance. Excluding the settlement, corporate and insured support costs would have declined by 12.6%. Adjusted SG&A decreased by 3.5 million, or 7.4%, to 19.7% of revenue compared with 20.8% in the prior-year period.

Through the third quarter we have realized approximately 9 million of savings against approximately 5 million of one-time implementation costs, the majority for severance and facility closures. On the growth side, inspection and heat treating revenue increased 3.9% and revenue in our international markets grew 8.3%, and we have been able to backfill much of the decline in turnaround activity with growth in our key targeted markets. Together, these helped adjusted EBITDA increase 8.2% to 15.7 million, and our adjusted EBITDA margin expand to 7.1% from 6.5% on revenue that was down 2%.

Joseph Caminiti (Investor Relations)

Thank you. I think that concludes the questions and answers we have for today. Thank you for attending our third quarter review, and we look forward to updating everyone at our fourth quarter review. Stay safe, and thank you.

OPERATOR

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

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