Team Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2024

There are 3 speakers on the call.

Operator

Please note that today's event is being recorded. I would now like to turn the conference over to Nelson Haight, CFO.

Operator

Please proceed, sir.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to the Team Inc. Discussion about our Q2 2024 operational and financial results. On the discussion today are Keith Tucker, our Chief Executive Officer and myself, Nelson Hate, the Chief Financial Officer. I want to remind you that management's expense, other income and expense, taxes, adjusted EBITDA, cash flow and future business outlook, which are uncertain and outside of the company's control.

Speaker 1

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

Speaker 1

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

Speaker 2

Thank you, Nelson. Welcome, everyone, and thank you for joining to review our recent accomplishments and our 2nd 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.

Speaker 2

However, when I took over as CEO in 2022, we faced a number of internal and external Over the past 2 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 2nd quarter results, we built off the positive momentum we established during the Q1 and demonstrated continued progress in lowering costs, expanding margins and improving cash flow generation. For the Q2, gross margin dollars grew nearly $3,000,000 to $63,600,000 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 and A costs were $2,000,000,000 lower over the prior year period, and these factors contributed to an adjusted EBITDA margin for the quarter that expanded to 9.5 percent of Our ongoing efforts to lower costs have led to margin expansion that we believe we can continue to build upon.

Speaker 2

As we have noted previously, our goal has 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 Q2, 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 twenty twenty four. 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 mix, driven by an increased focus on higher margin revenue streams with stronger operations management team in the Midstream and Aerospace segments to further drive growth in these attractive high margin sectors.

Speaker 2

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 twenty twenty four, 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 twenty twenty four from our international and Canadian operations. We expect these factors together with growing traction on our commercial initiatives to provide top line growth in the second half of twenty twenty four 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 $58,000,000 $68,000,000 representing a 48% improvement at the midpoint over 2023.

Speaker 2

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.

Speaker 1

Thank you, Keith, and thank you for joining our call. Our Q2 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 2 40 basis points to 27.8%. Our operating income increased by almost 150%.

Speaker 1

We improved cash flow from operating activities by $19,000,000 and adjusted EBITDA grew by 25% to $21,800,000 on a year over year basis. Our consolidated net loss for the quarter was $2,800,000 a $13,000,000 improvement over the 2023 period. We believe that our solid first half twenty twenty four 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.

Speaker 1

As Keith pointed out, over the last 2 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 twenty twenty four 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 6 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.

Speaker 1

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.

Speaker 1

We are in a much improved position now compared to where we were 3 years ago, and I'm confident in our ability to continue the successful growth and shareholder value. And with that, let me turn it back over to Keith for some closing comments.

Speaker 2

Thanks, Nelson. We are encouraged with the progress that we have made and the overall trajectory of our business. As you can see, we have accomplished a lot, but this leadership team believes there's 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.

Speaker 2

I am 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.

Speaker 2

The work we've done over the past 2.5 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.

Operator

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

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Earnings Conference Call
Team Q2 2024
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