Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Team Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Don Bleasdell, Vice President of Finance. Sir, you may begin.

Thank you, Heather, and welcome, everyone, to Team's second quarter fiscal year 2018 conference call. With me on today's call are Amerino Gatti, the company's Chief Executive Officer; and Greg Boane, EVP and Chief Financial Officer. This call is also being webcast and can be accessed through the audio link under the Investor Relations section of our website at teaminc.com. Information recorded on this call speaks only as of today, August 8, 2018. Therefore, please be advised that any time-sensitive information may no longer be accurate as of the date of any replay. Before we continue, I'd like to remind you that this call contains forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations, future events or future financial performance. Forward-looking statements involve inherent risks and uncertainties and we caution investors that a number of factors could cause actual results to differ materially from those contained in any such forward-looking statements. These factors and other risks and uncertainties are described in detail on the company's Annual Report on Form 10-K and in the company's other documents and reports filed or furnished with the Securities and Exchange Commission. The company assumes no obligation to publicly update or revise any forward-looking statements. We have an improved quarter with several important developments to talk about today. So, now I'll turn the call over to Amerino to get us started. Amerino?

Thank you, Don, and good morning, everyone. We appreciate you joining us today. I'll begin by providing a brief update on our business. Greg will then detail our quarterly financials and hand the call back to me for some additional commentary before we take your questions. We are encouraged with our Q2 2018 performance. In all three business segments, we achieved strong quarterly organic growth in revenues, operating income and adjusted EBITDA. Our second quarter also represented Team's highest quarterly revenues, operating income and EBITDA performance since Q2 of 2016. These results are beginning to reflect some of the fundamental business model refinements and cost rationalization initiatives we have undertaken, which I will cover in more detail later. We are also encouraged by improving conditions in our end markets as both customer spending plans and our activity levels have increased compared to prior year. Consolidated Q2 revenues were $344 million, an increase of 10% from $312 million in the prior year period and a 14% sequential increase from $302 million in Q1 of this year. Compared to the prior year quarter, Quest Integrity revenues increased 23%, while Mechanical Services recorded revenue growth of 12%, followed by Inspection and Heat Treating growth at 7%. When compared to prior year quarter, consolidated adjusted EBITDA increased 92% to $30.4 million from $15.8 million and adjusted EBITDA margin improved 380 basis points. This marked the highest quarterly adjusted EBITDA both in absolute dollar and percentage terms since the second quarter of 2016. I will now review our segment performance. The Mechanical Services segment delivered Q2 2018 revenues of $149 million, a 12% increase when compared to $133 million in the same period last year. Adjusted EBITDA was $19.9 million in the second quarter or 76% higher than prior-year quarter. This segment continued to build…

Thanks, Amerino. Market improvement continued in Q2 2018 as activity levels picked up. Team reported record quarterly revenues of $344 million, an increase in consolidated revenues of $32 million or 10% growth over Q2 2017. Q2 2018 consolidated gross margin improved by 120 basis points to 28.3% from 27.1% in Q2 2017. Sequentially, Q2 2018 consolidated gross margin improved by 330 basis points to 28.3% from 25% in Q1 2018 as previously deferred Quest products were completed in Q2. We also benefited from the implementation of some workforce planning and utilization process improvements in the Inspection and Heat Treating segment and from the early impacts of the OneTEAM program. Mechanical Services' gross margin improved in Q2 2018, increasing to 30% from 29% in Q2 2017. The Mechanical Services team benefited from continued year-over-year improvements related to the workforce planning and labor utilization initiative, coupled with the targeted customer pricing strategy while also improving efficiency and reducing costs in their manufacturing and engineering functions. Quest Integrity, which has a higher semi-fixed cost structure related to their engineering and assessment resources, experienced a Q2 2018 gross margin increase of $4 million, due primarily to higher activity levels and favorable project mix on inspection projects completed in Q2 2018. The Inspection and Heat Treating segment showed a 280-basis-point gross margin improvement sequentially in Q2 2018 after experiencing some operating challenges that unfavorably impacted their costs in Q1 2018. As we discussed last quarter, the Mechanical Services segment had already implemented and is benefiting from workforce planning tools and processes. We rolled out these same processes into the Inspection and Heat Treating segment in Q2 2018, as well as beginning a targeted contract management initiative designed to address specific contracts with less favorable contract terms. Our recently established center-led sales and commercial team has…

Thank you, Greg. Before we take your questions, I will spend a few minutes reviewing OneTEAM progress and providing some forward-looking market outlook. The OneTEAM integration and transformation program is in full deployment phase and is on track. Under the revenue enhancement pillar, the cross-selling opportunities for integrated projects has grown by more than 80% by leveraging our customer access across segments. Since our last call, we have installed a new commercial and contracts function that have completed the review of our top 25 contracts and initiated prioritized negotiations with our customers. We have successfully executed a couple of the larger MSA negotiations, but each contract is an individual negotiation, and we anticipate this taking several quarters to complete. As previously indicated, we are planning to achieve cost efficiencies of $35 million to $45 million from the two cost improvement pillars of the OneTEAM program. We accelerated our cost reduction plans focused on SG&A and indirect costs and on restructuring low-performing locations. The district restructuring initiative is more than 50% complete with the remainder planned through year-end. Based on the project progress, we are confident that we will be able to achieve the higher end of the $8 million to $10 million of savings targeted in the second half of the year. We continue to see our end markets improve and expect increasing activity levels going forward. From a macroeconomic perspective, end markets exhibited signs of improvement in the first half of the year. External data shows U.S. refineries are running at near record levels with scheduled turnarounds for the second half of this year projected to be higher than the same period last year. The rebound in oil prices over the past year and recovering energy sector spending are leading the increased opportunities in the fall and into 2019. Using external market data and our internal forecasts, we continue to project the 4% to 5% end market growth and remain confident in reaching high single digit revenue growth for 2018 over 2017. While all of this data serves as a good indicator of the strength of the underlying markets, we are experiencing increased external headwinds around cost to serve such as labor, materials, freight and fuel. My senior leadership team is now fully in place, and the entire organization remains focused on delivering our key 2018 performance objectives of improving safety, growing EBITDA, and increasing free cash flow. While we still face a number of challenges, given our Q2 2018 financial performance, projected growth in end markets for our services and our strong focus on executing the OneTEAM program, we remain confident that we are on the right path to deliver 10% to 12% annual adjusted EBITDA margin by 2020. Finally, I would like to once again personally thank all our loyal, hardworking employees for their willingness to embrace change and their steadfast commitment to driving execution excellence. At this time, we'll be happy to take your questions.

Thank you. Your first question comes from Tahira Afzal with KeyBanc. Your line is open.

Good morning, Tahira.

(25:16) to you and your team on all your hard work. Great EBITDA performance.

Thank you.

I've got lots of questions but I keep it to two for right now. I guess, the first question is, Amerino, we've talked about the trajectory before on how you get to that 10% to 12% EBITDA margins. As you look at your second quarter performance, do you feel you're a little ahead of track? And, if so, I know we've talked about maybe $85 million being a good benchmark for where the adjusted EBITDA ends up this year, are you feeling a little more comfortable around that?

So, Tahira, the 10% to 12% bracket in 2020, I am feeling more comfortable as long as we continue to get the foundation in the base lines in the market, which, at this point, from our four quarter look ahead, H2 and into 2019, that looks – the foundation looks positive for us. When I look at 2018 specifically, Q3, obviously, seasonally will be down. We really have a September-October type timeframe of a turnaround season, which is showing to be higher than last year and in line to slightly positive versus the H1 turnaround season. But I do feel that that $80 million range on adjusted EBITDA is achievable and is the right level for us to be targeting this year. I want to just highlight the fact that we had a good second quarter. We were able to deploy a big, big part of the organization in a growing quarter, where we delivered well. So our people are very focused but we're still in the second or third inning of the transformation. So, although I'm very excited and very positive on the development on what our people delivered, we're not out of the woods yet. We've got to take it one quarter at a time, but I think that $80 million range is a good estimate.

Got it. That's pretty helpful, Amerino. And, I guess, the second question is your comment on the revenue enhancement pillar, the identification of 80% increase in cross-selling opportunities. Can you talk a bit more about where those incremental opportunities have come for and could it sort of drive that revenue outlook you have of in the mid single-digits up considerably if you start to gain traction here?

So, first of all, Tahira, the 80% improvement in the opportunity pipeline is coming because we're now starting to expand the division sales model across the company versus just Mechanical. So, our visibility on opportunities from the plant level all the way up to corporate organizations of our customers, the visibility has increased. We are now doing a lot of cross segment training. We're doing a lot of professional sales training. So, we're building a commercial and sales organization that, in the past, existed at the district level through account managers, it now will be at multiple levels of our company to align with our customers. So, the foundation is extremely important. The second thing is we deployed a business system, which everybody is familiar with on our sales force. So, we have better visibility on capturing the opportunities, putting probabilities to those opportunities. We're in the process of rolling out our sales incentive compensation plan, which will be done by the end of this month to reward those people that identify and deliver and collect cash on the opportunities. And the majority of the opportunities today are coming in places where we're nested, where we have projects. So, we have inspection services and we're able to pull through the Mechanical Services. That's a big, big part of it because it's being sticky, it's collecting or delivering more services to capture more of the wallet spend of our customer. So that's our initial start because we've already got access to those customers but I will – I'm very confident that with our breadth of services, starting with domestic oil and gas expanding to domestic – or domestic non-oil and gas and then international as this commercial and sales organization continues to develop, I'm excited on what our capabilities will be because we'll be much more aligned with our customers, our technologies are developing at that speed to be able to deliver the integrated solutions. So I think this is just the tip of the iceberg for us. But, again, we're really focused right now on Pillar 2 and 3 and that's the heavy lift. But going into 2019 and 2020, the commercial part is where I'll be spending a lot of my time once we put these other pieces in place.

Got it. Thank you, Amerino, and I'll hop back in the queue.

Thank you. Your next question comes from Martin Malloy with Johnson Rice. Your line is open. Martin W. Malloy - Johnson Rice & Co. LLC: Good morning.

Hey, Marty.

Good morning. Martin W. Malloy - Johnson Rice & Co. LLC: First question, in the last conference call, you referenced the refinery maintenance spending being up, I think, 30% to 40%. Has that kind of end market strength in that range continued?

So, I think, right now we're seeing that flattening out a little bit because the utilizations have gone up over the last quarter. So it is still being driven, refining is still being driven more on the maintenance OpEx, CapEx side of things versus new projects. So, it is flattening out from that level. It's probably closer to the 15%, 18% range now. Petrochemical, Marty, is on the opposite. We're seeing more large new projects driven by new CapEx versus maintenance OpEx expansion. So I think the trends are still the same. But based on the utilizations of these plants, that's leveled off a little bit. The other thing we're seeing, though, Marty, is the discoveries in the projects and turnarounds are still expanding scopes. And I do think that because the capacities are high, our customers are looking at keeping their utilization up, keeping their productivity up. So I do expect a lot more maybe shorter projects versus large projects, right, going forward, which we can react to with our workforce management model. So, hopefully, that gives you a bit of color on both petrochemical and refining. Martin W. Malloy - Johnson Rice & Co. LLC: Yes. Thank you. A follow-up question. In your commentary, you referenced inflationary factors, including labor, fuel, et cetera. Can you maybe talk a little bit more about how you're dealing with that? And can you give us some comfort that you're able to pass those costs through to the customers quickly?

Sure. So, in the first half of the year, we focused a lot on our procurement organization, which was put in place in late 2017. So we've been able to go and use our size and leverage some of our scale to work with our suppliers, reduce the number of suppliers, et cetera. That was the first half of the year. With things like steel, fuel, freight, we're now starting to see our ability to reduce that spend cost or cost to serve is going away. We're now starting to see increases coming in the areas that I said earlier. Things like labor because we're in a labor rate build-up in most of our contracts, we will be getting in front of our customers and having that discussion. That one is – contractually we have a discussion point there with our customers. When it comes to a lot of the steel, fuel, et cetera, mostly in the Mechanical Services segment, that we have to work into our pricing negotiations that I talked about earlier. So for MSA contracts, it's part of the discussion and the negotiation. For call-out, we embed that into the price list, right, and we use the price list model. So it's kind of two points of attack. But that's the approach going forward. And we support our customers with the backup documentation required. We've done our analysis on the indexes and how those indices have increased over the last couple of years. So we've done our homework, but we've got to get in front of our customers one on one with that stuff. Martin W. Malloy - Johnson Rice & Co. LLC: Great. Thank you.

Thank you. Your next question comes from Craig Bibb with CJS Securities. Your line is open.

Hi, guys. Just to clarify.

Hi, Craig.

Greg, you said you guys are going to be free cash flow positive next quarter and also in 2019. Is that correct?

No. Free cash flow positive in Q3, and we expect to be free cash flow positive for the year 2018.

Okay. Great. And then, Amerino, you were talking about some of the IHT contracts were, I guess, poorly bet and you're reviewing those. How material is that? And when will that be completed or is this just like a renegotiation?

So, for the top 25, we've now completed the analysis of those. We've broken it down. And I want to be clear, this is not an across-the-board negative contracts. We have very good blue-chip customers, long-term relationships. It's literally three to four terms within the contracts that we're addressing. Overtime rate being one of them because of the expansion of project scope. Some of the logistics involved in those, some of the cost escalations we just discussed with Marty's question. It will take us a few quarters because these are contracts that are in place. So when we have a contract expiring and we go into an RFP, that's done through the normal process. When we have an existing contract, we're having to go in front of the customers at the right level, obviously, present our case and have a good discussion with the customer, show our documentation and then move from there. So I do expect it to take several quarters. But like I said, we've been successful on a couple already. We have three more in the works right now. So it's a big part of our focus, Craig.

Okay. And then just a quick one on – you referenced a subsea project for Quest. Is that a new market for Quest?

Yes. Very good question. So the last few years, we worked closely with a few of the operators to develop tools for the offshore market. Jeff and the Quest Integrity team have opened up that market. We had a very good couple of operations in Q2. We've got a few more scheduled. We will be addressing and using our technical and domain and sales organization to grow that market. But early indications are that our tools, our people, but more importantly, the asset integrity in the metallurgy support we're providing is a good new market for us.

Okay. And the last one is on Team Digital. I think you said two of the largest refiners are using it now or maybe just provide some color about what you're doing with Team Digital, how big that opportunity is and how it unfolds over the remainder of the year?

Okay. So we've deployed it now and used it in five of the eight divisions globally. We have signed two strategic agreements, as I said, with two of the larger refiners and that's in multiple plants. And we are using it now for those two customers and I can't release the names right now, but for two of the larger refiners. It's broken up, Craig, into two pieces. There is the digital technician piece, which is more around invoicing, scheduling, just essentially giving the technician an iPad or a tablet or a laptop. But more importantly, it's collecting of the data, the QA/QC, and then starting to use that electronic data to analyze reliability, asset predictability, and eventually over the next year or two, you start building analytics around it. So, I know you guys hear a lot about digital in the market, but digital technician is very logistical. Team Digital, where we start being able to use it for QA/QC and asset integrity and predictability is what we've been – because we've been working on it for the last few years, we're now in that phase. And in the future and through R&D investment, the analytics is really the big prize for the industry and for us.

You house and analyze the data for the customer?

So, it's mixed. Some customers want us to house it. We have agreements with secure cloud-based servers, and other customers want to house it but use us for analytics or analysis. So, it's really customer-dependent based on their data security policies.

And this gets you to remote monitoring down the road or helps?

Yeah, absolutely. I think the – I've been involved in the past with different reliability projects. And once you start getting good data, clean data, you start finding which KPIs you want to monitor, so you have a reliability-monitoring dashboard and then you can start doing things more real-time using analytics, just-in-time maintenance. And once you identify a potential failure, then you go in surgically to fix it. So, that is the evolution of where I see Team Digital going. It's way beyond just a digital technician. Digital technician is really the early, early phase of the logistics part.

Great. Okay. Thanks a lot, guys.

Thank you. Your next question comes from Adam Thalhimer with Thompson Davis. Your line is open. Adam Robert Thalhimer - Thompson Davis & Co., Inc.: Hey, guys. Congrats on a strong quarter.

Thank you.

Hey, Adam. Adam Robert Thalhimer - Thompson Davis & Co., Inc.: I guess, I mean, you already kind of talked about EBITDA for the full year but just so I'm thinking about this the right way, do you see September above March, and December above June?

I think, generally speaking, the information that we see today indicates that the second half should be up from the first half, but the information is still being developed. But, yes, we would expect – and generally speaking, Q4 is seasonally stronger than Q2. Adam Robert Thalhimer - Thompson Davis & Co., Inc.: Okay. And then can you give us some color for international trends, particularly in Canada?

Sure, I will. We had a very strong quarter in Canada, and actually the first half was very strong, led by Inspection. We had a couple large turnaround projects in Canada, so Canada's strong. We do see a recovering international market in the second half of this year, driven, for us, by Mechanical Services, so stronger in international in H2. Adam Robert Thalhimer - Thompson Davis & Co., Inc.: Got it. And then lastly, how do you see Quest shaking out for the rest of the year? Is Q2 the high watermark for revenue for the year?

Well, in terms of total year revenue, as I've said during the prepared remarks, we're on track to have another record year of revenue. I think Q1 definitely was the lowest. We're right now looking at the projects that are slated. Going forward, we anticipate continuing that, the pace that we saw in Q2. There's, obviously, going to always be – because of the size of projects that Quest does, any project delay, a week or a month, could move the revenue month to month. But we do see the revenue quarter-to-quarter growing through the rest of the year. But month-to-month, we could have some lumpiness depending on the size of the projects. Probably Q2, I would say, is probably the peak, but the other two should not be far behind. Now, again, when you look at it month-to-month, there could be some lumpiness. But our schedule looks good through the rest of the year. Adam Robert Thalhimer - Thompson Davis & Co., Inc.: That's perfect. Okay. Thanks, guys.

Thank you. You have a follow-up question from the line of Tahira Afzal with KeyBanc. Your line is open.

Hi, guys. So I had a couple of follow-ups. Number one on the questions around your technology and innovation, Amerino. Can you put for us – some of your peers talk about this as well but can you kind of put it on a scale for us where you are versus relative strength in your technologies versus some of your peers?

In terms of – can you expand that a little bit? Do you mean where we are in our portfolio versus our peers or in development?

In terms of portfolio, I think a lot of your – some of your peers talk more about it and I think this is probably the first call we've heard you guys talk a little more about it.

Okay.

So if you can talk a bit about where you are kind of the industry leaders in terms of technology outside of, obviously, Quest would be helpful.

Sure. So, first of all, I think the first thing that's important to understand is where we invest our R&D. And we're in the range of $6 million to $8 million of R&D investment annually. And our R&D investments are in digital today focused on pipeline, advanced measurements and sensors. We don't feel that we need to invest in some of the enabling technologies either through acquisition or development, for example, drones. We've got good relationships with our suppliers. So, we're able to use the technology or the enabler, if you will, to deploy sensors and focus more of our efforts around the answer products, the measurements et cetera. So, big picture, that's where our R&D funding goes. In terms of actual tools, I know there's a lot of discussion around guided wave and Phased Array and different things like that. A lot of that is available in the market. We've refined our resolution of sensors that I feel are stronger than what's in the market today. We've worked a lot on our answer products in terms of acquisition, asset integrity and a lot around the metallurgy, the integrity of the metallurgy, the corrosion, the transient corrosion, so you can start helping the customers predict when projects and turnarounds need to happen. So big picture, Tahira, that's where we're focused. And when you look at us versus our competitors, and I don't think this is well understood, our technical domain population is one of the strongest in the industry, and we're close to almost 200 people when you span across the three segments, including Quest, on the amount of domain and technical expertise we have in the company. And I will agree, we have not done a good job in showing our capabilities, integrating our solutions. That's where Jeff Ott in the Product and Service Lines are going to be focused going forward. But a strong technology portfolio comes with a strong domain and technical support, which is why we've got the operations structure and the PSLs. And going forward, you'll start to see a lot more of our capabilities.

Okay. That was actually very helpful, Amerino. And, I guess, last question from me. We've been hearing a lot about IMO 2020. I know you and I have also talked about it slightly. Any thoughts around CapEx plans and the benefit this could have for you all over the medium-term?

So, I think, similar to previous discussions, if and when the regulations are not only approved but enforced, I guess, or applied or implemented, it could have a positive movement for our services because there's going to be facility upgrades, project upgrades, et cetera. When I look across the world, it's really going to depend on the enforcement of the policies. Obviously, I believe it will happen but the phasing in, the pace at which that gets deployed will be the way we'll analyze how it increases our market. But the more new construction, the more project expansion, the more facility upgrades to handle a lot of the upgraded fuel types, the more our services will be required.

Got it. Thank you very much, Amerino.

Okay.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to management for closing remarks.

Thank you, Heather. So thank you once again for joining us on the call and for your interest in Team. We've got a lot going on right now, and we continue to be very focused on our objectives for 2018, and we look forward to speaking with you again next quarter. Thank you very much, and, Heather, that ends the call.

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you all may disconnect. Everyone, have a wonderful day.