Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Philip Hawk - Chairman & CEO

Ted Owen - Executive Vice President & CFO

Pete Wallace - Executive Vice President & COO

Analysts

Matt Duncan - Stephens Inc.

Richard Wesolowski - Sidoti & Company

Tristan Richardson - D.A. Davidson

Arnold Ursaner - CJS Securities Inc.

Tahira Afzal – KeyBanc Capital Markets Inc.

Adam Thalhimer - BB&T Capital Markets

Martin Malloy – Johnson Rice & Company

John Krulock - Bluefin Investment Management

Team, Inc. (TISI) F2Q13 Earnings Call January 8, 2013 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Team Web Conference Call. My name is Carissa and I will be your coordinator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your host for today’s conference, Mr. Phil Hawk, Chief Executive Officer. Please proceed.

Philip Hawk

Thank you, Carissa, and good morning and Happy New Year to everyone. It's my pleasure to welcome you to the Team web conference call to discuss recent company performance. Again, my name is Phil Hawk, I'm the Chairman and CEO of Team. Joining me again today is Mr. Ted Owen, the company's Executive Vice President and Chief Financial Officer. Also joining us on the call today for the first time is Mr. Pete Wallace, Team’s Executive Vice President & Chief Operating Officer. A little later in the call I will provide a brief introduction of Pete, describing his experience and background.

The purpose of today’s conference call is to discuss our recently released financial results for the company’s second fiscal quarter ending November 30, 2012. As with past calls, our primary objective is to provide our shareholders and potential shareholders with an enhanced understanding of our company's performance and prospects. This discussion is intended to supplement our quarterly earnings releases, filings to the SEC, as well as our annual report.

Ted will begin with a review of the financial results, then Pete will provide some additional details and perspectives on our operating performance and priorities. I will then follow Ted and Pete with a few personal observations about our performance and prospects. Following these remarks, we'll take questions from our listeners.

Ted, with that, let me turn it over to you.

Ted Owen

Thank you, Phil. First, as usual, I want to remind everyone that any forward looking information that we discuss today is being provided in accordance with the provisions of the Private Securities Litigation Reform Act of 1995. We have 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.

Accordingly, 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.

And now for the financial results. Once again, I am pleased to report the best second quarter of operating results in our history and our first ever $200 million revenue quarter. For the second quarter, net income available to shareholders net income was $13.9 million or $0.66 per share on revenues of $201 million. That’s an increase of $43 million or 27% over last year’s second quarter. Nearly 90% of the growth in the second quarter was organic.

For the year to date, revenues were $362 million, up 21% over last year. Earnings were $1.03 per diluted share, compared to adjusted earnings per share last year of $0.86. We continue to be on track for a record year.

Now with respect to some cash flow related items. Capital expenditures for the quarter were $6.9 million. Depreciation and amortization was $5.1 million and noncash compensation expense was $1.2 million. EBITDA for the quarter was $29.4 million and on a trailing 12-month basis was $86.5 million. At November 30, our total debt was $105.5 million. Our cash was $34.5 million and thus net debt was $71 million. Our net debt to trailing 12-month EBITDA continued to be less than 1:1.

And with that, Phil, I will turn it back to you.

Philip Hawk

Thank you, Ted. Before turning the call over to Pete for his remarks, let me more fully introduce him to our listeners. Pete has spent his entire business career with Team, celebrating his 25th anniversary with the company in the past year. He joined Team as an Operation Supervisor in New Jersey and over the years has held a variety of leadership positions across our service network, both inside and outside of the United States. These positions have included Branch Manager, Country Manager, Region Vice President and Senior Vice President for Business Development. For the past couple of years, Pete has served as Team’s Chief Operating Officer. Pete will provide additional details on our operating performance and will discuss some other initiatives and activities related to our business priorities.

Pete, let me now turn it over to you.

Pete Wallace

Thank you, Phil. It is my pleasure to be with everyone this morning. As indicated in our earnings release and Ted’s remarks, Team has achieved strong performance in both the quarter and year-to-date period. The primary driver of our performance is our continuing strong revenue growth. Let me provide some additional color on our recent growth.

As Ted indicated, our quarterly revenues exceeded $200 million for the first time ever. Total revenue growth for the prior year quarter was $43 million or up 27%. From a geographical standpoint, Team enjoyed fairly broad-based growth across our service network with the exception of Europe. Our U.S. business grew approximately 24% over the prior year period, reflecting strong inspection and turnaround activity. Our Canadian business grew 41% due largely to strong turnaround activity, expanding project work and improving inspection activities within this region.

Our business in Asia, Central and South America grew about 43%, reflecting our continued business growth activities. In total our revenues in these regions now represents roughly 5% of Team’s business. Now turning to Europe. Revenues in this region decline about 7% for the quarter. While we believe the softer European economy is impacting some service work, the primary driver of this decline is related to the timing of refinery turnaround. On a positive note, we expect an active turnaround schedule this spring.

From a service line perspective, inspection and turnaround services led the way for Team’s growth in the quarter. Our inspection and assessment service revenue grew approximately 41% for the quarter, reflecting continues growth for the Quest business, Team’s mechanical integrity program and significant turnaround work. Turnaround service revenues which encompass our heat treating and [oil stream] mechanical services, grew approximately 32% as a result of significant turnaround activity. As well as continued market penetration by Team.

Overall, we are very pleased with our growth in the quarter and year-to-date. Team is well positioned for continued attractive business growth for the remainder of this fiscal year and beyond. Now let me turn my discussion to some of our key themes and initiatives we have undertaken. Over the past year we conducted an internal in-depth review of our business. In this review we identified four key levers we believe that have driven and will continue to drive our long term success. I will briefly introduce these levers and discuss few of our current initiatives.

The first lever driving Team’s long term success is, building and nurturing a great organization as the foundation for our business. In short, it’s being an important choice, enabling and empowering all of our colleagues and establishing a high energy culture. The second key lever for Team is being a great local service company which is maintaining and developing strong local relationships, reputation and service presence. The face of Team to our customers is our local technicians and managers, which are the ones that directly support them and solve their service means.

The third key lever is working as one team. This is bringing the full capabilities of Team to bear in every service opportunity. And finally, the fourth and final lever, leveraging new technologies and capabilities. This is the continuous expansion of Team’s service capabilities and high leverage areas through both in-house development and acquired companies to maintain and extend Team’s leadership reputation and market presence. Let me describe some specific ongoing initiatives pertaining to these levers.

We are always focused on ways to improve the development of our Team colleagues and overall organization. Over the past couple of years, we have expanded our management training programs. This past quarter we initiated a new round of leadership training which involved over a 150 supervisors and managers. These training programs help us attract and develop Team’s future leaders across our company. Extensive industry leading technical safety and leadership training has been a key component of our approach for many, many years.

As for other initiatives, the two acquisitions completed this quarter, PCI Services and Digital Insight both expand Team’s technical capabilities in exciting areas. We also continued to internally develop new approaches.

Quest Integrity Group has extended its smart pig applications which now cover up to 24 inch diameter piping. Additionally, we are currently testing 84 inch line stop heads to extend our hot tapping service line and we are finalizing major enhancements to our fugitive missions monitoring program capabilities. On future calls, during the operational update, I will highlight other initiatives related to these levers as we continue to pursue new and exciting opportunities to improve our business.

That concludes my comments. Now back to you, Phil.

Philip Hawk

Thank you. And now let me add a couple of additional comments to both Ted’s and Pete’s remarks. Overall, I’m pleased with our financial performance for both our second quarter and our fiscal year to date. These results reflect our steady and sustained progress in the continued growth and development of our company. Clearly our strong overall revenue growth is driving our results.

We are proud of the first $200 million revenue quarter in Team’s history and we are pleased with the greater than 20% revenue growth rates in both the quarter and year to date period as well. Because we have consistently achieved high revenue growth rates in past years, it may be natural for you to take them for granted or assume they’ll just happen. I can assure you that we don’t. We know that our success is directly related to the quality of service we provide our customers. We depend on all 4,000 plus Team colleagues to provide this outstanding service and support.

We are also pleased with our overall profits and profit margins achieved for both the quarter and year to date. Overall quarterly operating profit of $23 million, up 29% and operating profit margin of 11.5% were the best ever achieved in the second quarter. Similarly, overall year to date operating profits of $36 million, up 21% and operating profit margin of 9.9%, were record results as well.

As Ted indicated, year to date net income was $1.03 per share which was also a new high for Team. While pleased with our overall financial performance, I also note that we have some improvement opportunities as well. Our quarterly gross margin performance was down nearly 1% point compared to the prior year period. About half of that difference in gross margin was due to business acquired in the quarter, which had substantially lower margins than our legacy businesses. The rest of the decline is due to a change in project mix compared to the prior year quarter.

We remain positive about our business prospects for the remainder of the year. Obviously, general economic uncertainties could impact our business in currently unforeseen ways. On the other hand, we see many positive indications in our markets as well and we expect strong turnaround activity this spring in North America.

Shifting to earnings guidance, we are raising our current full fiscal year earnings expectations to a range of $1.90 to $2.05 per fully diluted share. We now expect total revenues to be between $700 million and $730 million.

As a reminder, Team’s third fiscal quarter which spans December through February is our seasonally weakest quarter. The weak demand over the holiday season plus increased cost with the beginning of the calendar year related to taxes, are special challenges in this period. As usual, we intend to review and update our earnings guidance on a quarterly basis or whenever conditions warrant.

To wrap up, we are pleased with our continued growth and progress this year. We are on track for another record performance year in fiscal year 2013 and we’re well positioned for continued attractive, broad based growth, both for the remainder of this fiscal year as well as for years to come. We have exciting development and growth opportunities in virtually every service line and geographic region where we operate.

That concludes my remarks. Let’s now open it up for questions. Carissa, may I turn it back to you.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Matt Duncan of Stephens. Please proceed.

Matt Duncan - Stephens Inc.

Phil, the first question I have got is with regards to your organic growth. You guys have really been sustaining a pretty healthy organic growth rate for the better part of two or three years now. Can you talk a little bit about sort of how much of that do you think is the market growing right now versus market share gains that you guys are seeing?

Philip Hawk

You know in a very short time period it’s hard to kind of measure it precisely. I guess what I might do is go back a little bit further, Matt, and say, if you look at our compound growth rate over the last ten to 15 years, it’s about 20% a year. And the organic growth rate in that time frame is at least 15% or maybe a little bit north of that. I don’t think the market has been growing on a sustained basis anywhere close to that. Maybe kind of at the rate of inflation, something like that would be our estimate.

So we think the bulk of our long term organic growth has been share growth. Share growth because we are increasing share in existing service lines where we have been currently operating but also as we expand our space with new service lines and expanded geographic presence. Having said all that, I think the gist of your question is how much organic growth is left for us. You know if you just look in North America with existing service lines, we think our market share today despite all our growth is still less than 20%.

So we continue to believe we have exciting organic growth opportunities ahead. Back to a comment I made in the remarks though, is that just because we are here doesn’t mean we get it. It’s that you got to earn it with outstanding service. And we are really proud of our team and really focused on maintain that outstanding service. And we think with that that we have got a lot of attractive organic growth opportunities.

Matt Duncan - Stephens Inc.

Phil, maybe specific to the inspection and assessment business which has been your fastest growing service line. Can you talk about sort of what’s driving that growth? Do you think you are getting a lot of market share? Is it some of the new capabilities such as the ones you picked up with Quest? So how are you driving that 40% plus kind of growth you have been seeing in inspection?

Philip Hawk

Yeah, I think well as Pete kind of indicated, I think it’s coming from a lot of different areas. It’s fairly broad-based geographically. Quest is clearly a very helpful contributor to that but it’s by no means the only one. Expansion of our kind of mechanical integrity programs which are kind of online and our on-stream inspection programs at various facilities are expanding. As well as we had very extensive turnaround activity, kind of that the industry did during the quarter and we benefitted significantly from that as well.

Matt Duncan - Stephens Inc.

Okay. And then last thing from me is just on the outlook. Can you talk about sort of the timing and the scope of the spring turnaround season then as you look at your business beyond the spring, it sounds like you feel pretty confident you can keep up this double-digit organic growth. Have you started booking projects for the fall yet and sort of what do you think lies beyond the spring season?

Philip Hawk

I don’t have a really good visibility beyond the -- kind of the next few months really, Matt, as far as that goes. I would just say, I think the -- again, we are a 90% North America company and if you look at the health of the energy sector in North America that we serve, I think it’s as good as it has been for quite some time and the prospects are very good. So I just think we are in a -- I think the basic fundamentals of our underlying markets are good. Obviously, we are just a maintenance driven demand function but having healthy customers with good fundamentals, we think portend good things for us.

Matt Duncan - Stephens Inc.

Okay. Then on the spring season?

Philip Hawk

I’d say we expect an active spring season. We have seen a lot of planning going on and we expect to play a key role in that.

Matt Duncan - Stephens Inc.

Are you mobilizing on any projects yet or is that still in the future?

Philip Hawk

I think it’s a little bit earlier than last year but I don’t have the specifics about any particular projects. Again, that’s the great thing about Team, as you appreciate, Matt, is that we just are so broad based that kind of the timing of an individual project here or there is something that at least at our level we’re focused on day to day.

Matt Duncan - Stephens Inc.

Okay. Thanks for all the color. Appreciate it.

Ted Owen

Matt, I would just also say that we are only just about right now coming out of the holiday season. So as you know, the third quarter, as Phil indicated, is weak for that reason and we’re just now getting back to full work if you will.

Matt Duncan - Stephens Inc.

Okay. Thanks Ted.

Operator

And your next question comes from the line of Arnold Ursaner of CJS Securities. Please proceed.

Arnold Ursaner - CJS Securities Inc.

Hi. I’ll try to limit myself to the two questions as you request. On gross margin, you mentioned that it was impacted by the acquired business, but there weren’t a lot of revenues in the acquired business. How should we think about gross margin on a go-forward basis?

Philip Hawk

I think the – you are correct. There weren’t a lot of revenues on that. There is a construction business as part of TCI which does –will inherently have slightly lower margins than us, but any time you have a conversion or a transaction an event like that, that creates a little noise in numbers. So how I would view our businesses and our expectations is that we don’t have a view that our margins are going to be fundamentally different going forward.

We’re still learning about all the businesses that’s joining us. So we’ll see how that shapes out. But our experience has been with other businesses who have joined is even if they were slightly different margins going in that as we work together, sometimes those margins improve. So I think the best way to look at it is that longer term that for the remainder of the year and so forth, we expect margins to continue to be stable and near historical levels.

Ted Owen

Yeah. And Arnie, just to tackle on a bit to that, again our focus primarily is on operating margin, not gross margin. And so even the acquired business that has a slightly lower gross margins because of construction activities right now also has a lower G&A burden. So our real focus is maintaining those EBIT margins, whether you get it at the gross margin line and reduce SG&A. it doesn’t matter a lot.

Arnold Ursaner - CJS Securities Inc.

Thank you. My second question is a little more longer term or strategic if you will for Phil. For several years, oil companies and your clients were doing everything they could to tighten and control whatever spending they had on maintenance and I think most people would conclude they under spent for several years. Going to Matt’s general thrust of his question, are in fact we seeing a resurgence of activity reflecting the under spending for several years and getting back to more of the appropriate maintenance that should have been done for this period?

Philip Hawk

I think there could have been a little bit of an argument for that right after the downturn or the financial downturn of 2009 and 2010 a little because we did see some deferrals of turnarounds that clearly was related to kind of under spending in the short run. Personally I don’t know that I see much of that in the last year or so. Maybe with newer technologies we have a little more opportunity and more intensity of maintenance to monitor facilities than we’ve had historically because we have the ability to do it with some technologies. But I’m not even sure about that to be honest, Arnie. So I don’t feel like there’s been under spending or that we’re catching up or there’s just a window here for us. I don’t know Pete or Ted you have any thoughts?

Pete Wallace

No. I don’t think that’s true at all. I think they deferred back in the time when we had a downturn, but I never saw a change in philosophies how they carry on their maintenance because they’re trying to maintain $1 billion worth of assets and they’re not going to let them sit there and decay away.

Philip Hawk

So I think that probably was a little bit in a different period there, Arnie.

Arnold Ursaner - CJS Securities Inc.

Perfect. See you guys next week in New York.

Operator

Your next question comes from the line of Tahira Afzal of KeyBanc. Please proceed.

Tahira Afzal – KeyBanc Capital Markets Inc.

Good morning. Congratulations. Great quarter. I guess most of my questions have been answered. The one question I had was earlier on Phil you provided some great information on your compounded annual growth rate, your organic growth rate. I wish other E&C companies did the same. I guess when I look at you growing organically at 15% and you guided 20% or roughly that market share North America. How should I think of where you can take that market share? Because if you grow at 20%, sorry 15%, on an annual basis organically, essentially means you are hitting around 30%-35% in a couple of years. How do you sort of maintain that? Where do you think you can take that market share going forward?

Philip Hawk

Well, the one premise of your question is that our market -- that the current served markets and segments that we are in is fixed and that all our growth has to come from those areas. And we have found is that, again, if we had had the same discussion 15 years ago when we had three service lines, you would have had the same question, where we couldn’t possibly be as large as we are. And I think what happens is that because of our success and presence and the relationships we develop, that that naturally leads to kind of expansion of service capabilities where we are and also the ability to take those service lines elsewhere.

So I think if we look at maybe five years from now, Pete mentioned kind of our rest of the world businesses 5% and Europe is about 5% of our business. So that I expect those would be bigger chunks of the total. But I expect we would also see expanded -- kind of exciting expansions to our service line in that same timeframe. Now putting all that aside, so how much is too much market share? When you are at 20, I guess if we are at 80 I would say that’s probably not likely that we can grow much from there. But at 20, kind of my own opinion is that we can easily double our market share in our existing services to our existing kind of served markets without any kind of major structural limitations.

As we talked before, you still have to earn it. It just being there doesn’t mean we get it but like I said my main point to you is that we can grow as fast and as long as we can earn it.

Operator

And your next question comes from the line of Richard Wesolowski of Sidoti & Company. Please proceed.

Richard Wesolowski - Sidoti & Company

Pete, it’s great to have you on the call. How would you characterize the labor availability in your largest markets versus a year ago? Perhaps the Gulf Coast and Western Canada and any others you would like to call out? And pricing leverage for services for the industry as a whole, if not for Team in specific versus a year ago.

Philip Hawk

Versus a year ago, I don’t think there is a whole lot of change. I mean versus the downturn where there was, I would say some softness in labor markets, I wouldn’t say we generally see that, that there is tightness in particularly areas where there is a lot of activity, particularly development and construction activity. You know our customers in terms of pricing pressure or pricing leverage, we serve major customers that are sophisticated purchasers of services. So there is never enough kind of good give and take in terms of the pressure on margins and pricing or kind of demands to be as lean as we can be.

On the other hand though, that we offer very high value service. We have good relationships and I think we still continue to expect to be able to maintain our margins and kind of recover cost increases of labor that are coming and occurring through modest rate increases kind of overtime. And I think that’s generally been our experience. I don’t know if there is a big difference today versus a year ago. Pete, do you have a view that’s tougher or easier or...?

Pete Wallace

Rich, to touch on your question about -- in the larger markets about finding that labor, I think we have a very, I know we have a very active recruiting department and it hasn’t been this year, this past year an issue finding people to staff our projects. Now with that said, there is some -- we had some major projects that took a little more coordination and took a little more effort but it’s not like pre-recession where we were all struggling to find the quality in the craft out there.

Richard Wesolowski - Sidoti & Company

What is the company’s headcount if you haven’t mentioned it already?

Ted Owen

I have got it. It’s a total of about, just less than 4000.

Philip Hawk

And that excludes our project labor that would just be hired on project basis.

Richard Wesolowski - Sidoti & Company

Okay. And then lastly, you mentioned having expanded Quest inspection products to cover the 24 inch lines. When you look out over the next year or two, Quest R&D program, are the next batch of new products aimed at still larger diameters or perhaps moving into natural gas pipes? Is there something that I don’t see?

Philip Hawk

Yes. They have some very interesting – they’re chasing a lot of very interesting ideas about I guess the whole idea of system integrity and certainly new applications like gas is in there. New applications of industries, nuclear is in there, some very exciting stuff coming. Stay tuned.

Richard Wesolowski - Sidoti & Company

Thanks. Best of luck.

Operator

Your next question comes from the line of Adam Thalhimer of BB&T Capital Markets. Please proceed.

Adam Thalhimer - BB&T Capital Markets

Hey, good morning guys and welcome to the call, Pete. I wanted to ask – first dig into a little bit on the gross margin line. I know you said you focus a little more on operating margin, but on the gross line, if some of these project mix issues get taken care of, even with these acquisition headwinds if you want to call it that, could you still see some year over year expansion?

Philip Hawk

Well, I think when we say mix, some of that mix, an example would be if we have major projects with a lot of occupancy costs associated with them. Example would be if we’re doing very major work in Fort McMurray where we’re housing people and passing along the cost of that to our customers. The cost of that housing comes with a markup of probably 5%. That’s part of revenue. So that’s part of that project mix that we’re talking about. So if you will, the value added, the revenue or the margin per the hour of labor may be comparable, but what will show up in our results will be more revenues, lighter margins because of this if you will mix effective of major projects or projects that require occupancy depending on where they are versus those that don’t.

So, having said that, if we have less of that in another quarter, we can have higher gross margins. Yeah, mix affects it and it can go up or down. Hey, the reason I call it out is it’s – as a management teams in our regions and all that, we all get that anything we can do to tweak up or improve our margins even slightly through pricing, through productivity and performance improvement is really good for us. So we continue to focus heavily on that. We’re just suggesting not to guide toward natural expansion just because we’re growing and the market is getting better, but we understand it’s a very high leverage area for us and one that we focus a lot on. I don’t know if that’s helpful to you.

Ted Owen

Yeah. Just tacking on that, as we said in I think our prior call, our expectation is that by the end of the fiscal year our margin should be relatively comparable to margins of a year ago, setting aside the impact of acquisitions.

Adam Thalhimer - BB&T Capital Markets

Okay. And that’s on the gross line or the operating line?

Ted Owen

That’s on the gross line. We talk to the gross line.

Adam Thalhimer - BB&T Capital Markets

Okay, perfect. And then I wanted to ask another question about Quest. When you acquired Quest the target I think was $100 million in revenue over five years. Where are you in that goal as it stands today and is that still a reasonable target for a five year growth rate for Quest?

Philip Hawk

We’re happy. Yeah, I think so. They’re doing very well and we’re very pleased with the group and the team and their success, progress and plans. Not just Quest by the way, but including Quest for sure that they really are doing well.

Adam Thalhimer - BB&T Capital Markets

Okay. And then lastly, on the construction side of your business, is that still around 5% of revenue versus back in 2006, 2007, maybe 15%?

Philip Hawk

Talking about kind of new projects or kind of new capability, supporting new capability development of our customers are opposed to maintenance activity. I don’t know.

Adam Thalhimer - BB&T Capital Markets

Like new facility and expansion.

Philip Hawk

I think it’s 5% to 10%. It’s very hard to measure and I think we’ve talked about that before and here’s the gray area is a turnaround takes place and during a turnaround the customer, as part of that turnaround they either put a new unit in or replace a unit. Is that new construction or is it maintenance? So it’s a hybrid. The plant is more capable than it was otherwise but it’s sometime hard for us to see all those.

Pete Wallace

It is true that it is certainly significantly less today than it would have been in the kind of pre-recession timeframe, particularly when they have build out the oil sands that was going on at that time.

Philip Hawk

There is still a couple of big projects going in the U.S. though. Couple of big refinery. Not as many as they were but I am thinking of the Midwest, there’s big projects still going on.

Adam Thalhimer - BB&T Capital Markets

What's on the chemicals side, that’s where a lot of investors are excited about?

Philip Hawk

Yeah, you know it’s not as intense a user of our services as refining. You know there is a lot of reasons, wide temperatures and pressures and all that. But, yeah, we are all excited about chems. I think it’s going to be a -- we are on the front end of a bull market for North American chemicals. You know the shale gas liquids is really creating a feedstock advantage as we understand it, for the industry versus the rest of the world. And I think we are going to more plants.

Adam Thalhimer - BB&T Capital Markets

Okay.

Philip Hawk

Now whether that’s enough to move the needle for us or not, I mean we are delighted about it. Obviously, for the health of our customers and for the any incremental projects that are great for us, but I think just for the industry and for the country it’s really great.

Operator

And your next question comes from the line of Tristan Richardson of D.A. Davidson. Please proceed.

Tristan Richardson - D.A. Davidson

Most of my questions have been answers but when you look at forecasts out there for North American pipeline investments and given some of your ramped up capabilities on the inspection side, do you see that pipeline piece becoming a larger percent of your business overall over the next several years or just curious how that industry pie chart looks?

Philip Hawk

I think where the big opportunity in pipeline for us is in the maintenance side. It’s existing pipelines that require more intense monitoring and maintenance than they have had historically. We have a huge aging infrastructure of pipeline in the U.S. And we have a lot of tools and frankly a lot of capabilities that we are kind of focused on kind of pulling together, kind of in the more integrated way where appropriate to kind of deliver more expanded pipeline maintenance services. Brand new pipelines, whether they need our services, there is some -- if it’s welded pipe there will be some inspection activity for that.

Frankly for large diameter pipe we are better suited to do that in Canada with our capabilities and kind of position that we are in North America. So we are not going to likely be a big player in brand new large diameter piping systems in the U.S. but in terms of kind of the maintenance of those pipes, once they are built in on the ground with the any kinds of tie in activity, mechanical work with that, again we have a range of services that really fit that market. And frankly, it hasn’t been our historical focus but it is now. So as you say, it maybe a 10% of our business today and I would expect that to expand significantly over the next few years.

Tristan Richardson - D.A. Davidson

Okay. That’s great. And just on the acquisition side, you know with TCI and the New Zealand late in calendar ’12, I am curious sort of what calendar 2013 looks like for you guys or will there be priorities or just what you are seeing out there in the market?

Philip Hawk

You mean in terms of the companies that might join Team?

Tristan Richardson - D.A. Davidson

Correct. Yes.

Philip Hawk

You know I think our attitude is the same as it’s always been. The organic growth drives our business. If we are a great service company, do it the right way, we are just so well positioned and think there is some just industry forces that we didn’t speak so much at this call but we have had in the past, that just favor larger multi-location, multi-service line companies like Team. So we continue to believe that if we never bought another company, we can have great growth and great development and performance of the company. Having said that, back to the levers that Pete alluded to, that last lever is continuing to expand our technical -- technologies and capability in interesting ways that kind of leverage our business and accelerate our growth.

So the companies, if you look at TCI and Digital Insight, both were capabilities that we didn’t have -- it’s not that we had none of that but we had very limited capability. This dramatically expands our presence and capabilities and we see those as things that will accelerate our growth in those service areas in exciting ways going forward. That will be the test for other acquisitions, are these capabilities that fit us and is it something that we can leverage in an exciting way? We’re not into buying a financial arbitrage, if you will, buying something just to own it. It needs to fit us. It needs to be something that we can – working together, can be a source of additional growth. So that again will be the test. Whether we buy a little or a lot, we’re not going to change the flavor of our company with kind of some massive bet the company acquisition. I’m quite certain of that. But whether we buy any other smaller companies or several really depends on – we certainly have the financial wherewithal to buy several if we have companies that come our way that we’re excited about that fit us.

Tristan Richardson - D.A. Davidson

And I guess just the transactions more recently have tended to be more on the inspection and assessment side and I guess do you expect that to continue in terms of opportunities out there?

Philip Hawk

Well, I guess the last two were, but then if you look back one year ago, we bought the mechanical services of – in the mechanical service arena we bought EA Services on the West Coast which gave us an expanded significant presence in the Portland, Oregon and Seattle, Washington up there and north of that area basins where we really didn’t have much of a presence. So I wouldn’t presume it’s just going to be inspection. We’re excited about the growth – as I mentioned, we’re excited about the growth opportunities in all of our service lines.

Tristan Richardson - D.A. Davidson

Great. Okay, well thank you guys.

Operator

And your next question comes from the line of Martin Malloy of Johnson Rice. Please proceed.

Martin Malloy – Johnson Rice & Company

Good morning. Could you talk a little bit more about the two acquisitions that you mentioned during the quarter, the TCI Services and Digital Insight, what that brings to Team?

Philip Hawk

Okay. TCI Services, which is the larger of the two, is a company based in Tulsa, Oklahoma. It’s a premier above ground tank inspection and repair company, founded in the mid ‘90s. The founder and his team are still basically in place. He’s joining us and we see it as a exciting opportunity to extend our inspection and mechanical services full capabilities to the above ground tank world. It has been limited this company geographically to basically the midcontinent area. So we see exciting and they see exciting opportunities to take those skills and processes and approaches with our broader presence, first in the US, in North America, but it will be interesting to see where it might evolve longer term. But that’s the basic gist of it is that it’s an exciting mechanical integrity for tanks business and we have a service footprint that can leverage that and we’re excited about that.

Digital Insight is now part of Quest. It’s about using remote video inspection capabilities and basically this is part of a trend to trying to get men out of very high hazardous environments wherever possible for inspection activities. So do things electronically, remotely where possible and that is a very small company, but they have leading experience and capabilities in this area. And again their focus initially will be in the Asia Pacific basin where they’re based. They’re out in New Zealand, but we see a lot of – in fact we’re already seeing some possibilities or looking at some capabilities that we can develop here in the US with them to extend that capability. So it’s a small niche market, but what we like about is it’s on some of the leading edge mechanical integrity and inspection technologies is what they’re focused on. So that’s the point behind that.

Martin Malloy – Johnson Rice & Company

Okay. And then for your refinery customers, are you seeing your customers start to consider investments in their facilities to better enable them to process some of the – an increasing amount of lighter crude that’s coming out of the shale plays or more efficiently process it?

Philip Hawk

Honestly, no. But we’re not going to be in the room with the process engineers who are having those conversations with the refineries, but I’m not aware of any projects that we’ve been involved with where it had been to expand the sweet crude lines of a plant.

Operator

And your next question comes from the line of Rich Wesolowski of Sidoti & Company. Please proceed.

Richard Wesolowski - Sidoti & Company

With Quest revenue becoming dominated by the pipeline tools, I am wondering whether you would expect their profits to run along the same seasonality as the remainder of the company or is that pattern no longer applied for them?

Philip Hawk

No, I think it does. I think it always has actually. And I wouldn’t say, by the way, that it just is related to their pipeline tools. I think just the assessment business as well also has the same challenges in the holiday season that we have for all of our businesses.

Richard Wesolowski - Sidoti & Company

Okay. And then secondly and lastly, aside from Quest you have added a number of what I could call second tier service lines over the last 18 months or two years. I wonder if you would mind discussing a few of those that have gained the most traction and are generating material sales?

Philip Hawk

I know that we kind of don’t really kind of carve out the individual service lines, Rich. I think the -- we can try to give you some guidance just on our revenue growth in all of our services. Our turnaround services continue to expand as you have heard from our activity and there is lots of new services in there with our line isolation tools, our fuel valve repair, our heat exchange repair activity, insert valves, is all part of those activities. Obviously, the inspection assessment is growing very nicely. But if you can look at the magnitude of the growth, it clearly can't just be Quest. Although Quest is growing very very nicely because just by virtue of its size it’s not big enough to be all of that.

So we are, again, mechanical integrity programs, high end service capabilities that we have developed internally, all positives. Frankly, that’s what I like about our business is that we have just many points of energy and development and presence both service line and geographically. One of the exciting things for me is, really all of us here at this table, is we meet quarterly with our real business leaders of our company. The 25 Vice Presidents that run our various regions around the world and in our various service lines. And just to see the number of initiatives we have going on and the different things we are doing kind of to serve customers in various markets. It quite exciting.

So I come away from all of those meetings saying, boy, isn’t this a great place to be. It’s about kind of a great organization that’s kind of well positioned to serve our customers well. And it’s that breadth of presence that really I think leads to the consistent, sustained kind of development of our company. And we are proud of that. You know we are proud of the fact that we are not just growing chasing a hot service line or chasing a hot market but that we kind of in a sustained way continue to grow and expand our company. And like we have said earlier, we feel pretty good about where we sit right now and think that we have to go earn it for sure. But there is a lot of opportunity ahead of us.

Operator

And you have a question from the line of John Krulock of Bluefin Investment Management. Please proceed.

John Krulock - Bluefin Investment Management

I just had one quick question. I was wondering what your cash flows were this quarter and then where they are year-to-date.

Ted Owen

Hang on just a second, I will see if I can address that. Yeah, I think I only have just the year-to-date cash flows. Cash flows from operating activities in the quarter were about $20 million and -- I am sorry, I said quarter, that’s year-to-date. And then CapEx for the year-to-date period is $13 million. Cash used for business acquisition is $18 million. So total cash used year-to-date in investing activity is about $30 million. And then we borrowed about $23 million for the year-to-date period. By the way our 10-Q will be filed, I think later today that will have all that information in it.

John Krulock - Bluefin Investment Management

All right, great. And then do you have any comment about how that looks -- I am not exactly sure how it looks. I have the information here but how that looks on a year-over-year and any view as to how anything has changed with how you are getting paid or just anything to kind of pull from that?

Ted Owen

Not really. Not much at all in a year over year view. In fact our operating cash flows in the first half of this year were relatively the same as in the first half of a year ago. Our DSO is again about the same year over year. So there’s not a lot of change in those metrics.

Philip Hawk

But you appreciate that by far the largest investment we have is receivables. We’re – and as we’re growing rapidly with that 20% plus growth, we’re adding a significant portion of cash goes to expanded working capital.

John Krulock - Bluefin Investment Management

Great. Thanks a lot guys.

Operator

You have a follow up question from the line of Arnold Ursaner of CJS Securities. Please proceed.

Arnold Ursaner - CJS Securities Inc.

Phil, so you brought Pete into the call for the first time today. Should we read into this that you are thinking about or undertaking some changing role within Team?

Philip Hawk

No. I thought Pete would have some interesting additional perspectives to offer and that’s why we did it.

Arnold Ursaner - CJS Securities Inc.

Okay. Thank you.

Operator

And there are no further questions at this time. I’d like to turn the call over to Mr. Hawk for closing remarks.

Philip Hawk

Thank you, Carissa, and thank you to all of our listeners for your participation in this call and your continued interest in Team. We look forward to updating you on our progress at our third quarter call in early April. In the meantime. Have a good day everyone.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Team's CEO Discusses F2Q13 Results - Earnings Call Transcript
This Transcript
All Transcripts