Industrial services provider Team (TISI 17.45, -6.35) trades about 26.7% lower today in reaction to the company’s preliminary Q2 results in addition to the finalization of negotiations for a credit facility amendment and the announcement of the company’s intention to terminate “At-the-Market” Equity Offering Program.
Specifically, TISI reported preliminary Q2 revenues of $310 million (vs $336 million last year), well under the market expectation.
Additionally, TISI’s operating loss will be in the range of a $7-9 million compared to Operating income of $14 million in the prior year quarter; adjusted operating income (loss) will be in the range of a $2 million loss to about breakeven compared to adjusted operating income of $20 million in the prior year comparable quarter.
Adjusted EBITDA (a non-GAAP financial measure) will be in the range of $14 million to $16 million compared to Adjusted EBITDA of $36 million in the prior year comparable quarter.
Ted Owen, CEO of Team commented, “We are disappointed in our second quarter results as we continue to operate in a sluggish demand environment due to continuing soft end markets coupled with customer spending deferrals.” Further, “While we continue to see some improvement in our Quest Integrity and TeamQualspec inspection and assessment businesses, TeamFurmanite’s mechanical services business continues to lag behind in the recovery cycle, resulting in weaker than expected 2017 results.”
As a result of this sluggish demand environment, TISI will eliminate certain employee positions resulting in severance charges to be recorded in Q3 between $4-6 million. These actions are anticipated to reduce TITI’s annual operating expense run rate by about $30 million and will impact operating results beginning in Q3. However, TISI believes that the soft end market environment and turnaround spending by certain customers is unsustainable and fully expect a much improved market environment by 2018.
As for the amendment to the credit facility, TISI has negotiated said amendment to its credit agreement primarily conditioned upon the completion of a financing transaction with net proceeds of not less than $150 million which proceeds would be used to pay down the company’s borrowings under the Credit Facility. Further, TISI currently expects to meet this condition by August 4, 2017.
The amendment will, among other things, eliminate the maximum total leverage covenants through the remainder of 2017, reduce the aggregate revolving commitment to $300 million, add a borrowing availability test and further amend the financial covenants under the Credit Facility. Management went on to comment that the company has been concerned about tight financial covenants under the agreement for several quarters.
As mentioned, TISI also announced its intention to terminate its $150 million “at-the-market” equity offering program following completion of the Financing Transaction. The company will make no further sales of shares under the ATM Program and in fact has not sold any during the first half of 2017.
TISI also announced an offering of $175 million in Convertible Senior Notes due 2023 in a private offering to qualified institutional buyers. The company expects to use the net proceeds from the sale of the Notes to repay all outstanding borrowings under the term loan portion its banking credit facility and for general corporate purposes.