TISI - Earnings call transcript Q2 2021

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Operator

Greetings and welcome to the Team, Incorporated Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kevin Smith, Senior Director of Investor Relations.

You may begin.

Kevin Smith

Stacy. you, Thank Team's to XXXX conference earnings Welcome, second call. everyone, quarter Ball. today's With our Gatti, Susan call our on Chief Chairman Officer, and Amerino Officer; are me Executive and Financial Chief can This be under call Investor of teaminc.com. section website Relations being is webcast the accessed the audio also through link at our and speaks Information call of August only recorded on X, today, as this XXXX. sensitive date Therefore, please transcript of longer the of be replay no reading. be advised information that accurate may any or any time listening as of replay via a There call, to and company's available be will be will today's webcast the it going by website, teaminc.com.

a will yesterday's replay telephonic features In release. until addition, these on in provided replay earnings August information XX. The was access available to how be

forward-looking of financial Before safe statements to I we to XXXX, Private Act events the remind or continue, future performance. like made contains harbor statements the would provisions call and expectations, future including you of Litigation Securities of Reform pursuant this that

other highlighting the the now we will will Amerino. caution and results. risks and risks before your will take providing questions, from like furnished that call Forward-looking by any revise detail and those are inherent materially described as company's company's company's These filed statements detail the to assumes report any reports I on begin could number required contained events differ second discuss of factors our outlook. investors a Susan in or law. involve business. forward-looking to and actual forward-looking statements, to other factors except statements. and over no cause Form results Exchange Securities and uncertainties Amerino Commission. uncertainties would XX-K update The update in publicly then with the to turn in obligation the our on may or be and in an Amerino and by And annual quarter in documents company we significant the

Amerino Gatti

the cautiously strength global We on and recovery. you, optimistic everyone. of Kevin, good morning, the remain Thank

and rollouts recent However, as overall weeks with recovery has the with in-line Domestic dramatic gaining that Vaccine internationally. momentum stops the to levels the and in increase both and or activity. an and economic be is in XXXX. second proving a are experienced quarter demonstrated, demand petroleum increase are uneven domestically above mobility disruptive starts, driving comparable

In holiday. to a fact, Likewise, recently during U.S. gasoline set domestic as new record in were demand reported post-pandemic TSA of Xth travel. motorists records July the air eager the travel

International overall overall with of these COVID requires In global and Business with a remains economic of in While a were causing of story. Team's concerning more variance the the in than reduced our higher After service is a travel ability activity. step the we travel rates monitoring, been was vaccination the a has close emergence cost air seen in the is challenging year raw lower recovery with ramp-up rebound in assets. have underlying in recent pandemic consumption transportation, pace immune from Team muted. gasoline and associated change travel not and COVID-related demand and lifted, materials, inflation labor. clients' restrictions for different strong. inflationary is costs operating the domestic and to pressures mobility, areas, impacting as

for with activity second the was restrictions. improvements realized levels projects. at several pandemic increased worldwide Team consolidated also easement revenue quarter strong end benefit our upper April, from to backlog the delayed from maintenance in started with the projects May turnaround June expectations. quarter the able The activity and of benefiting large reporting of of from economic

than an for currently mechanical at segments global Quest faster uneven and over a with are continue Although recovering levels, second quarter demand across varying and services. revenue we improved products pace experience XXXX our IHT services. recovery to

the XX.X%. for and year-over-year was activity inflation second impact. Now, up of international There turning XX.X%, revenue comparison marking revenue quarterly underlying to the first from lingering growth XXXX X.X% The XXXX, margin initiatives. same of for decline, quarter the to the XXXX quarter negatively performance, was concessions. cost below well as quarter year Gross was million as pricing by $X.X COVID margin. prior U.S. was by reflects Gross ramp-up in the the driven select year-over-year $XXX.X a markets. margin temporary was the XX.X% in in increase full with margin reinstatement impacted quarter million, EBITDA of inflationary associated environment opening the our of economy, COVID the financial economic consolidated cost or cost and the Adjusted the

our second quarter increased when the $X training of increase completing than to more million. also investment hours of certifications, compared in than training We an more XXXX, XX,XXX

sequentially. deferrals Turning project work overview. XXXX's revenue I with several competitively segment priced to Services. over activity will MS completed on market. were begin MS our experience to turnarounds levels. continues and XX.X% X.X% Revenues Mechanical large depressed during the increasing up by a quarter, large

the turnaround in impacted were until experienced negatively MS by year-over-year areas of paper, the many fabrication, delayed power projects renewable energy. During were also this into cost or and inflationary year quarter, XXXX. margins and growth utilities pushed pulp large MS and later pressures.

in tapping SmartStop failure a hydraulics market. will a our in competitive intervention field line eliminates latest features the stop the are within reducing technology isolation. alterations line advantages Team's hot self-energized three in pipe a competitive a on at system its This we that The for was pivot operational technology As tools. refinery. commercialized seal the mechanisms SmartStop reported or strengthening completed to technology. SmartStop number proprietary increase Team test patent-pending further points after Isolation tests, successfully of line dual need flare fitting, single safety, XX-inch yesterday, standard new new complicated required perform

IHT COVID of refining, pulp nature with areas the petrochemical, XX% growth turning the to maintain Revenues negatively and the for experienced MS, the Inspection continues coupled Now and when to Heat IHT also price inflationary realized segment, to year-over-year. segment. well margins year-over-year our quarter. were IHT's and perform Treating to run and paper, pressures in utilities. & of impacted IHT chemical due up Similar and power concessions cost the

As the plant our and technicians. seen we steady a for have increase continues nested open economy utilizations in to demand rise,

quarter, and other we two contracts, awarded the refinery at petrochemical were a the plant. a During in embedded one

Our utilization is XX% running nested levels. currently operations at approximately of pre-COVID

and company. addition, asset awarded large program mid-stream integrity In was a mechanical services. Team the investment-grade project scope long-term integrity includes facility with of a The pipeline

distributed develop to partner to implement with more asset client supporting to operations diversify large a its will infrastructure. IHT safer reliable We the integrity, continues client's markets. approach structured pipeline end the across and and

comparable the increase XX.X% inspection assets large to in demand. to and awarded Quest's and scope visible nested oil for provide increase anticipated to phased and flight XX.X% Quest aggressively time. technicians first over began the a facilities, contract private growth, and company. space gas providing grow over example, globally product has array we in quarter domestic testing was radiography quarter proactively Due the order backlog, pipeline midstream site projects refineries. the full-service ultrasonic to up we an recently on of production project revenue recently the sequential more over several As and in at manage Quest were XXXX. Integrity's recruit realized to expect services, awarded a we strong Team

the see won Integrated Quest's end inspections subsea to market could in successfully Quest contract a unique in demand for Quest addition, open the In Australia, market. multi-year a strong continues new Solution offerings. which completing offshore upon

high-resolution Africa. quarter, are challenging. the successfully with uniquely the extremely During pipeline West internal inspection offshore diameter characteristics. tools an project making inspection proprietary had Quest's Quest completed in of The significant pipelines capable inspecting client's changes, these

increase gross deepwater the region. despite year-over-year our we an travel success, activity a From challenges the this in higher Canada, the client to and EBITDA. work adjusted margin and to Quest's allowed have limited improve we we growth us down realized costs anticipate in to to the geographic In growth COVID-related world. and in perspective, drive a sites, deliver efforts Given indirect focused year-over-year that ability workforce year-over-year utilization experienced expand

forcing affected margin Canada Canada limited quarter, the delays in and by was COVID Western outbreaks, that expansion. further project revenue During particularly

grow, bode increase, for should which activity vaccine our well end Canada's As markets. rates will economic

Our Alberta implemented certification. April East remains Middle Many June. lockdowns provider COVID-related operations also Safety been as awarded has Despite only for European Canadian is in incremental that Team's uniquely Association alterations. positioned challenging growth. struggled up Boiler team European countries as countries approval this EBITDA opening Team realized received May through the the environment, some The composite the adjusted volatile have before year-over-year rollouts. and revenue vaccine and full-service with

five-year NOC the and contract vaccination robust quarantine a have in Qatar. rates and other out sealing highest East the restrictions, Middle client recently in of country. recovery, leak the in with for has were more a world, the imposed example, call-out in work awarded new still of countries allowing while large highest one We For supporting travel economic onstream limiting UAE the

for manufacturing I now service we In a were financial the more addition, contract market Arabia, turn Saudi a Kingdom. tapping Susan? awarded detailed multi-national review. multi-year a over company in it chemical build Susan will for share helping our to in hot

Susan Ball

I Thank second will quarter-over-quarter performance good and review you, our Amerino, morning, and financial comparisons. everyone. quarter

or As Amerino increase second mentioned, COVID our with first full year-over-year from $XXX.X a million quarter three-month XXXX, revenue impact. the up $XX.X of comparable XX.X% was the of the representing second million quarter consolidated

COVID-XX-related This with turnaround economic improved the of activity quarter's and reflects activity increased both loosening revenue the restrictions.

showed increase reinstatement margin record direct of X.X% of quarter overall declined percentage. over with percent gross that of million. the segments Quest to also For at the the quarter quarterly cost quarter approximately Services QX $XX.X followed of the were which the a revenue approximately just $XX prior in prior XX%. place gross year impacts in X.X%. the margin $XX.X percentage of the Mechanical had to Consolidated inflation to second quarter, XX.X%, increase XXXX, for having and with also XXXX XX% temporary gross XX.X%, dollar the was growth growth the consolidated over fully million. three compared having largest revenue quarter IHT a year revenue the million, over largest all year-over-year and increase margin second a increase actions Due a was of cost XXXX, the

was cost inflation, or second by roughly raw XX% increased quarter year-over-year. particularly materials, greater significant in The impacted which

also tight. we were compounded We increases by increases concessions. the very These is realized COVID-XX entry-level lingering as fact market cost labor pricing some currently technicians for still had the cost that

second non-GAAP versus comparable a loss, quarter was net the quarter adjusted adjusted million $X.X which share the $XX.X adjusted An $XX.X second drove approximately the of $X.X of of the over just approximately prior to for quarter. or net and net loss EBITDA million interest increased the same expense fees loss when an the $X.X in share second net of $XXX,XXX was quarter severance year loss Consolidated of million included compared legal $X.X diluted a in Adjusted accrued to for quarter. million quarter to operating charges, a diluted increase The million costs the of per XXXX, as XXXX. net million year in negative and associated $X.XX loss in million. loss loss with professional was $XX.X quarter the net the compared $XX.X for group were adjusted net reorganization. compared measure, $X.XX Adjustments prior million quarter of primarily per or

for cost the place the at reinstatements April. temporary in Our and general SG&A pandemic, reinstatement impact the expenses increase salary cost administrative implemented $XX.X training reductions of reductions, inception prior reflects travel. year XXXX from the furloughs, that the beginning second was such selling, million of $X.X the quarter quarter. of as million, the of majority The the The were up at fully of and the in of were

Additionally, investment force. in we our our sales increased

realized in prior half in more As our than savings I XXXX permanent nature. call, we the of were on mentioned SG&A

each will our structure. and a We the in costs $X.X and was million, expect $X.X SG&A expense We SG&A between recovery to year $XX $XXX approximately of expect our the Interest we that XXXX. full be focus cost to quarter interest optimization continue diligent million costs remain to through in million, be up with $XXX expense on in of million XXXX million. million range managing $X

lesser as second million, and, increases same posted last reported increased up IHT well in an performance. in associated as of a XX% segment from projects and the quarter our revenue turnaround sites increase million to hours activities. technicians the and growth The with $XX.X $XXX.X activity to call-out for Turning associated nested degree, reflects year. period

in million XXXX. quarter the second was $XX.X in over the compared of quarter. million EBITDA was up million adjusted year. prior the quarter. prior this same to EBITDA revenue million reported EBITDA revenue quarter $X.X $XX margin $XX.X $X.X Integrity to year $XX.X to year of to XX.X% $XX.X decreased Second of Adjusted year million in the year as XX.X% XXXX, Adjusted down this up last quarter compared second quarter prior second Adjusted up from as Quest in was the quarter XXXX million, X.X% million, the decreased EBITDA from of revenue $XX.X quarter period Mechanical period quarter. in X.X% prior margin X.X% of million. Services from XX.X% the

$XX at $XX.X the million margin year of ABL XX.X%, $XX.X Second the approximating quarter quarter total adjusted XX%. liquidity expected our $XX.X million, be under facility to interest million million. EBITDA with around was the is $X.X XX. million. borrowings up expected year $XX year normalized for EBITDA in quarter We cash, Adjusted period. second the million to were compared reached million the had approximately has June levels Cash ended We from and was prior XX.X% of $X.X ago to of

the Full-year significantly as quarter CapEx activity revenue was growth operations was $XX.X from funded to million, negative reduced forecast which flow working levels. expected with approximately quarter Cash demands cash been million. As has XXXX, the the million. Free associated down capital million by during operations and from expenditures. negative we XXXX capital down $XX.X $XX second flow included $X flow million, our increased was cash $X.X in now a for

we cash unfavorable increased working flow on demand As continue having our grow, activity an see will lag generation. to levels capital effect

full-year. working the is cash for forecast, difficult Although flow free positive we variability capital change of the to expect

the discretionary business will actively year the spending align to manage We CapEx adjust and throughout and continue accordingly necessary. as to

review. to enhancing greater XX We maintain flows, segments. management the our our that capital the past the on many the and overcome challenges synergies focus Amerino. remains our includes financial priority. cash turn now call across the to I us completes efficiencies will the focus That flow will down on enabled This of generating free debt pay and discipline back months. Working and to cash returns

Amerino Gatti

you, Thank Susan.

and provide I'll of the questions, during market uneven initiatives are have year we macro in business and increase forecasting global your take second Despite outlook. growth an in X% with demand, the of This technology XX and these headwinds, million trends, Starting to impeded IMF the historic were environment, operational on I day earlier, growth, faced restrictions, recovery and XXXX. supply digital second per barrels led headwinds rates inflationary we Before disruptions. update including an of the quarter an in macro as global quarter by pressures our with overview million that middle and of our barrels chain has economic expected is global the mentioned XXXX and certain which petroleum to this year-end. per to X.X% in the approximately day a is increase from XXX COVID-related

to market. Asia refining U.S. to ethylene refinery strong higher of Coast shutdowns Coast Gulf which demand margins of inventories, of Gulf gasoline following significantly Ethylene back maintenance, since by the when petrochemical plastics, high Following prices jet back the that multiyear Gulf testing April for a storms. averages, awaits market prices Coast high February and have other weather-related ramped Ethylene reflecting and improved reached pulled our further the in exports plants prolonged rates the incentivized the are two as the a again world increased petroleum product in quarter, once Driven highs, multi-year demand second run undergoing now are up driven winter but facilities refinery the parts clients. benefiting that to tight by along U.S. led refinery in are in increases drawdowns utilizations. pre-pandemic have fuel. U.S. margins

the emissions. We and anticipate on policies the energy plans to with focus regulations sector increased greenhouse in renewed and spending of reduction proposed a gas government monitor continue

Senate, plan safety for greenhouse our product technology improve While green assist team We And proposed standard remain to our larger government bill clients our developers. update on offerings for and and progressing provisions would the tax technology emissions is and our on an through and top to clients. and such compliance-related digital include energy in quartile and for breaks to their create opportunities infrastructure record goals. the the can increase innovation recently wind These clean our penalties service energy solar initiatives. and mandates now, focused gas as meeting

week, strong clients job reported collection the making into allows become subscription-based work of ensure technicians in digital North and compliance the Credosoft our to a platform and Integrity America. project, at tablet-based on entered scheduling There efficiency, Credosoft to optimize Team monitor real-time provide This and stable multiple The Management offerings billing Team are monitoring revenue driving work site America. performed this work is also provides As ability services agreement time the we standardizes currently inspection and solution software on being earlier software processes. The and our to repair provider tools. platform and solutions. for documentation Credosoft information provides for progress in we scaling integrity service utilizing platform. profile. clients about the an our assets, the exclusive data North enhances The assets greater and their invoicing Team's

our business operational to Turning and outlook.

our planning flex project for compete balanced years. and allowed Given we deferrals growth evenly operating Throughout to and nested, well activity positions environment. and forecasting to and market global the expect resources current of workforce market our aging and call-out, new projects, Team our and large Furthermore, successfully across The our better in plant breadth enable Team turnarounds capital regulatory the allows management the the technical split pandemic, of industry, future the models, clients' the global end operational to postponement in markets number requirements. us the requirements support COVID match of delays facility increasing and optimization over performance turnarounds depth demands. client's our maintenance, capabilities to of across of agility] function assets next and the few our asset [the

certification year. workforce market maintain In colleges, a levels added schools has to technicians during quarter, capabilities expanding we in last our quarter, second the allowed Team's second versus the skilled decision more for workforce meet in addition, will technical during training In pandemic field industry-leading greater rapid an and the than benefits provide rates recruiting technicians. the our together XX%. and training comparable our demands. continue programs, to X,XXX to certifications effective At opportunity our increase over utilization with activity strong military, peak achieved we and pay quarter and the

As look third quarter, line activity the restrictions anticipate levels to we from higher ease. forward we COVID-related top sequential as improvements worldwide

to like remainder shutdowns many government-mandated which the faces optimistic that However, for companies, potentially increased an revenue for Team other to be the to recovery, reflect year XX% remain regionally half XX% economic U.S. revenue path outlook and maintain could uncertain And of the in the related our We additional we growth. our higher given the internationally. include will cautiously than of full-year second the XXXX, XXXX. expectations COVID

As environment. review inflationary proactive in mind, Team in from previously pressures. current a began resulting offset contracts experienced we costs margin process With to mentioned, the an operating increase this

serve. It we First, discussions prices we focused to on margins. price move market to and higher current market related cost the rolling started off ultimately, the increases improve to cost then labor we is inflationary progressively important lingering conditions other tightening to pressures, that concessions, offset clients and with reflect COVID

half of available us, and recovery and and quartile pricing closing, solid value, growth XXXX portfolio recognizing each excellence. throughout this delay will acting safe our is cash with sense first, in As sight expanding investing on core between opportunities improvement a price We and management. importantly, through in our digital operating flow anticipate of Most cost typically post-pandemic one XXXX manner are every the and lost second in not our committed the is Team focused technology urgency, negotiating increased world Team and our performance execution by and free delivering reliable to In and upon have allow teams dedicated deliver a remain with capturing reflected driving while day. with people, disciplined to improvements profitability to generation. there top we number costs a clients. margin quarter, safety

We the guide Operator, session. you that will discipline continue back for through I relentless same to turn XXXX. it over question-and-answer demonstrate to the will helped us now

Operator

go you. first Stefanos ahead. [Operator comes Thank Securities. from Instructions] with CJS Please Crist Your question

Stefanos Crist

morning. Good

Amerino Gatti

morning. Good

Susan Ball

Good morning.

Stefanos Crist

First, and just how and detail then pressures going gross you're can margins gross that's the more forward the you expecting margin seeing affected little in second in us a on give your what half? inflationary those you're

Amerino Gatti

Sure.

inflationary me let talk the pressures, Let margin. I'll Susan touch a the little then gross on about bit and

So, Mechanical of you on Services know our because seen segment impacted we've impact manufactured overall, has materials I terms which products pressures, raw have inflationary the they biggest goods. the most the in think,

the some as we available labor see to change, go available and costs. overall the ones expect think, we in raw though on an do as standpoint, materials largest tighten. increase remarks. second that as just largest. tightening in do I people higher was market skilled increase of the goods from has especially year the freight the increase, Those through the the we've then even we her mentioned in had as and So over things to lower we And further as movement more prepared become Susan – seen pressures labor labor to The continues inflationary the logistics of expect U.S., short-term skilled

raw transport, starting followed it's with labor logistics, on and to increases. So, And want cost gross Susan, maybe then the margin? you touch the lot freight, materials, by of a

Susan Ball

a on basis, forward QX, between a would margin our about to inflationary be Yes. basis, for XX.X% basis, and XX%. what estimating on improvements, was full-year seen a the obviously, pressure we on to costs would as mentioned, full-year to XX% increased, quarter, say, are in respect With the it the it And looking we at gross HX. look gross I the anticipating margin, in XX.X%. I've But we're we've six-month as with it

the lower So, XX%. probably north that, but end the of to of closer

Amerino Gatti

the of And maybe on just of add the to a reasons range. some for little color bit

to some able that Services a year, pressures as then discounts, inflation mix we'll and to gross those the we're with move benefit increases price Integrity that will that factor. pricing year, as I And to a have segment inflation then margin, the how and COVID obviously mentioned, offset Mechanical starting throughout a factor. obviously over depending Quest continue of grow, has have increases or As

three segment think if mix, pricing traction I impact and So, margin you inflationary will levers, gross the for that there's will, then a are pressures us.

Stefanos Crist

Thank you is the you you. turnarounds Great. And then mentioned fall Could talk maybe what positive. visibility is outlook about your there? for

Amerino Gatti

Sure.

you turnarounds half know, our As we years. in track

right We now, obviously up starting to requirements running point, clients are equipment this seeing start and in man we expect – October. in through for we'll terms of later requirements labor at that September turnarounds

being are in the some impact little slide see the of second an half turnaround overall, half. So, We year. unstable potentially of the year than that the we out part to of first there be could moving projects and part But QX. the early stronger expect slightly still the the that latter in sense the of bit turnaround QX market do into a

of a popping as especially pit as We some lot have them are then projects higher of in or of delayed stop are you the turnarounds, utilization because more and XXXX are clients higher seeing smaller we well up XXXX utilization standpoint. the in them asset management and looking at if year, will, through refining first pit that lot rates, management seeing a more CapEx because in in from the we're to and stops then half, and a starting get and COVID that cash maintenance

season as second They're of increase second So, of half. stops, a good the half activity some our and I big a in us large definitely anticipate smaller add turnaround pit up those the an we but for are overall as benefit in which positive impact a turnarounds, there. they stops think aren't for higher as you pit

Stefanos Crist

Thank so much. Great. you

Amerino Gatti

you. Thank

Operator

Your next Capital question, KeyBanc Markets. Sean Eastman with

Sean Eastman

my Hi, Thanks taking for team. questions. morning. Good

where exiting quarter you how on just would highlighted fall the XQ the inflationary on Are light Is helpful would pricing just kind swing out half, on the a the of trended to a the second factors in of helpful traction in early it to be thing quarter around discussion. likely hear. pricing getting Just the kind That that maybe get third based second pressure and So, finer the part would quarter? what second be worse? to programs? in exiting of traction margin inflation we're helpful gross seen you've and be really of the type of getting point

Amerino Gatti

Sure.

inflation, first some costs transitionary. Sean, are of So, inflationary the I the think, on of all,

we that as come kind to – raw off it, of materials down that of and and supply through as we year on of level or be I But to improves, some is chain shift that we So, the off one expect expect we level goes transitory. think more bit. a back those little

On I on the side, mentioned I much maybe September. labor labor, the higher level for earlier, as as think, flip skilled because the as after that entry not tightens, up market I think will open

skilled higher will that labor the technicians end, from on on higher perspective. there be think pressures I inflationary

is this job-by-job for a business, move being couple weeks. time work a because many pricing that traction implemented would surcharges latter come tell it step quoted is call-out market of there to us how aggressive prices basis. because removed. I with of more we're that's the increased moving the of been really We've in done COVID-related comes because but and obviously outside a majority on the to few that year, competitive And that's say made over one. stages we're COVID, on on it's those will transfer was few discounts. the of have progress we've clients When for So, And a easiest the good later but removing overall our quoting final off

market up will which end tying our the up have being I top resources think recovery inflationary XX and focused We more tighten. clients, to negotiations continues started with as on the

think we'll our tighten, things top traction as So, XX. more get with I

an the maybe seen like we've still as now, And And that quoting, on regions competitive. some very example, are some markets a are longer. less markets little expect I that Gulf movement. Other bit competitive take already that, right will

at we're secure our side trying manufacturing our overall, chain look On serve materials, the the our also down at best the look of raw supply doing ability. a supply to cost the to lot flip bring to to and on side, capacity chain

a year, So, it's move little expect in over contractual the it's that's I quickest followed which year. the I because negotiations, think the traction but to three-pronged get overall, the pricing going approach. a think, But bit be of come to by starting later we would with call-out, to

Sean Eastman

to pipeline that help we types Okay. traction initiatives and of initiatives of better of a this of Thanks. differentiation? around of types Has customer and you these a these more been things? guys, terms pricing, seeing there Is response out in work And these there types good maybe kind are can there sort share rollout, get Credosoft Amerino, good of pricing? of capture a, any

Amerino Gatti

Well, good question.

to engineering looking vice sales, versa So, large platform international, into vice some that really for is their traction able got was that reasons support, for and be why integrity. one a the it and IOC what our large really on selected pipeline was And market, America and North to of footprint their gotten a is a Credosoft good versa we few of use looking they they've expand market. partnership were where especially which a new with we our partner clients, were to mechanical felt in and very good we they've

our of clients working documentation. efficiency and about it talked some because working And inspection, asset to have bridge few a Credosoft good system. us very and I've of the We've a got, on management our own repair, So, good years, on really into is fit systems, them scale. asset digital do etcetera The which tools was what some allows and management their from place. in have size compliance mechanical last their of the activities lot as over

a it's very more side. really it is clients' the example, inspection risk-based is around utilizing start does inspection services it It being for corrosion, And benefit starts bridge the in So, data asset inspection, services. to what for That the our mechanisms proactive. plugs the the and operating good also on starts us and more models. moving Sean, needle, with the into from repair through, pull predictive like damage

we'll got continue for subscription-based. the and risk-based for that and the more they've services, bridge get we'll move us got they've to platform to which we is ambitions services. And obviously of so, one grow builds as the to that traction is that mechanical pull-through inspection partnership the and more The that expect mechanical that type is provides

it be clients' want into we facilities. put our to obviously So, on able and to

We there's five using going are that have already. deployment clients feel strong and upside platform we to our to that the subscribed currently client base, And where terms of that's in implementation. again, be

Sean Eastman

here. I'll lot Thanks over a turn Okay. Amerino. it

Amerino Gatti

Thank you.

Operator

Johnson Your next Martin question, Malloy with Rice.

Martin Malloy

that try market of last released is? market you Kind you opportunity, except the similar maybe that I addressable to terms to offering about of in and ask a night. question, important quantify morning. could press of meaningful how us SmartStop the help with that if the wanted competitive And Good how advantage is

Amerino Gatti

Sure.

look been at when for all, Marty, working the of you First we've years. development, about X.X on this

put they the manufacturing, this where into you and have there's obviously materials, benefits clients, So, midstream often, or specifically, big been addresses an plant want benefit. up, a The lot onstream more environments including I a keep product context utilizations of our first to their a pipeline flow development, in when either speak testing, And thing to repair. even lines the as field in think it's more etcetera. to it's is client, the really you

to is penetrations, line, can the two seals versus second terms between So, in our it's mechanically, now versus safety, are right for focused beneficial. which, system without focused a when the and is it's clients is lot a turnaround which on break once movement the We beneficial. And their the in reliability pressure the is time obviously, lot a able look We're lines multiple really, a to make reliable. client, set more at volume fluid for it, on able monitor in their of And penetrate pipe low you it clean beneficial. only dry to up. line, having our plants line which and keeping

this a the Materials more So, level with at strictly project-based pricing We're and doing labor we're and of for advantage an rate changing commercial model is us. going traceability project management. instead parts. buildup

like. the of our was last test over made at client what manufacturing the a investments the clients meeting package The one couple press years very field is work very week two in have with of some leveraging they last don't it's don't the where like terms and did of ones to much do whole line on we client system; that I cell. So, is and was on, the our that to b, a, fact a stream; reliable c, their we that we the have can fittings to: they three change operations. or their of

there's change model a us. think for commercial I So,

and sizes us expanding pretty now deliver And safety it testing the U.S. field clients we're moving ability and starting the it operational part. gone that and the we've the and through to think then rigorous like in the I for internationally.

Martin Malloy

and the into you do. forward? if indicative can turnaround then results projects a as know you. do type they've past they're of to My with last of of conversations that cash you've lot two that IOCs those appears of years. would of shareholders, there forward underinvestment maintenance for of or had maybe in some And lending don't position couple seeing the and any returning be Thank companies kind question, so, improved the maybe a in be much petrochemical Okay. some seems your maintenance the XXXX, but looking deferred been and but years capital to talk And about being I you it flows you're to bigger if have better might than start at how next you like the for the when or picture, going look they're customers the

Amerino Gatti

And a good I would Sure. I little what question. applies. No, it's say Sean bit a of very said what

of to margin, use capital out prevent stretch continue facilities it of rates There the run either regulations assets there's right doubt, emissions and in monitor terms to invest the no big our to that maximize inspections, annual-based their overall is requirements or for not continue now. tighten. risk-based regulatory to utilization regulations, or and their doubt ways clients be think and that high or the maintain issues to I environmental maintain no

things, seeing it some think, saw I those it of We're we in XXXX. of All in XXXX through cash conservation.

be regulatory-driven the that that digital pipeline their for that feel of Quest continue top integrity. trying So, are to run can And I built to some one-third and planning all clients. are XXXX. most you meetings COVID. and regulatory integrity service is maintain-based, upgrades and our third-party and during Credosoft, get to They're revenue And and integrity good asset is our like in year. going them to to XXXX product onstream regular the mechanical lines. very regulatory-driven, the we our focused and a things groups These XXXX, with or are do XX going that's plan priority now and then I we partnerships they're fact pit our data, clients had tell CapEx and the to We've of on fact going that client for the And our do look that through requirements, do going unit own CapEx base. We've kick-in. stops. that to investment, expect we client out either And to as they're data, repairs data think and

it's two-quarter type remain looks expect delay clients their is we've margins strong, the In XXXX expect if when if to OpEx and more and the expect we Mechanical to to the of capital are demand to starting CapEx call-out our investment. I more will, generally, starts think we spend and the spend. you segment, think on spend XXXX driven And call-out increasing. and and work. going that in utilizations recovery, OpEx up and to seen now, think now a that I and drag though, Services So, gap, Services do by Mechanical I one inspection between be between to meantime, right be We because our fill improve,

project permitting Having half plans, our earlier, we now. and and are resources said I as XXXX it the right planning still solid, for their most expect clients I to of XXXX. that, labor season be our we're planning think said and in October, November turnaround second and for planning CapEx

Martin Malloy

Great. Thank you very much.

Amerino Gatti

Thank you.

Operator

Your from Adam comes Thalhimer Davis. next with Thompson, question

Adam Thalhimer

Thanks guys. questions. Two quick

the does by mostly you back you guidance swings second, expectations, say the driven is is gave Susan, – growth on full-year? the the full-year, the flow year, that positive First, that And imply working that for back the EBITDA cash capital the for for free half? in when of half

Susan Ball

than the we line So, expect EBITDA, pricing about HX do gross pressures said and the to what margin improved inflationary yes, significantly going HX, be margin would been over with with with of I other and to in we've to respect speaking we expect our QX, for and what would with the it be that up results percentage while less EBITDA, be previously. our is to

the the free we as obviously is flow, we capital cash flow I margin. revenue and cash half So expect working levels year, first that from expectations. of free the is mentioned, growing that's, significantly that as to expectations, again, half first we from as positive is, as And year. of but did say activity around X% far up then using of the north What the wouldn't down be the the and would have expect prior a it just probably for

needs. collecting were that levels or down As half increasing QX. by improvement in that we capital year, bringing really be increase the fact we working that the levels those second on We're of QX the generated the QX look are driven and revenue in the to is to going and

really function generally out that with a go have continuing year. the we half occur is by it of first in to of half improvements the So, costs – there's driven in the year, other that don't second the the of being HX cash

be a drive on We very have receivables to much to our collections also will a down effort level. focused able cash to lower

Adam Thalhimer

Sounds good. Thanks.

Amerino Gatti

you. Thank

Operator

next [Operator Sidoti. Instructions] from comes Brian Your question from

Amerino Gatti

Stacy, are you still there?

Operator

hello. Yes,

Brian Russo

Yes, me? hear hello. Can you

Amerino Gatti

morning. Good Brian. Hi,

Brian Russo

to decrease XXX maybe talk what little concessions down you a gross Brian Russo If margin latter saw drove – your trying material lower inflationary well? in cost could know the by the nice Can your the margin see about to raw Sidoti. with possibly the Just could growth, get labor break where while top a to XX% the margin bit as down you we more, you price of versus pressure about half versus sense pressures targets? you to that the through XX%. the gross Hi, margin a recovery of year get line

Amerino Gatti

Brian. of have color, start a I'll bit add Susan just little me and let So,

few full highlighted raw obviously factor. increase reinstated XX% the materials, the Inflationary in factor I had earlier, COVID XX,XXX recovered those from hours, was over most as ones actually year, the a said, raw by which which I'd $X lingering other fact as above than logistics the was goes impact terms third around that we of we providing materials that obviously, was because million, discounts. margin as and pressures, into the including as we mentioned COVID And cost say how we removed. reductions, color into HX, pricing was there not the price we're then moved trading, period. Susan and the been gross labor, think much into of going have I a and But led temporary

you're things and is that So, training. right it we've in is pricing, also like is reinvested fact it inflationary, that it the

The other gross have factor of that well. our business strong Quest it and is mix as things. And segments margins our impact business the does Mechanical as changes,

in XXXX, second let performance the more the we around get bit as where Mechanical of half groups. add these. continue margin see each the type as But some I'll little there a Susan a because into from is of of color So and to we'll positive Quest grow mix different year year well that's

Susan Ball

the the this the not cost for second additional But seeing in beginning the gross costs gross year. QX, kind that the increasing rolled the training April, costs really impacting Amerino don't Brian, other QX reduced temporary by costs previously And the as additional details in as half reductions Amerino the you while Amerino really of costs cash would mentioned, of quarter, providing for the the mentioned, more XXXX the first throughout to I it. of specific year. half I hit quarter, say of we year, free up we're that mentioned that have are we're it's mentioned, the ramp the margin and Yes. flow, the margin get second and from that that of type there that do

would fixed help we say mix, base as the really that That we're of more sequentially – fixed costs has as margin significantly. an lot But and by will fixed is them. that see the cost I as closer mentioned, impacted does segments looking a gross at between increases elevate for it. Amerino their growth more covered cost are improvement again, base improved as So cost, that of and the it's to what the Quest they

Brian Russo

for it. just top That's quite And Services growth you of project that seems year-over-year delays Quest, line the segments, revenue you're only with a the what seems surprisingly Mechanical X%, why more XQ to referring on on Is obviously, Services, at earlier Mechanical helpful. the line is of Got Okay. last and in but IHT the wasn't It saw delayed? bit year. other just low. given given the turnarounds just and being year-over-year that Or it comp?

Amerino Gatti

things Yes. Good of would highlight question. I And a QX. couple for

You're right in remarks. prepared terms of referenced some of the in I that the project delays

Services pressures seeing little I time competitive at two than in And earlier for divisions, segments. referenced a other bit more this the We we are example. in Mechanical the pricing are Gulf

I profitably. mindful we being, do growth we revenue it say, So, that would are

we're not the will, trying quote. get calculated, you say, every we phases. I recovery So, to right through would We're be, now chasing if as

of geographical in for had comes And due travel COVID know still could the growth countries. broader restrictions that as they impacted we our has Canada. was in Brian, call-out mechanical as well footprint, Also, non-U.S. further those competitive IHT, bigger areas, example, and of much international not into when well some coverage. and in did restrictions didn't but to it So, COVID footprint is a limited some the to Their than to they They have pressures. rate. ability had areas impacted out

movement big are the is inspection hot some their regulatory on plant-based. seeing where regulatory recovery, some generally lagged reasons But clients has have both type-driven and movement We're what three. versus call-out, requirements, for call-out tapping, the a good IHT seeing pipeline we're repair. MS those Historically, to for now example, on more mechanical. on meet good on So, leak

a lag up, that we're versus but we are reasons So, other seeing a on the MS that two. of to the expect catch more bit those

Brian Russo

believe, is clearly, that aerospace lagging. on it. Any but market? Got which, second energy And comments recovering, is then Okay. end the is industry largest I just market, it that seems your

Amerino Gatti

Yes.

we being large type large teardowns, the in are things So, engine would that say projects. seeing pushed I for aerospace

the you seeing petrochemical, We it's lagging new it upswing, to in we some recovery, last because improvement one would parts talked refining working which on say, overall, is it if in plans compare expect and new is XXXX. inspecting about hit and to terms of and I are we our some would yes, which want the clients. But with our facilities investments of of quarter be the some we reasons expansion making our

some petrochemical. you expect right making it clients, at So, to speed, lagging. recovering obviously, headway not refining is as same now with the new would We're but in

Brian Russo

much. Alright, great. Thank you very

Amerino Gatti

you. Thank

Susan Ball

you. Thank

Operator

Thank turn floor you. Amerino I like for closing to the over to would remarks.

Amerino Gatti

and remain quarter. on us our forward and to excited opportunities to opportunities look our Thank increased their about on environment your you, health thank about optimistic carbon as remain continued operational all interest asset performance you we in clients Stacy. beyond. our this We call dedication place again in and our the excellence and emphasis and you reducing footprint. next I'd joining XXXX grow and employees and We Thank optimization in safety. with Team, current to speaking to their Teams’ like of outlook growth for for

Operator

thank gentlemen, participation. and Ladies conclude for This you teleconference. does today's your

wonderful You a your may disconnect lines and day. have

Team (TISI) 8 Aug 212021 Q2 Earnings call transcript