Good day ladies and gentlemen and welcome to the Team, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later there will be a question-and-answer session, and during the question-and-answer session we please ask everyone to limit yourselves to one primary question and one follow-up. As a reminder to our audience, this conference is being recorded. Now I would like to turn the call over to Ted Owen, President and CEO of Team, Inc. Sir, you have the floor.

Thank you, and good morning. It's my pleasure to welcome you to the Team, Inc. quarterly earnings conference call. My name is Ted Owen. I'm the President and CEO of Team. And joining me again today is Greg Bowen, our Senior Vice President and Chief Financial Officer. The purpose of today's call is to discuss our recently released financial results for the company's second fiscal quarter ending November 30, 2015. As with past calls, our primary objective is to provide investors and analysts with an enhanced understanding of our company's performance and prospects. This discussion is intended to supplement our quarterly earnings releases and our SEC filings. In a moment, Greg will begin with a review of the financial results. But first let me make some broad comments about our end markets and our recent stock price performance. Our stock price has clearly been under siege. Financial markets broadly had also been under siege, as have foreign currency exchange rates and upstream commodity prices, with the price of oil now being at a 13-year low. While all of these things create difficult market conditions in the near term, these conditions were generally anticipated in late September when we reduced our forecast for the fiscal year ending in May 2016 to an adjusted earnings estimate of $2.15 per share and a revenue estimate of $1.05 billion. The market environment in the November quarter was depressed as anticipated, but it was baked into the forecast we provided in late September for the fiscal year. However, we ultimately saw more deferrals of turnaround activity than we originally expected. But we believe that's a question of timing of activity and not a cancellation of projects. In fact, industry outlooks and our own outlook for calendar 2016 turnaround and project activity is quite good, especially in comparison to 2015 turnaround activity. When we look into 2016, we can point to at least four new project awards each in excess of $5 million that will be impactful during the year. I don't mind telling you that I'm completely frustrated by our stock price performance over the past six weeks, and I know you are too. It certainly does not reflect a change in our business outlook or prospects, and it also doesn't reflect our competitive positioning on both a strategic and operational level with our Qualspec and our pending Furmanite transactions, and our significant investment in technology applications through our ERP platform. Due to the change in our fiscal year to a calendar year and due to the pending proxy in connection with the Furmanite transaction, we are in a closed window with respect to stock buybacks. I can tell you if that window were open we would be buying back as much of our stock as we could right now. So with that as an introduction, let me turn it over to Greg to more fully discuss the financial results for the quarter.

Thanks, Ted. Good morning. I will open with our Safe Harbor guidance. Any forward-looking information discussed today is provided in accordance with the Private Securities Litigation Reform Act of 1995. We've made reasonable efforts to ensure that the information, assumptions, and beliefs upon which this forward-looking information is based are current, reasonable, and complete; however, a variety of factors could cause actual results to differ materially from those anticipated in any forward-looking information. A description of those factors is set forth in the company's SEC filings. There can be no assurance that the forward-looking information discussed today will occur or that our objectives will be achieved. We assume no obligation to publicly update or revise any forward-looking statements made today or any other forward-looking statements made by the company, whether as a result of new information, future events, or otherwise. The discussions today will also include certain non-GAAP financial measures. We have excluded certain non-routine items when arriving at adjusted net income, adjusted EBIT, and adjusted EBITDA. Reconciliations of these adjusted financial measures are provided in our quarterly earnings release. I'll now focus on the results for the current quarter versus the prior year quarter. We reported current quarter revenues of $281 million, up 17% over the prior year quarter. Adjusted earnings were $0.69 per diluted share, versus $0.80 in the prior year quarter. I'll walk down the income statement starting with revenues. Qualspec acquired in July contributed revenues of $45 million in the current quarter. As mentioned in the earnings release, Qualspec has performed in line with our expectations as they finish out calendar year 2015. Excluding acquisitions closed subsequent to May 31, 2015, which is primarily Qualspec, revenues decreased 3% in the current quarter versus the prior year quarter. We estimate the effects of the strong U.S. dollar…

Thanks, Greg. Let me make a few additional comments to put the November quarter in perspective. When we saw the business downturn in our first fiscal quarter that ended in August, we knew that our resources particularly in Mechanical Services were imbalanced and we committed to address that situation immediately. I'm particularly pleased with the adjustments made in the Mechanical Service business by Pete Wallace and his leadership team. Our operating margin in Mechanical Services improved by nearly a hundred basis points to 11.3% over the same quarter last year. Pete and his team are in process of implementing a plan to reduce operating cost by $5 million a year. Our issues in the second quarter were more associated with our IHT business unit though for very different reasons that our Mechanical Service issues in the first quarter. Our issue in IHT, which includes Qualspec, is tiny. We saw a push out of projects from the fall of 2015 into 2016 and we have been gearing up for some of those big projects that are on the board for 2016 that I mentioned earlier. Led by Art Victorson, our IHT management team did exactly what we needed them to do in the context of the softer second quarter demand, keep our technician resource pools effectively intact and reasonably well utilized. We maintained utilization through a mix of smaller typically lower margin projects but keep out IHT technician pool ready to participate fully in 2016 higher volume of scheduled turnaround activity. On an organic basis, IHT revenues were flat quarter-over-quarter adjusting for currency, which was pretty good considering that the 2014 quarter was its best ever and represented a 22% revenue growth over 2013. So while our IHT leadership is also looking at cost reduction opportunities, the resource issue is not…

Thank you. [Operator Instructions] Our first question comes from Craig Bibb with CJS Securities. Your line is now open. Please go ahead.

All right. Well, great…

Good morning, Craig.

Hey, Ted. Great progress on your full plays [ph] here, could you talk about the guidance in the quarter, does that include the cost cutting you're trying to do at MS and IHT that's unrelated to the deals?

Well, the 215 [ph] budget for 2016 would reflect the cost reduction initiatives that are underway in Mechanical Services, yes.

Okay, and at IHT, I think you said there was another cost cutting program?

Well, IHT is a little different. The issues, again, that we had in IHT were more about timing. So while we are focused on cost reduction opportunities, it's not a resource-at-balance issue within IHT. We have a lot of big projects coming up in 2016. So, the issue with IHT was really –- it's just really a timing issue, and not a resource issue.

Could you quantify the dollar value of deferrals, and then which quarters that might hit in?

Well, I think there is a –- I mean, we can specify I would say probably $5 million easily on deferrals out of the second quarter in IHT. We think those are largely going to fall into the spring, but we'll see. Right now they're just getting most of that scheduled for the spring.

Okay, and last question, you've had a couple of months now since you announced Furmanite, have you got in more reaction from your customers?

No, I mean I think the reaction from both customers and employees of Furmanite as well as from employees of Team has been very, very favorable. We are –- this is probably the most natural consolidation in a space that you -- that frankly I think you can imagine. I mean we are both kind of the number one and number two specialty mechanical service contractors. We complement each other in terms of our skill sets. We've been strong competitors for a long time, but kind of when you peel that back there is just a tremendous amount of admiration I think on both sides for the qualities and capabilities, and the competitiveness of each other. So the reactions I think have been very, very, very good. I'm unaware of any negative customer reaction. And we certainly haven't experienced any kind of significant loss of personnel or anything like that. So I think there's just a great deal of excitement about the pending merger.

Okay, thanks a lot. And I'm looking forward to the calendar year-end.

Thank you. Our next question comes from Adam Thalhimer from BB&T Capital Markets. Your line is now open, please go ahead.

Hi, good morning guys.

Good morning, Adam.

Hi, Adam.

I've never known you guys to give quarterly guidance, but can you give us any help on how you see the March quarter shaking out. I mean, I just noticed last night when I was playing with the model –- you just don't have the year-over-year comparison. So any help you can give us on kind of percentage of earnings in each quarter will be helpful.

Here's what we're going to do, we will be filing, and Greg, help me out here, within just in the next couple of weeks I think, right?

Yes, we're going to be filing an 8-K to recast the last two calendar years on a quarterly basis.

Okay, perfect.

I think that'll give you a lot of help, but you're right, we don't do quarterly guidance, but we're going to try to give you as much help as we can in kind of recasting our historical numbers. But basically the way it works, simply, if you think about it in a simple fashion, it's –- January, February, March used to be two months of our q3 and one month of our q4. So the great part of it I think is, and just kind of in addition to moving to a year end that's more consistent with most public companies in America, is to kind of smooth out this –- the volatile seasonal nature of our earnings. But we're going to be filing some information within the next couple of weeks that's going to hopefully be helpful.

Okay and then just a couple of questions on the business. Ted, can you provide some more detail. You mentioned four projects that were over 5 million-a-piece. What end market are those in. And I guess kind of related to that, you're –- roughly one-third of your business is not in downstream energy. I'm just curious how the manufacturing, and power, and pulp and paper markets you're holding up.

Well, I think –- I mean just relative to the second question, I think most industrial markets are kind of experiencing the same lethargy, if you will, that downstream energy markets are experiencing. So it's a difficult time I think in all end markets. But again, that's not unusual, and we've seen that before, and it's not any different than we said it was in October. Yes, commodity prices have declined more. Yes, financial markets have declined more. But we expected kind of a difficult environment. And I think -- and that's the environment that we're in. So I forget -- so that was the second part of your question. I'm thinking about the first part of your question.

Just the four projects that you mentioned, I'm just curious if they're LNG or…

Three of them are kind of LNG projects along the Gulf Coast. One is a big opportunity in Canada.

Okay, thanks.

Thank you. Our next question comes from Marty Malloy with Johnson Rice. Your line is now open. Please go ahead.

Good morning.

Good morning Marty.

First question is on the Furmanite acquisition. I think previously you suggest they would add about 38 million EBITDA and $0.25 to $0.30 EPS contribution just from the cost savings by the end of '17?

Correct.

Could you maybe elaborate on how those –- the timing of those cost savings being realized, and maybe a little bit more about where they're coming from?

Yes, I think the -- we would expect to realize the cost savings I'd say almost ratably over the first four quarters after the acquisition is closed. There are several -- without going into detail of them, Marty, there are several major buckets. One is public company cost structure. Since Furmanite is a public company, as is Team, the elimination of duplicate Board of Director expense, SEC filings, independent audit, those kinds of things create one large bucket. Insurance cost, and not necessarily kind of benefit related cost, but on general liability, property and casualty cost, just the scale of the combination creates a significant opportunity there. Obviously there are particularly at the kind of the, if you will, the C-suite level there's some significant savings, no CEO, that kind of stuff that doesn't come over. We think there's some redundancies in facilities that through strategic combinations we will have realized. But you'll notice what I haven't said is that we don't think that there's a lot of, kind of at a commercial level, there's a lot of headcount reduction associated with Furmanite. Furmanite has its customer base. Team has its customer base. They have great technicians. We have great technicians. And so at the operating level, we, again, this thing is about growing the business, not cutting a lot of headcount, if you will. But it's just -- just because of our both being public companies in the same space, we think there's just a tremendous amount of opportunity for cost reduction. But it'll take about through the first year to realize all those benefits.

Okay. And next question I had was on the ERP system, and maybe if you could talk a little bit about the timing of expected impact on DSOs and working capital, and maybe magnitude of the benefit?

We have a couple of stakes in the ground relative to the ERP implementation. One is DSO, and the other is just enhanced operating efficiencies that we think is worth about a point of operating income to us. Now, I would say 2000 -- or you start getting the benefits about a year after you've implemented that system. The reason we have –- if you look, our DSO right now is probably 80 days, something like that, has been forever, because we have a lot of really manually intensive processes involved in invoicing our customers, and collecting that. We don't, for instance, right now have a contract administration module, if you will. So kind of billing our customers and getting it right is because of the dedication of 125 of great administrative assistants in our branched network. But it's a really manually intensive process, and that's kind of what's in the wall if you will for significant reduction of receivables. So with kind of modern ERP system where we have contract administration data loaded on the front-end as opposed to the back-end, our stake in the ground is that we can reduce DSO by about 15 days. Now prior to -- and this excludes Qualspec, if you will, whose by the way DSOs are quite good, but that represents about $30 million of kind of a reduction in working capital. So again I think that you start getting that benefit about a year after you've fully implemented the system. So it's kind of maybe late 2017. Then the same thing applies to our stake in the ground on operating efficiency. So because of the -- if you just think about the number manually intensive processes that we have in our business, again the fact that even billing customers is a function of kind of knowing the complexity of our contracts and kind of the dedication of a lot of people kind of doing it manually, but when we start automating, time keeping, and kind of time collection and feeding all your systems with time capture once rather than re-entering it several times, billing the customers all that we can bill, we -- our stake in ground is a point of margin, and again I think you know, there is a kind of a -- what's called a J curve if you will, start with a little loss of productivity and then you gain a lot of productivity. And so again I think that's probably a year out from implementation till we start really realizing the benefits of it.

Great, thank you.

Thank you. Our next question comes from Tahira Afzal with KeyBanc Capital Markets. Your line is now open. Please go ahead.

Good morning, Tahira.

Hi, Ted. How're you doing?

I am great. How're you doing?

I am doing well. Thank you. So Ted, first of all, you mentioned that you might think about doing some stock repurchases, and I would kind of see your stock does seem like it's a little fundamentally undervalued right now. Can you talk about…

I agree.

Can you talk about whether that's in that guidance you've given right now?

The stock repurchases? It is not.

Okay.

Not at all. Again, the issue for -- we honestly cannot -- we are in a closed window, if you think about it, we chased our year end to December, and so we haven't issued December results. So therefore, we're in a blackout from that standpoint. And then we actually -- the Furmanite transaction is a public company solicitation, so we have proxy material going to both shareholders in just a few weeks' time, and so because of both of those factors we are in a blackout window from the standpoint of insider trading and the ability to repurchase stock, but I can just -- so no stock repurchases are baked in. But I would simply tell you that if after we complete the Furmanite transaction and where our stock is still as undervalued as I believe it is today, then, when the window opens and if our stock price is still kind of where it is, I think we would be fairly aggressive.

Got it. Okay. And Ted, the second question is more fundamental, I think we probably both look at some of the same sort of forecast and industry specialized databases on turnaround. Hopefully, they are bottoming out as you're saying given the forecast going forward. The one pushback I get when I go to tradeshows and I listen to Exxon [ph] and all is that perhaps there are more permanently moving towards small turnarounds and more sort of on-stream repair work. Would love to get your sense of whether that trend is now largely incorporated and so will not be a tough comp for turnarounds if they do come back.

I think it's a little bit of a mixed story on that front, Tahira, because on the one hand we are seeing some smaller -- we are seeing deferral -- some of the big projects that are we deferred as a big project are coming back in smaller increments if you will. So, we are seeing…

Right.

Smaller turnarounds that can [indiscernible], but we are also seeing some big projects. So I think it is a mixed bag. I think it depends upon the philosophy of the operator. Again, one of the things that we love about our business is that we're going to be successful in any of those environments. One could argue that, well, if you have fewer turnarounds and you're going do on-stream kind of -- on-stream repairs and maintenance, well, there is no bigger on stream repair and maintenance company in world than we are. One could also argue that, well, inspection technologies kind of reduce the need for maintenance because we have better insight into the operating capabilities. Well, that's great because we are the leading NDT inspection company. So my view is that that in any of those scenarios, we are really well positioned to be very, very successful.

Got it, okay. And I'll jump back in the queue. I have got one more question, Ted. Thanks.

Okay, thank you.

Thank you. Our next question comes from Edward Marshall with Sidoti & Company. Your line is now open. Please go ahead.

Hey, Ted, Greg, how are you guys?

Good morning, Ed.

Hey, Ed.

So just a follow-up to that question, you talked about project scope maybe getting smaller or at least indicated that. If that's the case, I am just curious, are you finding that there's further pricing pressures for these types of smaller scope projects in the marketplace because my sense is you would probably find yourself against smaller operators as well, which normally in larger turnarounds would necessarily be a competitor. Do you think that there is an increasing competition scenario?

I don't know that I can point to that. I think it is true that some the smaller projects tend to have perhaps lower margins for a variety of reasons, not necessarily all rate related. I think there's just a lot of leverage. Bigger projects have a lot of kind of operating leverage associated with them if you will. We've always been in a highly competitive environment. This is a fragmented industry that we participate in. That's why I think just kind of in this soft time creating more critical mass in both of our major business units, inspection and mechanical services, will serve us and our shareholders very, very well because it doesn't mean that we dominate the marketplace, but because there is always -- there always has been and there always will be plenty of competition in all of our services, but I would rather be the guy in all that competitive world than some of the smaller guys if you will. And I think that's why what we are doing kind of creating a tremendous foundation of critical and mass systems to go with that is going to pay dividend royally.

And then, when I switch over to deferrals, I wanted to get your perspective. I know you gave some good information already, but when I look at -- when I listen to some of the calls on CapEx, budgets and seeing their declines and oil seems to hit a low every day and that's not giving anybody a lot of great confidence to put capital work. But when I think about the deferrals, I mean is this more just general conversation that you are having with customers that you anticipate the work will be there or -- and therefore more anecdotal or are you actually having -- are there actual hard orders or…

No, we have actual hard orders. I mean we have kind of hard evidence of projects that have been deferred out of the fall and have been rescheduled, some of in kind of in the same with the same scope, others in kind of as I had indicated some bigger turnarounds have now become smaller turnarounds, but more of them. But, it's not just kind of hoping they are deferred in 2016 and they have actually been deferred into 2016 -- rescheduled in 2016.

Got it. Okay, I'll jump back in the queue. Thanks.

Yes.

Thank you. Our next question comes from Matt Duncan with Stephens. Your line is now open. Please go ahead.

Hey, good morning. This is Balke calling for Matt today.

Hi, Blake, how are you doing?

Hey, good. Thanks. So just going back to the Furmanite acquisition, for the cost synergies you expect, do you expect to have all those in place by the end of calendar 2016 so that all of the 20 to 25 million will flow through the bottom line in 2017?

No, again as I said, I think it will take -- I think I said earlier, I think it will take about a year to fully realize all of those savings, so I kind of start counting from the -- from whenever we close. And again, we think that's going to be the 1st of March. So, it'll take about four quarters to fully realize those synergies.

Okay. And then, secondly, I think you mentioned improvements in your labor balancing. So, how much of drop -- and you mentioned you have a lot of deferrals obviously. Can you say how much of the drop in your gross margin this quarter you think was due to the delay of projects because maybe some of that having too many technicians in the current market environment? And like I said it sounds like the majority was revenue shortfall, but are there any further improvements you can make on the cost or resource alignment side?

Well, again, on the resource -- I mean we're always kind of fine tuning, so that is an ongoing thing. Most of the cost realignment if you will, resource realignment again is in mechanical services because the issues there were really resource utilization issues kind of at the end of the first quarter we got out of balance as we'd indicated on the call last time. And we've take the steps already to realign those cost. But, it doesn't mean we're done. We're continually particularly in this soft market going to be really focused on labor utilization, forward looking kind of where are we making sure that our resources are balanced to the business that we can see and not business that we hope for to do well. So again a little bit of the -- a little bit of the difference between mechanical services at the end of the first quarter and IHT in the second quarter is that the mechanical services, we've added resources beyond the business that we can see and that's the kind of adjustments that have been made. Our aggregate cost reductions that we're in process of implementing are 5 million there. That's not the same case in IHT. The IHT issues are more about project deferrals out of the second quarter. And again, we see those projects coming up in 2016. So, it's not as if that -- and so we don't have the same, oh, we've got too many resources, our utilization too low. We think we're focused on cost. But it's a really a different kind of issue.

Yes, this is Greg. Clearly on IHT, the primary issue this last quarter was in the deferral of the large turnaround projects and the higher margin services that IHT provides on those type projects. Hours and utilization this quarter versus last quarter were very comparable, but the revenue per project, the average margin on the projects that we're able to cobble together off the large project shift just lower profit work.

Got you. And then lastly, so on those margins, you think a lot of it was just a mix. How much are you still seeing in the way of price pressure coming from your customer base, and what about any competitive price pressures?

Well, I think -- I mean there is always competitive price pressure coming from our customers. Again I think we're going to continue to see that you know -- as we are -- in this kind of market softness that will be manifested. It is being manifested in a variety of ways. It's pushing to reduce rates. It's pushing to reduce hours or number of headcount in run and maintain accounts. That's been a constant pressure, and frankly what I think will be continuing for some time. I think we just recognized that's an issue that we have to work through, and I think by and large we've done that, but not universally. I mean we have made some concessions on some project activity, but I mean it's just a difficult time for sure for everybody.

Understood, very helpful. Appreciate it.

Yes.

Thank you. (Operator Instructions) Our next question is a follow-up from Tahira Afzal. Your line is now open. Please go ahead.

Thanks. Hey, Ted, just going to your 10-Q, I know you said Qualspec performed in line with your expectations, but I know you did have a reversal of an obligation, and the incremental $10 million they could have gotten by then, so is that just the market thing we go or is this something else?

Here is what's that's about, Tahira, that's really about the negotiation of the purchase price when we're negotiating the deal. We had an expectation of financial results of Qualspec. The seller had a higher expectation if you will, and the way we addressed that higher expectation was to agree to an earn-out and some contingent consideration if results hit that higher mark, if you will. But the higher mark is not what we really expected or had kind of baked into our internal forecast. And so, as it turned out at the end of the day, they did not earn the contingent consideration, but what they did earn was in line with what frankly our expectations at the front end of the deal were, so it…

Got it. That's very helpful.

Yes.

Thank you. We have a follow-up question from Edward Marshall. Your line is now open. Please go ahead.

Ted, you mentioned you would be in the market to buyback the stock, I'm just curious two things; one, do you have an existing buyback authorization in place? And secondly, you talked about reducing debt with cash, albeit, you don't produce a lot of cash to begin with, what's the packing order for that cash?

We do have an existing authorization from our Board of Directors. We would have to -- if we were to buyback stock we'd have to get a consent from our bank group to do that. Frankly, I don't think that would be an issue at all. But so the packing order, I mean again it's the second in time because of the absence of an ability to buyback stock at this -- our priority would be to pay down debt. But again, we think our stock is tremendously undervalued at this moment in time, and so if that situation continues, once we get into an open window our priorities might well change.

Got it. Okay, thank you very much.

Thank you. We have a follow-up question from Marty Malloy. Your line is open. Please go ahead.

Just one follow-up question from me, in terms of what's going on in the Gulf Coast and the new petrochemical facilities and LNG facilities coming online in last couple of years, can you talk about how big of a potential impact that is on you and how much work you might get during a commissioning versus plenty or few years down the road?

Well, it can be a significant impact on our business in fact. I [indiscernible] kind of four big project awards each more than $5 million. Three of those are on the Gulf Coast associated with new construction. One is in Canada, but the -- and so, an opportunity in a LNG facility or gas or liquids in ethylene plants generally have the look and feel to us of a big turnaround. So we have an aggregate what all that is. But then more importantly or as importantly, you know, when we increase the number of facilities, kind of operating facilities infrastructure that then creates ongoing opportunities for us and all our service lines and all our business units. So there is onstream maintenance opportunities, turnaround opportunities in both run and maintain and turnaround opportunities on the inspection side. So again, we have tremendous opportunities during construction and then certainly after those facilities become operational.

Thank you.

Thank you. Our next question comes from James Noonan from Merrill Lynch. Your line is now open. Please go ahead.

Ted, have you seen any impact yet or possibly opportunity going forward with firms that have their own in-house departments possibly reducing CapEx and pushing towards more outsourcing, and any insight into that?

Most of our services, both on the specialty, maintenance, mechanical service side and NDT side have generally always been outsourced. Not a lot of what we do is done by our customers kind of inside their operating units. Again, because what we do is not general maintenance, it's very specialty maintenance on the mechanical side, and again NDT is a very specialty business. So we don't see a lot -- so it's always been outsourced to service providers like T. On the other hand, we don't see a lot of -- we also are not seeing a lot of in-sourcing of those services for the reasons that I had mentioned that they're very specialty in nature, and if you're not doing it everyday, you don't want to be doing it.

Thanks.

Thank you. There are no further questions. I will now turn the call back to Ted Owen, President and CEO for closing remarks.

Okay. So again thank you all for your interest in Team and your participation in this quarter's call, and we look forward to talking again after our first calendar quarter of 2016, which will be I guess in early May. So have a good day, and I'm sure we'll be talking to many of you soon. Thanks. Bye.

Ladies and gentlemen, this does concludes today's program, and you may all disconnect. Everybody have a wonderful day.