Team (NYSE:TISI) revised its 2026 outlook as customers continued to defer refining and petrochemical maintenance and the Middle East conflict delayed additional contracted work, executives said on the company’s third-quarter earnings call.
Third-quarter revenue fell 2% to $220.4 million from $225 million a year earlier, while adjusted EBITDA rose 8.2% to $15.7 million. Chief Executive Officer Gary Hill said turnaround revenue fell approximately 49% in the quarter as customers extended operating runs amid elevated refinery utilization and favorable operating economics.
Maintenance delays weigh on Mechanical Services
Hill said the slowdown has been particularly pronounced in Mechanical Services, which has greater exposure to higher-margin turnaround and outage work. Turnaround revenue was down approximately 51% through the first nine months of the year, he said.
Mechanical Services revenue fell 9.1% to $93.3 million in the third quarter. Lower turnaround and project revenue reduced sales by $11.1 million in the United States and $1.2 million in Canada, partly offset by a $2.9 million increase in other international regions. Segment operating income declined to $400,000 from $3.4 million.
Chief Financial Officer Clinton Roeder said some deferred Mechanical Services activity that management had expected to return in the second half did not materially return in the third quarter. Hill added that restrictions on access to customer facilities amid the expanding Middle East conflict have pushed additional work beyond 2026.
Hill said management believes much of the work has been deferred rather than lost and expects much of it to begin returning in early 2027. The timing will depend on customer operating schedules and refinery utilization, he said. Team plans to retain labor to be ready for a recovery in activity.
Inspection growth supports earnings
Inspection and Heat-Treating revenue rose 3.9% to $127.1 million, helped by non-turnaround and call-out activity. Operating income in the segment increased to $15.2 million from $14 million, reflecting a more favorable project mix.
International revenue grew 8.3%, while U.S. revenue declined 4.4% and Canada was relatively flat, Roeder said. He added that growth in targeted markets helped offset much of the decline in turnaround activity.
Consolidated gross margin narrowed to 25.3% of revenue from 25.8% a year earlier. Roeder attributed the decline in gross margin dollars to a lower contribution from higher-margin Mechanical Services turnaround work and reduced labor utilization.
Adjusted selling, general and administrative expenses fell $3.5 million, or 7.4%, to $43.3 million. Adjusted EBITDA margin expanded to 7.1% from 6.5% a year earlier.
Cost targets rise as company reviews financing
Team raised its expectations for structural cost improvements, saying it now expects $15 million to $18 million in benefits during 2026 and $30 million to $38 million at a full annual run rate. Its previous full-program estimate was $20 million to $35 million.
Roeder said Team realized approximately $9 million in savings through the third quarter and incurred about $5 million in one-time implementation costs. The quarter also included a $2 million charge related to a legal settlement, $1.8 million of transformation costs and $2.3 million of severance, he said.
The company used $3.2 million in operating cash during the quarter and spent $2.6 million on capital expenditures, resulting in negative free cash flow of $5.8 million. It ended the period with approximately $43.5 million in liquidity and $308.1 million in net debt.
Roeder said Team is reviewing its asset-based lending facility and other credit arrangements while focusing on improving cash generation and reducing debt. He said progress on the transformation and credit-market conditions will affect the company’s capital-structure options.
New opportunities remain under discussion
Hill said Team is in advanced discussions with a global aerospace manufacturer about a potential long-term agreement and is pursuing a multi-year valve testing and inspection opportunity for a commercial nuclear project in Europe. Neither agreement has been signed, and the updated 2026 outlook does not depend on either opportunity, he said.
Team also resolved a multiyear legal dispute with a former large oil-company customer. Hill said the customer had historically generated more than $20 million in annual revenue before the dispute and that the companies have resumed commercial discussions.
Roeder said the revised outlook assumes stability in Inspection and Heat-Treating, no further escalation of the Middle East conflict and realization of cost actions already taken. Team did not provide 2027 guidance.
About Team (NYSE:TISI)
Team, Inc. is an industrial services company that provides asset integrity management, inspection, maintenance, and repair services for customers with complex industrial infrastructure. Its work supports the safe and reliable operation of facilities and equipment in industries such as energy, petrochemicals, refining, power generation, and other process-based sectors. The company’s services include nondestructive testing and examination, mechanical integrity assessment, engineering and consulting, heat treatment, rope access, leak detection and repair, field machining, and specialized repair and maintenance.
