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Executives

Philip Hawk – CEO

Ted Owen – SVP & CFO

Analysts

Unspecified Analyst – Sidoti & Company

Matt Duncan – Stephens Inc.

Holden Lewis – BB&T

Team, Inc. (TISI) Q2 2009 Earnings Call January 7, 2009 9:00 AM ET

Operator

Good morning ladies and gentlemen and welcome to the Team IR conference call. (Operator Instructions) I would now like to turn the call over to CEO, Mr. Philip Hawk; you may begin sir.

Philip Hawk

Good morning and Happy New Year. Welcome to the Team, Inc. web conference call to discuss recent company performance. My name is Philip Hawk, I am the Chairman and CEO of Team. Joining me again today is Mr. Ted Owen, the company’s Senior Vice President, and Chief Financial Officer.

As always 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, 2008. 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.

The discussion is intended to supplement our quarterly earnings releases, our 8-K, 10-Q, and 10-K filings to the SEC and our Annual Report.

Ted with begin with a review of the financial results and I will then follow Ted with a few remarks and observations about our performance and prospects. With that Ted, let me turn it over to you.

Ted Owen

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

We 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 last paragraph of our press release and 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 publically 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.

Now with respect to the financial results for the quarter, revenues were $148.8 million compared to $122.3 million in the second quarter last year; that’s an increase of 22%. The revenue increase includes $7.4 million of incremental revenues attributable to the LRS acquisition that was effective January 1, 2008, so the organic second quarter growth rate was 16%.

Net income for the quarter was $10.2 million versus $7.8 million in last year’s second quarter, an increase of 31%. Earnings per diluted share was $0.51 versus $0.40 in last year’s second quarter. Now for a little more depth around our industrial service business, first as a reminder our industrial services includes an array of specialized services related to the maintenance and installation of pressurized piping and process systems as well as specialized inspection services.

The industrial services segment is organized into two divisions; TMS which includes leak repair, hot tapping, fugitive emissions monitoring, field machining, technical bolting, and field valve repair services; and then the second division is TCM, which is comprised of field heat treating, and inspection services.

TMS revenues for the quarter which includes by the way LRS, were $72.6 million versus $48.9 million in the second quarter last year for an increase of 48%, nearly 32% on an organic basis. TCM revenues in the quarter were $76.1 million compared to $73.4 million in last year’s second quarter for an increase of 4%.

However the TCM revenue growth excludes approximately $3.5 million of revenue associated with a joint venture in Alaska that’s accounted for on the equity method. Had those revenues been consolidated the TCM growth rate would have been 8.5% in the quarter.

By the way the earnings from that joint venture are reported on a separate line in our income statement called earnings from unconsolidated affiliate.

Operating income for the industrial services business which excludes corporate costs not directly attributable to field operations was $23.4 million in the second quarter versus $18.6 million in last year’s second quarter.

Operating income as a percent of revenue for the field was 16% in the current quarter compared to 15% in last year’s second quarter.

For the second quarter our corporate costs were approximately $5 million, up about $1 million over last year, about half of which increase is associated with non-cash compensation expense or FAS 123R expense.

Again as we pointed out before we expect total non-cash compensation expense to be about $5 million for the year. Now with respect our balance sheet and cash flows, capital expenditures for the quarter was about $5.8 million. Depreciation and amortization was $3 million in the quarter and non-cash compensation cost was $1.2 million in the quarter, resulting in a total adjusted EBITDA of $22.8 million for the quarter.

Our trailing 12 month adjusted EBITDA is $68.5 million. At the end of the quarter our net debt was $95.3 million and our total debt was $104.6 million, up slightly from last year.

Now just a word about liquidity and credit capacity, in the midst of this current financial crisis which Philip will discuss a little more fully, we continue to be pleased with the financial position that we’re in. We have $47 million of unused capacity under our credit facilities and those facilities mature in 2012.

However, in an abundance of caution while we have completed the design of our future headquarters manufacturing, training, and equipment distribution facility that we’ve talked about previously on these calls, we have decided to defer the start of construction of that facility for the time being.

We will reassess that project on a quarterly basis in view of the current economic situation and economic recession.

So with that Philip, I’ll turn it back to you.

Philip Hawk

Thanks Ted, I would now like to add a few additional comments and perspectives.

As some additional context from our later comments about Team’s performance and outlook, I would like to share some of my observations about our current economic and business environment. I think you can all agree with me that we are currently living in interesting times.

The rate of change in our environment in the past six months has been simply extraordinary. In that relatively short timeframe our world went from an environment of cheap, [clinical] credit to virtually no credit.

We have seen the value of equity investments across the world decline by more then one-third. We have seen several icons of American business either go bankrupt or need federal financial assistance to keep the door open.

We have seen consumer-spending plunge. Some of these rapid changes are happening in our markets as well. Current [reclining] margins are near their lows for the last decade. Crude oil has declined by more then $100 per barrel or more then a 70% decrease in this timeframe.

The price of steel today is approximately 35% below its peak last summer. Every major chemical company and steel company has announced unit closures, lay-offs, and restructuring initiatives to enable these companies to weather these economic pressures.

To compound these challenges, currency rates are fluctuating rapidly. Since our last conference call the Canadian dollar has declined approximately 20% versus the US dollar. The Euro has also fluctuated about 20% this year, but now has rebounded to almost where it was one-year ago.

And did I mention hurricanes, both Gustav and Ike have impacted operations of our Gulf Coast branches. Until last quarter we have been speaking about the tailwind our company has enjoyed due to an above average number of new projects and facility expansions.

We now have a headwind that is putting additional economic pressures on our customers and is likely to lead to fewer new expansion projects being started in the near-term. At first blush one might conclude that all of these economic and environmental pressures will lead to reduced performance for Team going forward.

Not necessarily. In fact that is not the way any of the Team managers are thinking. The silver lining of these current extraordinary economic conditions is the understanding that these pressures and changes could create opportunities for those who are alert, and well positioned to capitalize on them.

I believe many of our attributes, the largest service network, the broadest service line, the strongest financial position, and an outstanding service organization may be even more valuable and advantageous going forward as customers react and adjust to these new market conditions.

We recognize that we are operating in an extraordinary environment. We need to stay on our toes, continuing to focus on our business fundamentals and at the same time being alert to both new opportunities and any potential shifts in service demand.

So how are we performing so far? As Ted indicated again for both the second quarter and year-to-date, Team has achieved record performance levels in both revenues and profits. I am very pleased with and proud of these results.

Let me provide a little more color on our performance beginning with revenues. Overall revenue growth for the year-to-date was 21%. Excluding the impact of the new LRS acquisition overall organic revenue growth was about 15%.

The growth this year has been a little lumpier then in past years reflecting the timing and location of major projects, some impact of weather this year, as well as some other factors which I will mention in a minute.

For the current fiscal year-to-date the highest growth rates have been posted by the TMS division and in Canada. Year-to-date TMS division growth was 30% and TCM growth rate was 8%. At first blush it looks like there may be very different business trajectories occurring. In my view that is not the case.

Let’s take a closer look at the lower TCM division growth rate. First for this time period TCM has a very strong prior period comparison. In the same period last year TCM grew organically approximately 38%. And as Ted pointed out TCM division revenues exclude the revenues of our inspection services joint venture in Alaska, even though all the workers for that work are Team employees.

These revenues are excluded because we are counting for the joint venture on an equity basis. The total incremental revenues of the joint venture for the fiscal year-to-date are approximately $8 million. Including this revenue in the TCM totals would result in a 14% growth rate for this time period.

TMS division did have very strong growth reflecting a very large project in Canada as well as significant growth and activity in the Mid West and Gulf areas. On a geographic Team’s year-to-date US revenues are approximately $178 million or up about 5%.

Team’s year-to-date Canadian revenues are about $70 million, up 40%. With respect to the US business growth rate I should point out that we benefited from major projects in the West last year that are not active in this time period.

And again the new inspection services joint venture would have added approximately five points to the overall US growth rate if those revenues were included.

The very large growth in Canada reflects major project work in the Fort McMurray area and the growth of our inspection services within the country.

While the significant new facility project work in Fort McMurray has wrapped up for the time being, we expect the oil sands to continue to be a significant area of operation for Team due to our expanded day-to-day maintenance work in the area.

The main point that I want to make with this discussion is that the natural flow of work opportunities will lead to some fluctuations in growth rates. Team benefits greatly from our geographical and service line breadth.

Our over 100 service locations and eight service lines enable us to capitalize on a broad range of service opportunities when and where they may crop up. Looking forward we continue to see exciting growth potential in all of our service lines and all of our geographic regions.

I’m also pleased with our profit performance. As Ted mentioned total operating profit increased about $3.8 million or 26% in the quarter. Operating profit as a percentage of sales was about 12%, the incremental operating profit margin on incremental growth was about 14%.

These results reflect the addition of the incremental LRS business and nice margin improvement in more then half the regions that more then offset the cost of disruption from the hurricanes and the favorable margin impact that major projects in the prior year quarter.

Of course we’ll never be satisfied. Continuing focus on the profitability of every job and every branch continues to be an ongoing priority for all of our managers. Let me now digress for a moment to talk about our extraordinary organization.

I can assure you that the attractive growth this company has achieved for many years doesn’t just happen. Our entire organization works together to make it happen and sometimes this is extremely difficult due to unplanned events such as natural disasters or changes in customer plans.

One of our managers recently passed along to me a customer thank you he had received that described the above and beyond efforts by one of our colleagues for the benefit of that customer. To paraphrase, the note said “his actions and commitment were on par or greater then that of our own staff. He acted like he was the owner of your company.” What a compliment to our colleague and our company.

As you can imagine it makes me very proud and grateful. In our business we are great when all of our colleagues act like owners, when we conduct our business in all respects and a manner in which we can all be proud.

We depend on every one of our nearly 4,000 colleagues to re-earn the trust and confidence of our customers during each of the more then 130,000 service opportunities each year. Like the service opportunity described above, many many of these jobs arrived at the most inconvenient times.

Nevertheless there is no organization better at rising to these challenges. I truly appreciate my wonderful Team colleagues, and is my great pleasure and privilege to work with them.

We continue to build and expand our field service capability. During the last quarter we added 83 new net employees to our full time field service team. Compared to one year ago our total field personnel have increased by 468 or 16%.

While competition for great personnel will always exist, we believe the current market pressures could create some additional personnel growth opportunities for our company in the remainder of the year. Obviously we will coordinate the addition of resources with our projected growth and activity level.

For the year-to-date we have been pleased with our overall technician utilization levels. Our capital spending is tracking closing to budget and expectations. For the full year we expect total spending to be in the $15 million to $20 million range. Nearly all of this capital spending is associated with near-term revenue opportunities.

Let me add a couple of comments on our European business. As you may recall we acquired Leak Repairs Specam on January 1, 2008, about one year ago. We are delighted with their performance in all respects and the recently completed second fiscal quarter LRS had its most successful quarter in its history.

Our new European business has expanded its participation in turnaround projects and successfully completed their largest project ever in the most recent quarter. LRS has increased technical staff by more then 15% in their first year with Team. In November, Team’s financial, payroll, and IT systems were fully installed and operational within LRS.

And LRS has improved their operating margins by several percentage points from historical levels. In addition to this attractive organic growth we are actively exploring opportunities for LRS to expand in Europe both geographically and in terms of service line breadth. We are confident that there will be good opportunities for both.

With regard to Team’s performance for the remainder of the year, we are affirming our previously issued earnings guidance of $1.45 to $1.60 for fully diluted share. As mentioned above there are many negative trends and issues in our markets that concern us.

Nevertheless we continue to see attractive activity levels in our business and early indications that the spring turnaround season will be pretty normal. As a reminder historically approximately 85% of our work is related to maintenance for existing facilities. As long as these facilities are operating they will require maintenance.

While there have been some announced plant closures and idles, at this time the number of plants effected compared to the total population of operating plants is small. We continue to believe that there will be significant ongoing demand for our services.

And we remain alert to those new opportunities that may be available due to these difficult market conditions. In summary, despite some increased anxiety we see no reason to change our outlook at this time.

Before wrapping up I’m also pleased to mention two recent recognitions for our company. In October Forbes Magazine ranked Team third overall in its listing of the 200 best small companies in America. The ranking is based on one year and five-year performance in revenues, profits, and returns to shareholders.

Also in October Engineering News Record Magazine ranked Team 17th in its listing of the top 600 specialty contractors. We take pride in these recognitions. We feel they reflect our continuing progress in the growth and development of our company.

To wrap up we are pleased with our record in the past quarter and year-to-date. Of course we are concerned about the current economic environment and we cannot know exactly how these pressures and issues will evolve in the months ahead. But we remain bullish on our prospects both for the remainder of the year and longer-term.

We believe no one in our industry is as well positioned as Team. Our approach has been and will be to focus on our business fundamentals; delivering outstanding service to our customers, continuing to build a great organization, and paying attention to the details of every service opportunity.

We will look to capitalize on new opportunities that arise, similarly we will adjust to significant shifts in demand wherever and whenever they may occur.

With those comments, I’d like to open it up for any questions that any of our listeners may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Unspecified Analyst – Sidoti & Company

Unspecified Analyst – Sidoti & Company

You mentioned the projects in Western Canada had wrapped up, did many of those workers fall off the tally during the quarter?

Philip Hawk

Yes, during the quarter it was kind of winding down toward the end of the quarter. But again, many also significant portion of them, moved on or rotated to the maintenance activity as that unit really fired up. We have the ongoing maintenance work there.

What’s happened with the extraordinary, there are also a very large number of additional projects on the books in the oil sands, but nearly all of those have been put into a pause mode or a defer mode due to the extraordinary drop in crude oil prices.

Unspecified Analyst – Sidoti & Company

Are you still aiming to add 100 new techs per quarter on average or rough average, or will a contraction in that minority 15% of your business depends on new construction maybe give you some extra help that would otherwise need to be hired.

Philip Hawk

I think the thing that, what I believe now is from a year ago or the last couple of years, finding and attracting new talent was a real challenge given just the competition for resources. I believe it will be less of an issue for us to do that. One we’ve demonstrated our ability to do it but secondly I think our environment is such that we’re going to have a lot more options with regard to personnel additions then we’ve had in the last few years just given the headwinds of the business and I think kind of less related activity not just in our space but in the related spaces where we might have competition for personnel.

So what we will be doing is adding personnel in conjunction with our expectations of a revenue activity so that we keep our utilization levels high. Now having said all that, will we add about 100 personnel per quarter? I think that’s a reasonable expectation assumption. As you see with like 83 for the quarter and that was net by the way of some declines in Canada by the end of the quarter due to the wrapping up of projects, so I think that’s a reasonable expectation but we don’t have a hard and fast rule that it has to be 100. We’re trying to balance it with our activity levels.

Unspecified Analyst – Sidoti & Company

At the height of the CapEx boom you had cited wage inflation rates in some regions, fuel inflation everywhere that was very high offset mostly by pricing gains in sales, how easy or difficult is it going to be if you adjust the pricing of your projects to reflect an ongoing and expected reversal of those costs.

Philip Hawk

Do you mean are we going to reduce prices?

Unspecified Analyst – Sidoti & Company

Are you going to reduce prices, of course you’re not facing the same fuel inflation, wage inflation, or you won’t be as you move into fiscal 2010, are we expected to see more volatility of the margins.

Philip Hawk

Let me say it this way, I think the rate of price increases going forward will be significantly lower then it has been in the last couple of years, probably virtually non-existent in the short-term.

Operator

Your next question comes from the line of Matt Duncan – Stephens Inc.

Matt Duncan – Stephens Inc.

With regard to the hurricanes, you mentioned this in your comments, but can you give us maybe a bit of color on how that impacted your business in the quarter. Did it cause any sort of mix shift in your business and how did that impact your margins.

Philip Hawk

Let me comment a little bit on revenues and let Ted talk to expenses. There were a lot of projects moved around as a result of the hurricanes because of the plant upsets and obviously there was an initial decline in activity that ran several weeks depending on which specific location. But the truth is things move all time so for us to say well we lost this amount of revenue or that, I think is very hard to tell. We don’t choose, to try not to make any estimates about specific revenue losses or effects on individual jobs.

I think what we have done, we have tried to capture the specific damage caused by that and the impact of that to us.

Ted Owen

That actually is about $0.02 of impact for the quarter. Our total cost that we incurred primarily associated with just damage to our own facilities, roof damage, facility damage, things like that, was about $650,000 that’s reflected in SG&A cost for the quarter.

Matt Duncan – Stephens Inc.

So that was $0.02 negative impact then. Had the hurricanes not occurred your earnings would have been $0.02 higher.

Ted Owen

Exactly.

Matt Duncan – Stephens Inc.

Okay. If I look up to the gross margin line for a minute, I assume that a lot of what’s happening there is probably just mix shift between service lines, it looks like your gross margin is down about 50 basis points year-over-year, maybe you can just walk through what’s causing some kind of movement in the gross margins a bit here.

Philip Hawk

I think you have it exactly right, it is about 50 basis points for the quarter, but actually I think we’re about flat for the year. It is mix. Here’s a couple of mix effects occur, when we have, again we had a significant amount of work in Canada, a lot of that had a significant pass through expenses like living expenses related to remote personnel and that kind of thing.

Well that’s kind of passed through at cost or near cost so that effects average margins from that standpoint. What I think is interesting, I’m pretty pleased actually with the margin performance of our business because I look at it at a job level or at a branch by branch level, region level, and we actually have improved margins in the majority of our regions and branches versus last year so that’s been an area of focus for us.

And again, the other point on mix, we had a very significant project last year that positively effected margins that wrapped up and is not active in the current quarter.

Matt Duncan – Stephens Inc.

You think about the current environment and your ability to offer master service agreements, do you feel that maybe the pullback in your customers’ margins might make them maybe look more seriously at trying to put more volume through Team through those master service agreements and maybe help their profitability a bit that way, so I guess the question is do you think that maybe this pullback could ultimately help you competitively via your master service agreements.

Philip Hawk

I guess its, yes, I do think that’s a possibility. I don’t think we’ve seen significant evidence of major changes in customer activity, changes in the direction if you will, the trajectory, in this short time period but I think there’s several possibilities. I think it, obviously our customers, everyone is looking to be as productive and as efficient as they possibly can be and they’re trying to avoid any unnecessary expense in this world that we’re living in right now.

That’s just almost a given. How can we help customers do that. I think you suggest one approach is more consolidation taking advantage of the convenience and also the leverage of more volume with fewer suppliers, service providers like Team, that’s a big possibility.

I think other possibilities is as they are doing, reduce the resident general maintenance personnel in these plants, the consequence of that may be an increase in call-outs type kind of work. There may be an expansion, ironically, I think there’s some possibility of some expanded opportunities for us as a result of reduced in-house capability. And again as you know we don’t generally compete or provide the same services as our customers perform for themselves but I think there is some kind of grey area on their margins that could, where that could be applied.

Furthermore I think with very intense credit pressures on weaker companies, I’m talking about weaker competitors of Team, smaller companies, there may be some reluctance or maybe reduced ability for some of these companies to perform as they have in the past and if that were the case, that also would be an opportunity for Team.

So again our broad focus is the world is changing, that’s can create opportunities. Let’s be really alert to what’s happening, let’s be very close to our customers, let’s be an outstanding service company that reinforces and reaffirms our attractiveness and our ability to help our customers solve their problems.

Matt Duncan – Stephens Inc.

If you look at your various customer end markets, I know you have kind of a breakdown in your investor presentation of what your revenue stream looks like by customer type, maybe if you could talk about those different end markets and how they’re performing and if you’re seeing any customer plant closures, which end markets are you seeing those in the most right now.

Philip Hawk

Well I think just, not very many segments that are great right now. I will say that. I think we’ve talked about them a little bit in my comments, but obviously refining is a big market for us. I’m not aware of any big refining closures or idles at all. There are definitely some deferrals and cancellations of expansion projects that have been announced, but not all of them.

There are also have been some affirmation of continuation of some of those projects but as I mentioned the refining margin are very poor on a historical basis at the current time. I think the two segments that have had the most publicity about plant closures or idles are the chemical industry and the steel industry and both of them are in fact, I don’t know of a single major customer in either of those industries that hasn’t announced some reduction of capacity at least temporarily and lay-offs and restructures related to their very, very poor short-term economic environment.

Now chemicals is more significant to us then steel in relative size, but that’s happening. One observation though is that when there’s an announcement that there is a reduction of capacity or run rate or a downsizing, that may or may not effect us because if the plant is still running or sometimes we talk about a plant closure that’s really being referring to is an individual unit within a complex, so the complex is still operating.

In some instances we’re not seeing any impact on our volume levels even in facilities that have announced closures to this point.

Matt Duncan – Stephens Inc.

My impression is as long as those plants are hot and under pressure they’re going to need you guys.

Philip Hawk

That’s our belief too. But also just for all our listeners, we’re humble on this. We don’t know, I think we’re in extraordinary times so to confidently say we know for certain how this will play out I think would not be a fair statement either. We think we have a very good position to be in. We think just from the standpoint of the stability of demand for our services and just our market position and capabilities, but these are historic times and so I think the second half of our mode is be great at doing what we do. Let’s be very, very observant about what’s happening and then we’ll respond accordingly.

Operator

Your next question comes from the line of Holden Lewis – BB&T

Holden Lewis – BB&T

I’m trying to get a little better feel I guess for what your expectations are for revenue trends going forward, primarily because I guess I’m hearing both there’s lots of opportunity out there but at the same time we’re seeing people take projects off the shelf and profitability and [inaudible] spreads are down, maybe marginal spending will go away, I guess I’m just hearing that you’re seeing conditions get tougher but you see a lot of opportunities and whereas I would expect that that would translate into growth, are you expecting the current levels of growth that you’ve been experiencing, because there’s really no sign in your data so far that there’s been any slowdown for you, is it reasonable to expect that that would slow down. Even say I guess that you’re expecting a normal spring turnaround season but I think it was extraordinary maybe last year and the year before so is that an incremental negative. I’m just trying to get a sense directionally of whether you think revenues are going to sort of stick around this growth level or whether you would expect them to maybe decelerate a bit and maybe get a sense of how much that’s possible.

Philip Hawk

I think our guidance for the rest of the year implies a slightly lower future growth rate then we have enjoyed year-to-date. I think on an organic basis, I think we ran about 15% I believe organically first half of the year and I think what’s imbedded in that is about a 10% or thereabouts growth rate.

The truth is we think our fundamentals are strong and getting back to, but our level of uncertainty is higher just because of the extraordinary environment we’re in. So for me to say confidently that we expect our, we’re not changing our strategy. We’re not a one-year story here. We’ve done this for year after year after year in terms of continuing to build our business and we don’t see fundamentally a change in that trajectory but are these extraordinary environment conditions we’re in, are they going to effect demand in a material way? I’m giving you both sides of the equation on that in terms of just, you kind of reiterated it in your question.

So we don’t know how that plays out. You are, we have not seen in our activity levels to date but its hard not to be influenced by what’s happening.

Holden Lewis – BB&T

So I guess when you talk about uncertainty, most companies have thrown the phrase uncertainty aside because they are quite certain that things are poor. You’re saying that you’re still uncertain but your activity levels have not been impacted relative to what you saw in the first half at this point. There’s no facts on the ground that are materially different from what they’ve been at this point.

Philip Hawk

That’s right. Our, what we ask our field managers to basically give us their best forecast of the second half of the year in early December and that’s really what is reflected in our affirmation of guidance, is that our managers on the ground are not pessimistic about the opportunities but hey, we’ve got extraordinary, as we’ve talked about, we’ve got some extraordinary things going on.

Holden Lewis – BB&T

And so that 10%-ish second half type of growth is that where you originally were in your original guidance or does that reflect a moderation.

Philip Hawk

No, I think, but as you know our initial year guidance always tends to be in the 10 and 20 type mode and I think what we’re, we’re certainly not, given the level of uncertainty, we’re not inclined to take up guidance.

Holden Lewis – BB&T

Can you talk about the balance sheet a bit, I guess this is not, its not unusual for this to be a weaker operating cash flow quarter, can you give us a sense of what the operating cash flow was in the quarter and what you expect going forward and what you think you might achieve in terms of overall debt reduction for the year if that’s the goal.

Philip Hawk

I don’t know that I have it for the quarter, I have it for the year-to-date period. Operating cash flow was $10.5 million in the year-to-date period and that reflects a growth in receivables of nearly $9 million in the period. What’s not reflected is that we had a significant, that will actually be reflected in the cash flow in the third quarter, is a significant receivable in the order of magnitude of $5 million that we’d expected to get resolved, we were a subcontractor, a controversy between the general contractor and the owner, not involving us at all, but that extended receivables by about $5 million through the end of the second quarter.

The matter was settled and we collected that in the third quarter so what you’ll see is a natural third quarter significant cash flows as the level of business activity slows in the third quarter flushing through the growth in the receivables in the second quarter as well as the impact of that $5 million collection in early December.

Holden Lewis – BB&T

Wasn’t the operating cash flow in Q1 was like $3 million, that suggests that you actually generated operating cash of $7 million in the second quarter?

Philip Hawk

Yes.

Holden Lewis – BB&T

So stepping aside from the higher accounts receivable, that’s actually a very good number, where did the cash come from?

Philip Hawk

Its great earnings and better receivable management quite frankly.

Holden Lewis – BB&T

Because seasonally its not unusual for your operating cash flow to be weaker in Q2 and then step up in Q3, that’s why I’m surprised at such a good number. Did you say that the full year operating cash flow would be $15 to $20 million?

Ted Owen

No CapEx would be $15 to $20 million.

Holden Lewis – BB&T

And the fact that that’s I think quite a bit lower then what you expected before just reflects deferring the headquarters.

Ted Owen

That’s correct.

Holden Lewis – BB&T

You talked about growth in Canada and US as it relates to the year-to-date, do you have similar numbers for fiscal Q2 for those two regions.

Philip Hawk

I don’t have them at hand breaking out the organic, I think its directionally similar.

Holden Lewis – BB&T

Because Canada was very strong in Q2, so I think a lot of that growth came out of there, is there any slowing in the Canadian side, did they sort of [inaudible] a lot of the work and now that slows down a bit?

Philip Hawk

You mean as we go forward into the rest of the year?

Holden Lewis – BB&T

Yes, can you just—

Philip Hawk

I think the comps will be weaker and have been extraordinary right, for the year-to-date, 40% up. I would not expect that for the second half of the year.

Holden Lewis – BB&T

I think last quarter national accounts were a bit weaker, I think in terms of being flattish year-over-year, did national accounts come back or are they still looking a little bit softer.

Ted Owen

Yes, year-to-date they’re up 13%.

Holden Lewis – BB&T

And that’s on a flat first quarter right?

Ted Owen

I think that’s correct.

Philip Hawk

Again I caution us from getting too excited about growth rates for relatively short periods of time because of all of the factors that go into that in terms of the prior period and the basis of comparison and mix and all of those things.

Operator

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Philip Hawk

Let me just wrap up then, I want to just thank everyone for your participation in this call and your continuing interest in Team. We look forward to our next conference call in early April. In the meantime everyone have a good day.

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Source: Team, Inc. F2Q09 (Qtr End 11/30/08) Earnings Call Transcript
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