Good day, ladies and gentlemen and welcome to the Team Inc. First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Don Bleasdell, Vice President of Finance. Sir, you may begin.

Thank you, Jimmy. Welcome everyone to Team’s first quarter fiscal year 2019 conference call. With me on today’s call are Amerino Gatti, the company’s Chief Executive Officer and our Chief Financial Officer, Susan Ball. 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, May 8, 2019. Therefore, please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. There will be a replay of today’s call and it will be available via webcast by going to the company’s website, teaminc.com. In addition, a telephonic replay will be available until May 15. The information on how to access these replay features was provided in yesterday’s earnings release. Before we continue, I would like to remind you that this call contains forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities and 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 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, except as may be required by law. Amerino will begin by providing an update on our business. Susan will then detail our results. And before we take your questions, Amerino will highlight our OneTEAM progress and market outlook. Now I would like to turn the call over to Amerino. Amerino?

Thank you, Don and good morning everyone. We appreciate you joining us today. Consolidated first quarter revenues were lower than expected at $270 million, a decrease of approximately 11% from $302 million in the prior year period. We experienced market softness in both inspection and heat treating and the mechanical services segments while Quest Integrity continued its strong growth. Revenue decreased 16% and 9% respectively in IHT and MS segments. These declines were partially offset by higher activity levels in Quest Integrity that generated a 16% year over year improvement in revenue. In Q1 of 2019, volumes were negatively impacted by weather disruptions across Canada and parts of the US, project delays resulting from the US government shutdown, certain large nonrecurring projects and discontinued businesses in our IHT and MS segments. The impact was deepened further due to a depressed Canadian market. Q1 2018 sets a tough revenue comparison due to pent-up demand from Hurricane Harvey deferrals, which resulted in the strongest Q1 since our acquisitions. Despite these lower year-over-year revenues, gross margins remained virtually flat, driven by strong execution in our businesses. First quarter total SG&A decreased $7.4 million or 8.2% from the prior year period. It also decreased by $7.8 million or 8.7% from the fourth quarter of 2018. The sequential and year-over-year reduction in SG&A further reflects a key component of our OneTEAM program showing the successful and ongoing implementation of our cost reduction initiatives. We remain focused on actively managing costs and investing in projects with the greatest returns. During the quarter, we expected to be a net borrower on our credit facility. However, through disciplined capital management, we reduced our debt for the third consecutive quarter. We generated positive free cash flow, which represents an improvement of $4.4 million from the prior year period. We…

Thank you, Amerino and good morning everyone. As Amerino mentioned, first quarter consolidated revenues were lower than expected at $270 million, which was down 11% from the first quarter 2018 due to the late project and turnaround work as reflected with the higher refinery utilization in the beginning of the quarter, certain large non-repeat projects from the prior year, as well as continued softness in the Canadian market and the disposition of underperforming businesses in 2018. Foreign currency exchange negatively impacted revenue by $3.4 million. Overall, international revenue, excluding Canada, was up by more than 6% over the prior year as we have continued to expand our superior services building on Team’s unparalleled footprint. On lower revenues, we managed pricing, labor utilization, and associated costs to maintain a gross margin similar to the prior year quarter. Despite a top line decrease, consolidated gross margins remained relatively flat at 24.5% as a testament to the ongoing success of our OneTEAM program initiatives. We generate a favorable fall-through on revenue shortfalls as evidenced by the gross margin variance of only 50 basis points. Quest Integrity’s segment gross margin dollars increased 12% on a 16% revenue increase. IHT segment gross margin dollars increased 21% on a 16% revenue decrease and MS segment gross margin dollars decreased 12% on a 9% revenue decrease. The bulk of our segment margin changes were the result of the volume impacts and the associated fall through. Consolidated adjusted EBITDA of $3.8 million in the first quarter decreased by 190 basis points to 1.4% from 3.3% in the first quarter of 2018. As previously stated, both the IHT and MS segments reported lower adjusted EBITDA while Quest delivered positive adjusted EBITDA gains over the first quarter of 2018. The IHT segment first quarter 2019 adjusted EBITDA percentage decreased to…

Thank you, Susan. Before we take your questions, I want to review the progress of our OneTEAM program and provide a market outlook. We remain on track to achieve annual run rate cost efficiencies of $35 million to $45 million in 2020 from the two cost improvements pillars of the OneTEAM program. On the last call, we reported a savings of $10.1 million in the second half of 2018. As we continue implementing the cost initiatives, we are now confident that we will achieve an additional $10 million to $12 million of savings this year, reaching a total of $20 million to $22 million. In Q1 2019, we realized a savings of $5.5 million. As previously discussed, we have expanded our focus from the cost reduction pillars to the revenue enhancement pillar, which includes contract management, gross margin improvement and both value and cross selling initiatives. We are now using contract management, pricing discipline and operational improvements to offset cost to serve headwinds with the goal of improving gross margins. Our Q1 2019 gross margin was in line with Q1 2018 despite $33 million less revenue, which demonstrates enhanced pricing discipline and more selective project execution. We have implemented escalations and hurdle rates for new projects and are continuously monitoring active contracts. Our focus on profitability may require us to pass on certain non-accretive projects. We are excited and remain committed to executing on our value and cross selling strategy. Due to increases in natural gas liquids and crude exports, we are experiencing an increase in midstream activity. These projects often expand in scope to include additional services through discovery and cross sell opportunities. Our Quest Integrity segment was recently awarded a multi-year risk assessment and pipeline integrity management contract for a major pipeline network. Now shifting to the market…

Thank you. [Operator Instructions] Our first question comes from Tahira Afzal with KeyBanc. Your line is now open.

Hi folks, how are you doing?

Good. Thank you, Tahira. Good morning.

Good morning.

Good morning. So, Amerino and Susan, first question is, I’m glad to see that the free cash flow guidance for this year is intact and your 2020 goals. You had talked previously around 4% to 5% revenue growth being achievable in ‘19 and 200 basis point improvement in adjusted EBITDA margins into ‘19. Are those sort of medium term goalposts also still valid?

So, Tahira, in terms of the overall market and our revenue with that we do expect to outpace the market, the 200 basis point adjusted EBITDA is still intact for the full year versus 2018. And right now, based on our outlook in terms of top-line growth with the exception of Canada, we’re still in line with previous numbers.

Got it, okay. And Amerino, you talked in your prepared commentary and even right now about a bit of a spike in trying to – that of refiners were trying to scramble ahead of the summer season. Can you talk a bit about what the activity levels have looked like in April, just to give us a sense of how second quarter is shaping up so far?

Sure. We’ve been monitoring obviously very closely activity level changes and we started our workforce management forecasting, so now it’s about a year in maturity. We’re seeing the delay was about 2 weeks coming out of Q1, which pushed our activity spike into the third and fourth week of March, and we’ve had a strong start to the quarter of April. We’re seeing a 2 week delay on the backend because of the 2 week starting point, so that will take us through most of May. The main difference though that we’re seeing this year versus last year is we’re seeing a lot more smaller projects post turnaround season on our calendar. And those are more in the form of small pit stop turnarounds, which didn’t happen last year. So, the turnaround season has spiked and compressed, good start to the quarter, but we are seeing some other projects now landing on our schedule that we’re starting to staff in what would normally have been a lower cyclical period like July and August.

Got it, thank you. And I’ll hop back in the queue with some more follow-ups.

Thank you.

Thank you. And our next question comes from Adam Thalhimer with Thompson Davis. Your line is now open.

Hey, good morning, guys.

Good morning, Adam.

Good morning, Adam.

So, I’m just trying to understand, so adjusted EBITDA you’re saying Q1 of ‘19 is roughly flat with Q2 of ‘18. And then are we thinking that H2 of ‘19 is better than H1 of ‘18?

So, what we’re saying right now, I’ll let Susan answer the first part, let me talk about the full-year. So, our H1 of ‘19 in line with H2 of ‘18 and then stronger H2 of ‘19 overall. So, we’re seeing a stronger second half compared to both halves of ‘18. You had one question specifically?

No, I mean, let me – so, do you see EBITDA up in Q2, Amerino year-over-year?

Year-over-year in line with Q2 of last year.

Okay. Got it. And then can you give us some additional color on what’s going on in Canada and what the outlook is up there?

So, yes, Canada, a couple of things are happening. One is, we did have some very, very abnormally high – low freezing temperatures, which adversely affected Western Canada primarily, not so much Eastern Canada, but on the West side. And that was an impact negatively for us quarter-on-quarter, year-over-year. But however, having said that, longer term, a lot of the takeaway capacity mostly on the pipeline side, regulatory approvals are being delayed, which is impacting takeaway capacity, which is impacting project work. So, we’re seeing our mechanical business recover, but we expect to see lumpiness on the inspection side as a result of those regulatory approvals being delayed. There is some review right now of having other ways of removing – or of moving hydrocarbons like rail, for example, but obviously that’s not as efficient as pipeline. So, it’s a combination of weather, combination of takeaway capacity, which is putting delays on our projects. And we expect that, Adam, through most of 2019.

Okay, perfect. Thanks a lot.

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

Hi. Just kind of a quick housekeeping question first. All – assuming all the underperforming locations were closed prior to year-end, is that correct?

That’s correct. Prior to year-end of 2018.

Okay. And then Quest continues to grow when the rest of the business isn’t. I am assuming they have a smaller position in Canada, but it looks like they continue to move into adjacent markets. What else is key and are you adding additional resources to help them expand capacity?

So, for Quest specifically, Craig, that’s your question, right, on the resources?

Yes, for Quest.

Yes. So, you’re right in terms of growth of adjacent markets. We continue to see, as I’ve said the last few quarters, expansion in offshore. That continues to be a good new market for us, not only the U.S. Gulf of Mexico, but other offshore markets. We also are seeing expansion international, where our integrated offerings are being a lot more – we’re able to sell value in integrated offerings a lot more, for example, than we can domestically. It’s a bit more piecemeal domestically. And Canada relatively is a good market on the pipeline side for Quest, but, yes, most of the growth will come from the adjacent markets. In the U.S. however, with the midstream growth and the pipeline expansion, which is one of the largest, fastest growing markets right now or sectors, Quest plays very well in that space also. So, it’s really a combination of adjacent and domestic. In terms of investments, we’ve got recruiting, training and manufacturing expansion to help their growth. So, it is, as I said, an area that we’re investing significantly to make sure that they can continue to expand their overall revenue and profitability into new markets.

Okay, well, it’s gone well. Susan, you talked last quarter about having a debt reduction plan ready in Q2. Is that something you’re going to reveal with second quarter results or before then?

Yes, you’re correct. As I mentioned on the last call, we are working through plans on our capital structure and would anticipate and still anticipate that we will speak to that with Q2 – during Q2 results.

Great, alright, thanks a lot, guys.

Thank you.

Thank you, Craig.

Thank you. And I’m showing no further questions in the queue at this time. I’d like to turn the call back to Amerino Gatti for any closing remarks.

Thank you, Jimmy. I think we have one more call – one more question, sorry, that just come in, we’ll take it.

Alright. We have a follow-up from Tahira Afzal with KeyBanc. Your line is now open.

Sorry, Amerino, I thought I’d pressed the bloopy [ph] button, but I hadn’t. So, I guess the question is, if you look at past through, the gap you saw in the first quarter, how much was driven by the shutdown stuff? I assume it was the smaller piece. You don’t have much exposure there I assume.

So, Tahira, I won’t give exact details, but high-level, the 4 areas that impacted top-line. FX, which Susan covered, we had one large project in our Central Division that was a historic project that did not repeat and that was a big part of it, underperforming business shutdowns, both domestically and internationally for IHT and MS, and then Canada. And when you look at those 4, and I’m not going to give specific details, because there’s a lot of breakdown in there, but when you look at those 4, that covers about 85% of the delta year-over-year not accounting for the Hurricane Harvey pent-up demand, et cetera, et cetera, but those are the 4 areas. Now, we continue to really watch our market share positioning and dig deeper into market knowledge by sector and partnering with our clients. But to answer the question, those are the 4 main drivers.

Got it. And I guess last question from me. You’ve done a great job on free cash flow with all the deferrals and all, so while the optics of the business is what it is, Amerino, has it been really the efficiencies as you pointed out in the manufacturing side that are helping you respond quickly to performance or is it really a much more broad-based effort?

Tahira, it’s a combination of both. We continue to see inflation pressures on labor, materials and logistics, so the manufacturing and engineering improvements have allowed us to definitely capitalize on custom work because of the investments we’ve made. We’re now able to be more competitive in standard work and offset some of those headwinds, especially when the market may or may not be moving at the same – at the recovery pricing levels that we need it to. So, I would say it’s offsetting. We’re not yet at a point where it’s accretive, but it’s definitely allowing us to be more competitive. And like I said, prepare for what we’re seeing, which is more onstream maintenance and remedial work going forward.

Thank you very much.

Alright, thank you.

Thank you.

Thank you. And I’m showing no further questions in the queue at this time. I’d like to turn the call back.

Thank you, Jimmy. So, once again, thank you for joining us on this call and for your continued interest in Team. We look forward to speaking with you again next quarter.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude your program and you may all disconnect. Everyone have a great day.