Dear Fellow Shareholders:
Like many other companies around the world, TEAM faced unprecedented challenges in 2020. The COVID-19pandemic required that we respond aggressively and decisively to countless changes involving how TEAM and our clients do business. I am extremely proud of the resilience of our entire organization. Despite the dynamic market conditions, we were able to harness The Power of OneTEAM, set new company records, and exit the year stronger.
Some of our key accomplishments include:
+ Achieved the best safety performance in TEAM history
+ Delivered strong annual Gross Margin of 28% – in line with 2019
+ Realized full-year cost savings of $110 million
+ Reduced full year SG&Aby $67.3 million or 20.5% when compared to 2019
+ Generated Free Cash Flow1 of $32.8 million– the highest level since2016
+ Published inaugural ESG Report – reflecting our commitment to operate in an environmentally sustainable manner
+ Implemented a new capital structure, extended debt maturities, and repurchased $137 million of senior convertible notes
These achievements would not have been possible without the commitment and dedication of our employees and close collaboration of our stakeholders.
From a Segment perspective, operating in a pandemic environment was challenging as technicians adjusted to new COVID 19 safety procedures and changed the way they operated and communicated with clients. Additionally, our clients drastically reduced activity levels during the year as they adapted to the oil and gas supply imbalance coupled with a reduction in demand. When compared to 2019, the bulk of our revenue decline came from the Mechanical Services and Inspection and Heat Treating Segments and, although down year-over-year, the Quest Integrity Segment experienced increased activity in both their domestic and international markets in the fourth quarter, delivering 17% sequential growth.
The foundation of the OneTEAM program allowed us to quickly respond to the reduced activity levels caused by the global pandemic.
Safety is Our Number One Core Value
The pride of our people makes us the company we are today.TEAM’s culture and values exemplify our obligation to remain acutely focused on the needs of our clients and consistently deliver the exceptional service they expect. ThroughTEAM’s daily emphasis on safety, our technological advancements that have reduced risks in the field, and increased planning with our clients, TEAM delivered a top quartile safety performance record in 2020.
We improved TRIR year-over-year by 42% and reduced recordable injuries by more than 55%. These results represent the best safety performance in the company’s history. With an unwavering commitment to working safely, we are continually enhancing our tools and practices available to employees in pursuit of a zero-harm workplace.
TEAM is Well Positioned for Growth
While navigating incredibly difficult market conditions, TEAM prepared for the recovery by managing what was in our control and proactively taking a series of deliberate steps to ensure we exited the year stronger, including:
- Significantly Reduced Overall Cost Structure. We took decisive and aggressive cost reduction actions early in the pandemic to align with the industry activity levels. TEAM achieved $110 million of permanent and variable cost savings for the year. Our laser focus and discipline on managing costs allowed TEAM to deliver strong 2020 gross margin of 28%, despite a 26.7% year-over-year reduction in revenue. The lower cost structure has put TEAM in a position to realize significant margin expansion as industry activity increases and we grow revenue.
- New Capital Structure. TEAM implemented a new capital structure that includes$400 million of new capital and retired $137 million of convertible senior notes. The successful execution of our debt refinancing provides considerable financial flexibility and extends our debt maturity profile. We believe the new, optimized capital structure gives us sufficient liquidity to support our working capital needs, execute on our growth priorities, and create long term shareholder value.
- New Organizational Structure. We developed a new organizational structure to leverage the core strengths of our three Segments, continue sector diversification, and drive profitable growth across global operations. In addition to expanding our service offerings and responsiveness through our Inspection and Heat Treating and Mechanical and Onstream Services groups, we intend to build on our scale, agility, and efficiency to prioritize innovative, high value solutions through our AssetIntegrity & Digital group.
Combined, we believe these initiatives position team to grow revenue across Segments, deliver strong service quality, increase overall profitability, and share collective insights and subject matter expertise.
Recovery Readiness Program
Over the past three years, TEAM has significantly improved its overall competitiveness by lowering our cost structure, revamping our proposal process, and increasing both our global footprint and our end-market diversification sales efforts. Additionally, in 2020, we developed our Recovery Readiness Program to prepare for an increase in activity.
Through this program, we invested in several initiatives to make certain TEAM is well-positioned to capture market share in the economic recovery:
Workforce Management. Our workforce management function was crucial in allowing TEAM to realize high utilization levels, even during the pandemic. In 2020, we achieved workforce utilization rates greater than 90%, a 4% improvement compared to 2019.
With expectations for a tightening labor market in 2021, our global workforce management function allows us to centrally coordinate and forecast utilization, communicate more effectively with our on-site field technicians, and provide logistical support to quickly mobilize in this dynamic environment.
Diversifying Industries and Geographies. We have leveraged our long history and proven success to diversify our revenue streams and expand our operational footprint in sectors like renewable energy, LNG, aerospace, and infrastructure. In 2020, we made progress in both hydroelectric and wind energy– both of which are growing end-markets – and we are now actively bidding on projects all over the globe. By diversifying our commercial footprint, we are able to align ourselves with sizeable market opportunities to drive growth and expand our differentiated service offerings to new and existing clients.
Asset Integrity and Digital Group. In 2020, we successfully launched several new digital solutions to support how our employees produce and deliver work product to our clients. For example, our digital information portal allows our clients real-time visibility of their product orders, our online subscription service for asset-based data management enables asset integrity performance optimization, and our streamline data analysis and comparison software allows Quest to rapidly assess data across midstream assets.
Through The Power of the OneTEAM, we have strategically positioned ourselves to genuinely understand the needs of our clients and we believe this differentiation ultimately provides more value for our clients and shareholders.
Energized for the Future
As companies, countries, and communities recover from COVID-19, now is the ideal time to rethink how we live and work. Our Recovery Readiness Program is in place and our team is energized to drive value. Through our digital offerings, we are constantly innovating to reduce the potential for accidents in the workplace and increase our competitive position in the market. With the backdrop of an improving economy and stabilizing industry fundamentals, the recovery is visible with global COVID cases declining and vaccine production rapidly increasing, we expect global activity to increase, especially in the second half of 2021. We can now turn our complete attention to maximizing growth opportunities.
In conclusion, we are optimistic and excited about the future at TEAM.
I would like to thank each of our employees for their unyielding commitment to TEAM and our clients for choosing TEAM to execute their projects. On behalf of my colleagues at TEAM and our board of directors, I would also like to thank our shareholders for your continued trust and confidence.
Chairman and Chief Executive Officer
1. See page A-2 in the Company’s Proxy Statement filed on April8, 2021 for a reconciliation of Free Cash Flow, a non-GAAP measure,to the corresponding GAAP results.