Ladies and gentlemen, thank you for standing by and welcome to the Team, Inc. Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Smith, Senior Director of Investor Relations. Please go ahead, sir.

Thank you. Daryl. Welcome everyone to Team's 2020 third quarter conference call. With me on today's call are Amerino Gatti, our Chairman and 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, November 5. 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 November 12. The information on how to access this replay feature was provided in yesterday's earnings release. 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 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 of our business. Susan will then detail our results. And before we take your questions, Amerino will highlight our OneTEAM program, market outlook and fourth quarter expectations. I would now like to turn the call over to Amerino.

Thank you, Kevin and good morning everyone. We appreciate you joining us today and I hope you and your families are safe and healthy. COVID cases are once again increasing around the world reminding everyone about the importance of staying healthy and following safety guidelines and protocols. Safety is our number one core value and I can assure you that even during this time of uncertainty Team has not neglected our unwavering commitment to keeping our clients, communities, employees and their families safe and healthy. Year-to-date we achieved a top quartile safety performance representing the best safety record in the Company's history. To say that 2020 has been a challenging year would be an understatement, but I am proud of what has been accomplished during these unprecedented times. Throughout the crisis, Team's resilient employees have shown an allegiance to the Company and its leadership, creating a leaner and more efficient business, improving the Company's overall financial health, and delivering the value and service our clients deserve and expect. There are four key areas where Team has made significant progress during the pandemic and economic downturn: high grading revenue, implementing a reduced cost structure, working capital improvements and our workforce management function. First Team has been successful in diversifying and streamlining its approach to revenue generation throughout the year. We increased our global sales efforts and revamped our proposal process to improve the administrative speed, pricing consistency and to provide greater competitive advantages by highlighting our cross-segment capabilities. I've been pleased with our ability to maintain market share with our critical clients during the crisis. We are collaborating more closely with our clients to develop flexible commercial models that mutually benefit both parties. Second, the actions implemented under the OneTEAM program allowed us to significantly reduce our cost structure to better…

Thank you Amerino and good morning everyone. As Amerino mentioned, our third quarter, consolidated revenue of $290 million was $71 million and down 24.5% from the third quarter of 2019, but up 16% sequentially from the second quarter. All three segments were down year-over-year with the bulk of the revenue dollar decline coming from the Mechanical Services and Inspection and Heat Treating segments. On a percentage basis, Mechanical Services posted a 25% revenue decline in the quarter while Inspection and Heat Treating was down 23.5% and Quest was down just over 26%. Our consolidated gross margin for the quarter was $63.7 million or 29.1%, which was slightly above the same quarter a year ago of 28.6% and down just over $19 million for the prior year period. The strong gross margin, despite the revenue declines demonstrates our continued conscious efforts around the cost management of our variable cost with our ability to flex and manage to market demands. The third quarter reported a net loss of $9.1 million when compared to a loss of $7.1 million in the prior year quarter. Adjusted net loss, a non-GAAP measure was $6.5 million or $0.21 adjusted net loss per diluted share for the third quarter of 2020 compared to adjusted net loss of approximately $1 million or $0.03 adjusted net loss per diluted share for the same quarter in 2019. Significant adjustments in the third quarter include $1.6 million in severance expense primarily related to headcount reductions as a result of permanent cost actions taken with COVID and some restructuring charges under the OneTEAM program, nearly $1.2 million in legal and professional expenses. Additionally, there was a $500,000 cost associated with hurricane damage that will not be reimbursed by insurance. Consolidated adjusted EBITDA for the quarter was $18.2 million, which was down from…

Thank you, Susan. Before we take your questions, I will review the progress of our OneTEAM program, recovery readiness planning, and provide our current market outlook expectations. We are expanding the next phase of the OneTEAM tune up to deliver additional cost reductions that will further optimize the organization. We accelerated key initiatives that were planned for 2021 including roofline consolidation, further deployment of billing centers making greater use of shared services and increasing back office automation. We now estimate the OneTEAM tune up and other cost reduction actions will deliver between $85 million and $95 million of annualized permanent and variable cost savings for the year, up from our previous estimate of $50 million to $75 million. Now turning to our recovery readiness program; our strategic investments in revenue diversification and our digital portfolio are preparing the Company to rebound in what we expect will be a very robust activity period over the next two years. Revenue diversification has been a key initiative for us. As stated earlier, we continue to look for opportunities to diversify our revenue streams and expand our operational footprint in sectors like renewable energy, LNG, aerospace and infrastructure. We have made progress in both hydroelectric and wind energy both of which are growing end markets and we're actively bidding on renewable energy projects globally. For example, five of the world's largest wind turbine farms are here in Texas. The wind turbines can move its speeds up to 200 miles an hour and due to the heavy wind and other environmental conditions the blades must be routinely inspected for erosion and general damage using our remote visual inspection capabilities and rope access technicians. We also recently provided an innovative Mechanical Services machining and bolting solution to prepare wind infrastructures. Now, moving to digital; in addition…

Thank you. [Operator Instructions] Our first question comes from the line of Stefanos Crist of CJS Securities. Please proceed with your questions.

So you talked about the digital enhancements. How impactful do you think those will be going forward?

Well, when we look at digital for our business, we really look at two or three main drivers and we're not ready right now to state a percentage of revenue in the future. But we see that we're gaining already about 25% to 30% when it comes to technician efficiency by reduced rework, waiting on subcontractors and more consistent and sustainable quality assurance, quality control. So that's more of an internal efficiency measure. Obviously, that reflects onto our clients' total cost of operations through their productivity gains, which obviously they see again through subcontractor management etc. We also see what we talked about in the -- what I talked about in the prepared remarks, using data and analytics to help our clients more around risk-based inspection, more timely maintenance and less, if you will, failed inspection requirements. And what I mean by that is using more desktop analytics, so when we get to the field, we're actually inspecting the areas that need to be inspected at the right time and making the right recommendations based on whatever damage mechanism and whatever critical asset decline is seen. So when you look at it, the visibility on efficiency and quality, the ability to use data and analytics to help our clients move to more of a risk-based type operation. And then when you start doing repairs and maintenance, having that ability to be able to track that material or that data electronically helps our clients better manage their asset integrity program. So there is a lot of touch points. We're seeing some of our digital capabilities be commercial revenue driven and we're seeing others be internal efficiency driven to support margins. So we're excited about the future in terms of working with our clients, working with other partners and feel that it's going to continue to drive both revenue and margin going forward into the future.

Thank you for the color. And then on the call you mentioned you're maintaining market share. Could you give us a little more detail on what the competitive market looks like?

Sure. So I would say that overall when you look at the clients and again, we've got what we call our large clients more of our MSA clients and then we have kind of a mid-tier sized client and then we have small. We're obviously seeing some regional pricing pressures and some of the call out work right now specifically in some of the divisions, like the Gulf Coast area and California. But overall, our clients are really working with us to see how they can reduce their overall total cost instead of always just talking about unit cost. So we are seeing regional pressures, I would say in a few of those key markets and more of the call out on-stream type product lines. But in general, we've been able to maintain good working relationships either picking up some additional cross-selling revenue or being able to reduce their total cost. I talked about rope access in my prepared remarks, reducing scaffolding or other subcontractor costs and still performing their inspections more efficiently is -- are some examples where we've been able to work closely with them.

Thank you. Our next question comes from the line of Martin Malloy with Johnson Rice. Please proceed with your questions.

Good morning. And I think you all have done a great job in terms of the cost reduction efforts and being able to increase margins in the face of some very difficult industry fundamentals. First question I wanted to ask about, in your ESG presentation you had a Permian model case study in there about greenhouse gas emissions at the wellhead. There seems to be more attention from the majors and large independents in terms of trying to reduce the greenhouse gas emissions at the wellhead. Could you maybe talk a little bit more about your role there and what that market opportunity is?

Sure. Thank you and good morning Marty. So, we're actually very happy and proud to be able to put that ESG program in place and it's something that as a company obviously, we've been working on it for a few years, and it covers a lot in total but you highlight a very good example. We are seeing a lot of interest obviously right now from our clients and as well from communities around sustainability. And that program, specifically and others like it are you using what we call emissions control. So we're able to monitor -- in this case methane emissions, we're able to then make sure that we're supporting our clients through standardized QA-QC program for their compliance reporting. And then furthermore, we're able to then find it and fix it if there is a problem. So we have multiple assets that we're actually monitoring. In this case, it's more along the midstream sector and we've got our technicians working closely, but actually with their environmental department is who runs a lot of those emissions programs and we're able to, on a daily basis monitor multiple assets and components. And then that pulls through other Mechanical Services repair. So it's, right now, I would say it's quite manual in terms of the use of technicians, etc, automated in terms of the reporting, but we're also seeing opportunities to further use drones and sensors and other ways to the monitor emissions and satellite imagery, etc. So we're actually working with partners to become, let's say, more automated in the collection or monitoring of emissions in the future.

Thank you. And next question I had was kind of in that -- along the same theme in terms of ESG. As we see more biodiesel being used at refineries, can you talk about how that impacts your business? And then as you look at hydro and biodiesel and wind and there's more renewable sources of energy. Could you maybe frame for us kind of what that is as a percentage of revenue now and where you think it could go to or your total addressable market down the road?

Sure. So first of all on the renewable diesel type conversions of -- either a new facility, a few of those being built as well as some that are being converted. In terms of the actual process, what really changes is the incoming products. And so when you look at it from incoming product to output of the plant there's still a lot of, let's say, mechanical critical assets, high energy piping, inspection requirements, regulatory requirements are increasing. So there is going to be a increase, let's say, of project capital work that will drive our services. So that's in a conversion and a new build mode. The actual process obviously changes, but there is still critical assets that we provide inspection services for. So we don't see major changes in terms of the run and maintain part for Team. And then as the assets, let's say age and more clients are going to go down or if they do go down conversions then we expect further expansion in capital projects. So I think there's going to be an upfront capital change, which drives our project work for both mechanical and IHT. There is then a run and maintain that's quite similar to what we're doing today, because the process is still similar in terms of critical units. And then on the back end, I think that as new capital is put into just refining in general, because it hasn't had a lot of capital investment over the last 30 plus years that will also drive capital projects as they get sanctioned. But that's further out -- beyond the conversion phase. So that's on the renewable diesel. On the renewable energy side of the business, today it's quite small in terms of percentage, but we're doing U.S.-based work, we're doing Europe, UK-based work, but it's in the low single digits today so we see that as a lot of upside. Right now our Inspection business as well as our Mechanical Services are the two main drivers and we're participating in the construction phase, we're participating in the maintenance and reliability phase and then obviously we will be participating and we're starting to see it on mechanical as those assets age there's a lot more corrosion and a lot more requirements on repair. So we will be coming out in the future with some percentages around our diversity numbers outside of oil and gas. But right now with the instability in the market we're going to hold that back until 2021. But we will start to bring more color to our diversity percentages in the future.

Thank you. Our next question comes from the line of Sean Eastman of KeyBanc Capital Markets. Please proceed with your questions.

Hi, this is Afzal on for Sean. Thanks for taking our questions.

Good morning.

And congrats on the quarter.

Thank you.

So first, have you seen a big drawdown of your workforce, technician furloughs, etc. I guess the question is, with activity ramping back up in 2021 especially in the second half of next year, how do you plan around staffing and capacity to get ready for that uptick in activity levels next year?

Thank you for the question. So I think I'd like to highlight first of all, that we're now many years but the last two years, we've really focused on maturing our workforce management function across the Company globally. And we've been able to get a lot better visibility on utilization rates, training and certification requirements and we have an accredited training facility as well in Alvin that we use as a facility, but we can also do remote training for many of our technicians. So that the visibility today, we're starting to look already of projects in H1 of 2021. We're seeing where the demand requirements are in terms of hours. Obviously, things can still move, but we're generally planning for at least two quarters ahead. And that's why you hear us a lot of times talk about managing our business in two halves. So our workforce team brings a lot of visibility. We have those workforce managers deployed in each of our operating divisions and then they're linked back to a central function, so that on a weekly basis they work hand-in-hand. We have a strong recruiting program. We recruit from the military. We've got relationships with colleges, tech colleges, etc. We also recruited mid-career type people from the industry. And that program has been quite matured and then once we bring them into the Company from safety, etc, we have very structured training programs to get our people up and certified as quickly as possible. And then thirdly, we have what we call a casual pool, which we stay very close contact with. They're obviously more of a variable cost group but very qualified. We've invested training time in them. We provide them with safety training. We provide them with PPE and we've got a very large network…

Thanks, that's helpful. And then my next question is around rope access. I guess why are these technicians in such high demand? What is the outlook there? Is Team differentiated there or do most of Team's competitors have rope access capabilities?

Well, I would say that there is competitors out there obviously, in rope access. But I think what makes us unique is the scale of our ability, again, using workforce for project planning, bringing in project managers and we've got some people that are rope access project managers, so that we can actually coordinate the job as a total, not just our small little piece so our project management skill set. Also, our ability to have certified inspectors that are also rope access people and then our ability to have Mechanical Services technicians, certified in both rope access and their product line. So what -- I think when you look at Team versus our competitors, obviously, its size and scale, it's the training program, its project management. And then it's our ability to cross-train and make sure that our technicians that are rope access can also do those other product line certification capabilities of that group. So that's the package. And then I would say furthermore, we have a large nested revenue base and that allows us to leverage that grouping to be able to pull in and really partner with our clients on services like rope access because we're there on a daily basis project planning with our clients, looking at what their needs are, finding ways to help them on an efficiency standpoint, reduce the number, especially during COVID, the number of subcontractors on site. So all that stuff plays into our differentiation.

Thanks. I'll hop back in line. Congrats again.

Thank you. Our next questions come from the line of Adam Thalhimer with Thompson, Davis. Please proceed with your questions.

Hey, good morning guys. Congrats on the EBITDA beat versus still tough environment.

Thank you. Good morning.

Hey, a couple of questions on Quest. The growth in September, can you flesh that out a little bit for us and then just talk about Q4 expectations? And then how your level with Quest, Amerino you mentioned a couple of projects. One in the North Sea, one in the Gulf of Mexico. And can you just talk about the opportunities from there?

Sure, I'll let -- I'll take the market one and then I'll have Susan talk a little bit on the financial side. So we've been, as you know very aggressive in developing Quest technology, investing capital into Quest. But what I really like what Quest is doing today as a segment is that they are really working hard to maintain their project managers and their inspection team and we've got the ability through regional hubs to deploy -- two technicians and two tools to jobs all over the world and we've had to get creative because of some of the quarantines. The team is working countless hours. The same revenue in 2020, the effort that goes into generating a monthly revenue this year versus last year is compounded by at least two times when you look at all the challenges with travel with quarantines not only in country but then on projects. So they're finding creative ways to manage the people, they're finding creative ways to use remote support to -- on-site operations. They're finding ways to handle maintenance programs, etc, etc. So my hats off to how Quest is managing the business, because they are very much impacted on a global basis. But when you look at it, it doesn't change our strategy. A lot of our projects have not been canceled. They've been delayed. So we are starting to work with clients now on rescheduling. Our focus on international integrated solutions remains intact, places like Asia-Pacific, Middle East, Latin America and then some of the more mature markets that you mentioned earlier. And offshore is an area that clients want to do inspection work, they want to have their asset integrity programs and requirements met. And what we're doing is we're opening up new market with the range of our tools sizes, with our ability. There is very few companies that could have mobed and demobed on one platform three or four times during hurricane season and done it with a chopper or a helicopter and not needed a bunch of other access -- with vessels, etc, etc. So that ability to be flexible is how we're opening up new markets, both from a technical standpoint as well as a logistics standpoint. And we continue to remain excited on the future outlook. Our clients are providing very good feedback to us on the need for our services and then like I said earlier, our digital capabilities around asset integrity continue to open up new markets. So that's from the market standpoint, and I'll let Susan talk a little bit about the financials in the quarter.

Yes. And I would say obviously, for Q3, as I mentioned, July and August Quest was still very much hampered by the travel restrictions, the quarantine, industry impacts overall. But we did see a significant robust increase into September. And as Amerino mentioned with respect to Quest, we keep the technicians and the employees in place for Quest. We can't pull and flex with them like we can IHT and MS. So the impacts to the EBITDA margin, the gross margin are still felt with costs that aren't able to be pulled out as we can with the other two segments. But again, seeing that increase in September and as we look into Q4, the fourth quarter generally is the strongest quarter for Quest. And it's not going to be any different this year. That's when really the projects, kind of comes ahead, a lot of focus and get closed out. Obviously the one gating item will be if there are additional travel restrictions are quarantines that get put into place that we do as we're looking at Quest seeing that continued improvement in growth getting back to more levels that we're used to seeing when you look into the future periods.

Okay, thanks. And then I just wanted to ask about the overall outlook for large turnarounds. It's seems like the best chance for a lot of large turnaround work would be the back half of next year. Is that right?

Yes, I will say right now, a lot of the projects that were pushed from H1 '20 to H2 '20 are landing on the books in H1, but I think that when push comes to shove, and you look at the ramp-up in activity, the potential demand not recovering as quickly as we think, some of the labor that we discussed earlier, I think we're going to see a little bit more gradual growth into the second half turnaround season. So I think H1 will definitely be stronger than 2020 obviously, but I do agree that when everything shakes out, it will probably be a stronger second half than first because of cash conservation, capital demand requirements, etc. So I agree with you. Today on paper, it's probably more equally split. But I think the reality is that that will be reassessed as our clients I think finalize their capital budgets and start to really look at permitting and requirements, etc.

Okay. And last thing Amerino there's so many little tidbits in your prepared remarks, but the only thing that struck me was the -- you had a midstream customer who kind of loaded all of their assets into your tracking. Is there -- I don't know is that a recurring revenue like you all must charge them like a software fee?

Yes, different parts of our digital program are different, but some of them are subscription, yes. Others we use the digital to pull through service revenue but yes, there are some subscription models for certain digital programs, yes.

Gosh. I mean could that become -- what percentage of revenue could that become?

Well as I answered with Marty, it's -- we're putting our portfolio together. Right now in this market we're not prepared to start putting percentages of revenue. But we will bring more color as things stabilize and we get back into recovery mode because when we look at our revenue diversification, be it digital, offshore, infrastructure, renewables, aerospace, we're going to start providing more color to that, but it's a little bit too early right now, Adam, for me to give you a number.

Okay. I'll turn it over. Thank you.

Thank you.

Thank you.

[Operator Instructions] Our next question comes from the line of Brian Russo with Sidoti. Please proceed with your question.

Yes, hi, good morning.

Good morning, Brian.

Hey, your outlook for the fourth quarter and higher sequential revenue, is that primarily driven by the Quest trends that you just mentioned and/or is it just deferred or is it recurring that you're seeing in specific end markets?

You broke up a little bit, was that a fourth quarter question?

Yes, it was. The incremental revenue sequentially for 4Q, is that driven primarily by Quest or deferred work from earlier in the year and/or recovery in specific end markets?

Yes. No. Good question. So we're seeing three kind of main drivers. One, obviously, is a more growth and consistent quarter for Quest. The second one is, we have seen even though the project and turnarounds were down year-over-year, there has been some good positive discovery work that we're seeing. So when you look at turnarounds, we're seeing some of that. And then we do have some increases that we're seeing in pockets of U.S. with regards to call out. And again, that's driven by more of the on-stream repair side as projects have been pushed and capital has been pushed out. We are seeing some of those call out areas increase. So those are the big three main drivers at this point.

Okay, great, that's helpful. And just on the renewables, just about every industrial service company is highlighting renewables as a [indiscernible] area. Could you just describe what Team's competitive advantages are in niche markets that create any sort of barriers of entry on the wind turbine maintenance and inspection subsector of that space? And that can avoid to pressure or competitive threats in some of the other fragmented industries that you see?

Sure. Yes, I think that there is a couple of areas. When you look on inspection -- part of it is the ability, as I was mentioning earlier to help them manage their critical assets in terms of data management, compliance, quality assurance. So there is a data quality piece. And on the inspection side from rope access to having technicians that are certified to some of the remote visual inspection work, we have a strong, let's say product line that's able to bring those pieces all together to be able to bid on the projects, but more importantly, deliver the projects. And then when you couple that with the repair side, bolting has quite a good opportunity and we're seeing that as -- especially as the assets age offshore a lot of corrosion driven repair. So we've got a strong engineering and manufacturing capabilities. So there is a barrier to entry when you look at the mechanical side. And the other thing we're finding, especially with blade repair is our capabilities around the composite repair and that's another one where it takes engineering design and then execution. And so there's, if you break each little piece separately, is there a competitor and each part? Absolutely. But when you start looking at it on a project-base and you have to deploy project management and teams to do the inspection, the repair and support them at the desktop as well from a data analytic standpoint. That's the package. And then I would say that our size and scale in terms of footprint Brian, is an advantage because a lot of our competitors either don't have the three segments or don't have the footprint to be able to deal in different markets. And as our clients grow, they're going to want to have that level of partnerships around the world.

There are no further questions at this time. I would like to hand the call back over to management for any closing comments.

Thank you, Daryl. We believe our geographic footprint and depth and breadth of our products and services offer Team a unique market position, particularly in this environment. We will continue to make disciplined decisions and prudently manage our business based on current economics to ensure costs do not outpace the recovery. And we remain committed to driving execution excellence and strong financial performance. Thank you for joining us on this call and for your continued interest in Team. And we look forward to speaking with you again next quarter and Daryl, that ends the call

Thank you. This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.