Team, Inc. (TISI) Earnings

Management highlights

### Overall Quarterly Performance Context - Q2 2026 results were softer than the prior year period, driven primarily by customer deferrals of planned turnaround, outage, and maintenance projects, concentrated in mechanical services. Refining customers extended facility operating runs to capitalize on favorable pricing and crack spreads stemming from the ongoing Middle East conflict, shifting work out of the quarter. - Deferred mechanical services activity is expected to be pushed to later quarters, not permanently lost, with a rebound anticipated starting in the second half of 2026. The Inspection and heat treating segment remained comparatively stable, supported by recurring, nested inspection activity required for safe customer asset operation. - Stellex Capital Management completed a negotiated transaction with prior shareholder Core Partners to become Team Inc.'s largest common equity shareholder, which management views as a vote of confidence in the firm's embedded value and transformation strategy. ### New Leadership and Strategic Transformation Initiatives In his first 120 days as CEO, Gary Hill completed a full business diagnostic and launched a three-pillar transformation plan to improve performance consistency: - **Leadership and Accountability**: The executive team has been strengthened with the addition of a new CFO, COO, CHRO, and Senior Vice President of Operational Excellence, to improve cross-organizational accountability, coordination, and operating discipline. Evaluation of commercial leadership structure is ongoing. - **Commercial Execution**: New standardized processes for pipeline management, project estimating, quoting, and account ownership have been implemented. The priority is profitable growth in markets that value Team's technical expertise and safety record, with stricter pricing discipline that properly accounts for all project-specific costs. System investments, including potential AI integration, are planned to improve visibility into pipeline activity, win rates, and project economics. - **Operational Efficiency**: A full review of the firm's global facility footprint, procurement processes, fleet, organizational structure, and overhead costs is underway. Initiatives focus on improving labor utilization, increasing billable hours, and improving coordination between the two core business segments. Management has identified $20 million to $35 million in annualized structural cost savings and productivity benefits from these initiatives, with 5-15 million in cash flow benefits expected in 2026, 8-15 million in benefits expected in H2 2026, and full annualized run-rate savings achieved by 2027. One-time implementation costs are estimated at $5 million to $10 million. ### Long-Term Growth Strategy - Refining and petrochemical end markets will remain core to Team's business, with opportunities to deepen existing customer relationships and gain share in current markets. - Team is expanding into a broader set of industrial and infrastructure end markets, including aerospace, LNG, nuclear power, utilities, and other industrial segments, to reduce reliance on large cyclical turnaround projects and increase the share of recurring revenue. This diversified growth strategy will reduce business exposure to end-market cyclicality over time.

Guidance

- Management reaffirmed the full year 2026 guidance ranges initially provided: total revenue of $920 million to $945 million, gross profit of $240 million to $260 million, and adjusted EBITDA of $68 million to $73 million. - Due to ongoing uncertainty around the timing of the rebound in deferred mechanical services activity tied to the Middle East conflict, management expects full year 2026 results will come in toward the lower half of the stated guidance ranges. - Guidance assumes a portion of Q2-deferred activity will return in the second half of 2026, with results weighted more heavily to H2 2026, and incorporates expected partial benefits from the ongoing transformation and cost efficiency initiatives. Guidance also assumes continued stability in the Inspection and heat treating segment and improved labor utilization as activity rebounds.

Segment performance

Total consolidated revenue for Q2 2026 was $229 million, down from $248 million in Q2 2025. The Inspection and heat treating segment generated $131 million in revenue, representing 57.2% of total Q2 2026 revenue, a 5% decrease year-over-year. The decline was driven by a $5 million revenue drop in the U.S. and a $2.6 million drop in Canada, both due to reduced regional turnaround activity. The Mechanical services segment generated $97 million in revenue, representing 42.4% of total Q2 2026 revenue, an 11% decrease year-over-year. Year-to-date 2026, turnaround revenues within the mechanical services segment are down over 50% compared to the prior year, due to widespread customer deferral of planned projects. Selling, general and administrative (SG&A) expenses for Q2 2026 were $46.6 million, a 7.8% decrease year-over-year. Adjusted SG&A (excluding non-recurring and non-cash items) was $44.6 million, a 4.8% decrease year-over-year. Adjusted EBITDA for the consolidated firm was $13.7 million, down from $24.5 million in Q2 2025, due to lower mechanical services activity, unfavorable revenue mix, fixed cost deleveraging, and reduced labor utilization.

Risks & headwinds

- Uncertainty around the timing of customer resumption of deferred turnaround and maintenance work, which depends on the duration and resolution of the ongoing Middle East conflict, global fuel market conditions, crack spreads, and individual customer operating decisions. Delayed rebound could lead to continued lower revenue, margins, and cash generation in subsequent quarters. - The transformation and cost efficiency initiatives are in early stages, and full benefits are not yet reflected in current results. There is execution risk related to implementing structural changes to the business, facility footprint, organizational structure, and commercial processes. - Continued exposure to cyclicality in core refining and petrochemical end markets, until the planned expansion into new end markets achieves sufficient scale to diversify the revenue base. - The firm carries a meaningful net debt position, creating reliance on improved cash generation to reduce leverage and maintain sufficient liquidity.

Analyst Q&A

• Q: What does Stellex Capital Management's increased majority ownership mean for Team going forward, and what drove the transaction? /

  A: Management cannot speak officially for Stellex, but views the transaction as a strong vote of confidence in Team's business strategy, ongoing transformation, and the embedded value that can be unlocked. Stellex has been a strategic investor in Team since 2025, and its interests are aligned with all shareholders around the goal of long-term value creation through margin expansion, improved operational efficiency, and growth in new end markets. The transaction was a negotiated sale between Stellex and prior shareholder Core Partners, at a significant premium to the prevailing market price.

• Q: What is the source of the targeted structural cost savings, and how much are upfront implementation costs expected to be? /

  A: The $20 million to $35 million in annualized savings will come from supply chain optimization, global facility footprint and fleet rationalization, organizational structure streamlining, and improved commercial execution. While specific plans are in place, implementation is still early stage, with full impacts expected to roll out through the end of 2026 and into 2027. One-time implementation costs are estimated between $5 million and $10 million, covering footprint changes, technology upgrades, and change management associated with the restructuring.

• Q: What has been the quantified impact of the Middle East conflict on year-to-date revenue, and why do you expect a rebound in H2 2026? /

  A: The conflict and resulting strong crack spreads that incentivized customer maintenance deferrals reduced Team's year-to-date 2026 revenue by more than $20 million, with a smaller additional impact from slowed direct activity in the Middle East region. While Team partially offset the revenue decline, the unfavorable service mix drove significantly lower margins. Management expects rebound in H2 2026 because required inspection, maintenance, and repair work cannot be deferred indefinitely; however, exact timing remains uncertain due to ongoing macro uncertainty tied to the conflict.

• Q: What progress are you seeing in new end market growth, which markets are the highest priority near term, and what is the long-term goal of this expansion? /

  A: Team is already seeing double-digit year-over-year growth in new markets including LNG, aerospace, commercial nuclear power, and pulp and paper, with higher growth expected in H2 2026. All of these new markets have high long-term growth potential, and Team is well positioned to gain additional wallet share, thanks to its strong reputation for safe, technically superior service. The company is restructuring its sales organization to prioritize these new markets, add targeted technical expertise, and enable cross-selling, while continuing to maximize performance in core refining markets.