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Team, Inc. (TISI)

May 20, 2013 11:00 am ET

Executives

Philip J. Hawk - Executive Chairman, Chief Executive Officer and Chairman of Executive Committee

Ted W. Owen - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Peter W. Wallace - Chief Operating Officer and Executive Vice President

Analysts

Richard Wesolowski - Sidoti & Company, LLC

Lee Jagoda - CJS Securities, Inc.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Stephen Ragard - Stephens Inc., Research Division

Adam R. Thalhimer - BB&T Capital Markets, Research Division

Tristan Richardson - D.A. Davidson & Co., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Team, Inc. Quarter 4 2013 Earnings Guidance Call.

My name is Matthew, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now, I would like to turn the call over to Mr. Phil Hawk. Please proceed, sir.

Philip J. Hawk

Thank you, and good morning. Again, my name is Phil Hawk. I'm Team's Chairman and CEO. Joining me today is Mr. Ted Owen, the company's Chief Financial Officer; and Mr. Pete Wallace, the company's Chief Operating Officer.

The purpose of today's call is to discuss this morning's press release, in which we lowered our fourth quarter earnings guidance. I will begin with a few brief remarks regarding our revised earnings guidance and current business outlook. Following my comments, we will open it up for your questions.

Just as a reminder, certain forward-looking information contained in this discussion are provided in accordance with the provisions of the Private Securities Litigation Reform Act. Please refer to our press release for the full disclosure in this regard. Let me begin by summarizing the press release. We are reducing our earnings guidance for the current fourth quarter to a new range of $0.52 to $0.60 per share. It represents an approximately $0.20 per share reduction, using the midpoints of both the current and the previously issued ranges. The primary driver of the shortfall versus the previous guidance is a lower overall profit margin, driven principally by lower-than-expected gross margins. Through the first 2 months of the quarter, Team's overall gross margin is approximately 30%. Our previous forecast was based upon a 32% overall gross margin level, resulting in approximately 2 percentage point shortfall. This entire margin -- gross margin shortfall can be attributed to higher-than-expected indirect cost performance. There has not been any meaningful decline in individual job margins on average. We do not expect these higher cost levels and corresponding lower gross margin levels to be permanent or the new normal for Team. We take pride in our consistent and strong field operations' performance. We are disappointed that we have not yet been able to get fully back in balance with respect to our resources and activity levels, but we will in the near-term. While the magnitude of our cost improvement opportunities varies by business segment and region, our opportunities are not limited narrowly to 1 or 2 areas. We can and will tighten up in virtually all areas of our business. Shifting to our fourth quarter revenue forecast, we have narrowed our current range to $195 million to $200 million. Overall, our activity levels have been about what we expected. While it is difficult to make apples-to-apples comparisons on project mix without full quarter information, we are seeing and experiencing the reduced number of very large turnaround projects versus the prior-year period that we had previously forecast. Again, this revised forecast is based on 2 months of actual performance and our estimates for the month of May. While we have a good handle on overall activity levels under way, relatively small changes in any of several performance metrics can move the earnings needle materially. The midpoint of the current earnings range reflects our best estimate.

Let's now shift to Team's outlook. Team's fiscal year '13 results have been a tale of 2 halves. In the first half of the year, Team achieved record growth, record profits and near-record profit margins. In sharp contrast, Team's second half will be disappointing, with significantly lower overall revenue growth in the 7% range versus 20%-plus growth in the first half and significantly lower margins, due primarily to the cost efficiency challenges described a few moments ago. It is a fair question to ask, "Which half of fiscal year '13 is more indicative of our future performance?" Regarding expected revenue growth, I believe a realistic perspective is somewhere between the first and second half growth rates. Clearly, we had some tailwinds in the first half of the year. However, at the same time, we had some difficult comparisons in the second half due to the lower mix of larger turnaround projects. While we are still in the process of developing our plans and specific forecasts for the coming year, I remain comfortable with the projected 10%-plus organic revenue growth rate. Several factors support my belief and confidence in this regard: the continuing attractiveness of our markets; Team's strong position and structural advantages, particularly compared to our smaller competitors; our numerous business development opportunities across nearly all aspects of our business; and our track record and cultured growth.

Shifting to profit expectations for next year. I note that there are 2 major sources of profit improvement available to Team in the coming year. First, by successfully addressing the cost efficiency challenges that occurred in the second half of this year, Team will improve the profits of our existing business base. Second, the expected business growth will be another source of profit growth. Because of these opportunities, I believe a return to our historical operating profit margin in the 9% range is a realistic expectation in the coming year. As noted in our press release, these expectations correspond to approximately $790 million in revenues and about $2 per share in earnings for the coming year. As was indicated, we will be providing formal guidance for next year in early August with the issuance of our full year 2013 results. However, we thought it would be helpful to provide this initial color and direction at this time. There's no question that this has been a difficult couple of quarters for Team. We pride ourselves on our consistent service excellence for our customers and resulting consistent business growth and performance for ourselves and our investors. Clearly, we have had a few bumps in the road with respect to recent financial performance, and we're still working through some short-term challenges that have negatively impacted our financial performance in the second half this year. Yet at the same time, I remain positive about our business prospects and outlook. We have been a consistent high-growth company for more than a decade because of our attractive market fundamentals and our ability to be a great service company, and we expect to continue that performance going forward. That concludes our initial remarks. Ted, Pete and I will now be happy to entertain any questions that any of you may have. Matthew, may I turn it back to you?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Rich Wesolowski of Sidoti & Company.

Richard Wesolowski - Sidoti & Company, LLC

Has the utilization issue spread to the U.S. as well, or is it still mainly in Canada?

Philip J. Hawk

The -- yes is the answer. It's not -- this is not a Canadian issue. The issue in Canada and Europe in the third quarter were just losses due to very sharp declines in business. We continue to be softer in those markets, but as we forecast at the time of the prior earnings guidance, we were forecasting lower earnings growth in the U.S. due to the lack or weaker mix of very large projects. That has transpired so we have lower growth rates, really, across the U.S. in the fourth quarter. And that is principally what's driving our challenge of utilization, that we were unable to adapt as quickly as we thought we could to the lower growth rate.

Richard Wesolowski - Sidoti & Company, LLC

In comparing your initial forecast for 2014 with fiscal '12, your sales will be more than 25% above, but operating margin will be the same. One would expect the core Team operating margin to rise with sales gently and Quest will be a larger piece of the pie. So I'm wondering what are the factors that you would expect would keep it level?

Philip J. Hawk

Well, I think we're -- I guess I wasn't trying to hold it down so much as just indicate with the kind of a little bit of color that we think we can restore to kind of historical levels. I agree with your basic thinking that we should get operating leverage on growth, and we would expect that. But given the disappointing performance of the last half, I think our focus right now is, "Let's get back to where we should be and then we'll build from there."

Richard Wesolowski - Sidoti & Company, LLC

I understood that it's additional stab in being in the part of the year that where we are. And lastly, I'm wondering if the company has suffering from any wage inflation that has not been matched by service pricing?

Philip J. Hawk

I think there is definitely pressure in wages in selective areas. But we haven't seen a significant or material adjustment or kind of impact on our job margins. It's an ongoing issue and an area of focus for us for sure, but we don't believe job margin deterioration was a significant contributor at all to the myth in the quarter.

Operator

Your next question comes from the line of Arnold Ursaner from CJS Securities.

Lee Jagoda - CJS Securities, Inc.

This is actually Lee Jagoda for Arnie. So given the current environment in May and the normal seasonality over the course of your business in Q1, what are the cost actions you plan to take? Or should we assume that the seasonality in Q1 should be further exacerbated?

Philip J. Hawk

No, I don't think so. I think the -- again, recognized that we're a highly decentralized business and what we're -- what we provide is a very strong operating environment and very good metrics so that we can balance our business locally to our opportunities, which has continued. We don't -- I guess my view is I look forward to next year. We see, as I indicated, some kind of organic growth opportunities in the 10%-plus range, and we expect our cost to be in line with that. So we do not expect the continuation of kind of an indirect or kind of utilization shortfalls as we go forward into the next year.

Lee Jagoda - CJS Securities, Inc.

Okay. Normally, when you give your guidance, you usually present a range of revenue in EPS. How should we think about the sort of point in time you gave us on the revenue and EPS in terms of range?

Philip J. Hawk

I think you should look to our range and formal guidance in August, which would be the typical time when we do that after we prepare for budgets and have expectations. I think just because of the disappointment in this quarter and our results really for the second half of the year, we thought it was helpful to provide some color and direction for next year and our thinking behind that, and that's really what the -- hence, the single point is really a point of direction, not really a specific forecast.

Operator

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

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

First question is in regards to Quest. When you look across the U.S. business, it seems most of the productivity issues might be contained to the turnaround business? Or should we be looking a little beyond that as well?

Philip J. Hawk

I think it's where the lower -- principally, you are correct, Tahira, because where the challenges are the greatest are where the growth rate is the weakest. In the case of turnarounds, not knowing -- lower growth rate, we had negative growth in some services, and clearly in some areas. So that's a fair statement. We have had soft growth. And again, I don't want to make too much about it -- about the quarter, but we've had soft growth rate even in some other areas beyond turnaround services, kind of isolated pockets. And of course, that soft growth creates some of same operating challenges that we have in the turnaround services.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

If -- and the second question is, when I look at you folks, you're probably one of our best-in-class in terms of pricing and being able to really impressively go in and bundle your services and sell them to refineries. So I noticed when you've talked about this in your prior quarter, you've talked about this as just being select, because of timing issue, select to maybe a handful of the refiners you're seeing. But should we be drawing something outside of this which is more macro? And then, on the same grain, you guys are very good at really pulling your utilization back, perhaps I think one of my best companies in doing that. So I guess, how should we be looking at this? Are you being conservative, given you've seen a couple of quarters where things have not been on mark and you want to set the bar whether it makes sense right now? Or is there -- is it just taking you longer to turn things around because you're a bigger company now?

Philip J. Hawk

Well, we appreciate the compliments on our historical performance, and, yes, we do think we have been a good operating company and have been able to maintain our utilization at high levels consistently over time. What I think is that we have -- our own execution issues in this fourth quarter, we expected it to soon to be in a certain level to it. It's a challenging environment, again, for us because of some mix effects. But we expected to be able to adapt of those challenges, and we will. But we didn't do it completely in the quarter. And hence, the myth, the couple-of-point margin myth that I referred to earlier. Do we think -- and again, you alluded to it, and as we did as well in our remarks, we expect -- we do expect to catch back up and to get back in balance and do so in the near-term. And so as we look forward, we expect kind of historical operating levels. We expect historical kind of if-you-will components of our business, and therefore, attractive growth and profit and incremental margin growth over time. I guess when we have kind of underperformed and not delivered in the last 2 quarters, certainly to our own satisfaction, our focus is kind of getting back there first and then building from there. So I don't -- It's not our intention to lowball anything, but just be as completely honest and forthright as we can be about where we are and what we're doing about it.

Operator

Your next question comes from the line of Stephen Ragard of Stephens.

Stephen Ragard - Stephens Inc., Research Division

My first question is, can you provide some more color, I guess, around the under-utilization of the tech force? Was it more staffing up for work? Was there some push out of project work, or maybe some of both? Can you just provide some color there for us?

Philip J. Hawk

I think that the -- it wasn't much staffing up for work, it's kind of adapting to -- I guess we had actually expected levels of utilization that were not quite as hot as last year, but would be very good because, again, at the turnaround environment in the fourth quarter, and we just fell short of those utilization levels, would be the way I would say it, and we did in a lot of areas. It wasn't just one area. It wasn't one thing. I think the challenge is when you're not going as rapidly, we need to kind of reduce the rate of growth or actually reduce resources in areas, and we didn't move very quickly to do that. We're doing that now where appropriate, so those actions are taking place. But that's kind of, I guess, my high-level view. I don't -- any other comments here? I think that pretty much describes it.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Okay, yes. That makes sense. And then, can you comment on whether or not you are seeing any change in the competitive pressures in the marketplace at this time?

Philip J. Hawk

I don't think so. I mean, we have several -- we have not several, we have lots of good competitors. So it is a competitive world out there, but that's not new.

Stephen Ragard - Stephens Inc., Research Division

Sure, sure. Okay, I guess last question for me on the guidance. It looks like the $2 number assumes a 9% op margin, I guess the piggyback kind of on Rich's prior question. If you return to more normalized gross margin level and realized some typical SG&A leverage, is that $2 number, I guess, closer to the low end of what you would expect? Or I guess, in other words, should we view that as kind of an at least number or something that you realistically expect to achieve?

Philip J. Hawk

We are -- just as a little context, Steve. I appreciate the question, but we're in the middle of a quarter. We're giving preliminary guidance. We're giving new guidance for the fourth quarter based on really not complete information about the quarter. So for us to kind of build on that and then to try to get levels of sensitivity or conservatism on what I was trying to do, which was just to provide a basic direction that we can get back in the -- get back on track and get back on track quickly. That was really the point of the direction and color.

Ted W. Owen

Let me just piggyback on that just a bit, Stephen, and for the benefit of others. Again, we will issue guidance, as we always do, when we issue our formal fourth quarter earnings release in early August. So what we're doing today is not issuing guidance for 2014, but rather we're simply trying to be helpful. We reduced our guidance twice now. We're trying to be helpful in terms of kind of resetting the direction that we think 2014 will be. But the actual guidance, when we released our earnings in August, could well be different than the number that we have -- that these kind of a point numbers that we're disclosing to you today. We would expect that they would be directionally in the same, kind of same framework, but it is not our intention today to be -- it's not guidance we're issuing today, it's just a kind of indicative of kind of where you should be adjusting your models for 2014. And then as we complete our planning process, which we're still in the middle of right now for 2014, we will finalize those -- that guidance and give you a better color in August. But we wanted to do something today to help you set direction.

Operator

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

Adam R. Thalhimer - BB&T Capital Markets, Research Division

What are your expectations for the fall turnaround season?

Peter W. Wallace

While we're encouraged -- Adam, this is Pete. We're encouraged by information in what we're gathering from the field. So I mean, as we move forward, there's certainly, we talked about what our issues were in this past quarter with our indirect in those margins on our growth. But we've got a -- from the reference point of the $790 million that we're talking about, we've got to -- we have to prepare ourselves for that because that's an $80 million to $85 million growth. But we're encouraged in with what we're seeing. That's coming up this summer and fall.

Ted W. Owen

We're going to be providing more color as we get full year -- full quarter information, tracking projects and all that. But we have begun kind of tracking projects on a forward-looking basis, and initial indications are good. They're good for the fall.

Adam R. Thalhimer - BB&T Capital Markets, Research Division

Well, yes. I'm having a hard time understanding the big picture here. I mean, Q3 was weak. It sounds like there are some specific issues, like you said, with Canada and Europe. Q4 was just a bad -- or weaker turnaround season that you thought because, right, the job margins are the same. You're not losing competitive share, it's just that your customers happen to be spending less. But understanding that your customers, they're turnarounds are cyclical. So I would think that the weakness in Q4 would -- you would get that back in fiscal '14. Is that the right way to think about it?

Philip J. Hawk

I think, on average, yes. And I think the early indications are that we have turnaround mixes that are attractive to and comparable to early part of last year. So yes. That confuse you? Or...

Adam R. Thalhimer - BB&T Capital Markets, Research Division

Well, no. I think that all makes sense. I guess the issue -- so the issue would be that with the refineries you work for, they're on what, 12- or 18-month cycles in terms of their large turns. And you don't -- your customer base stays relatively consistent. So you're just -- I guess, this kind of thing just happens. I mean, every 12 to 18 months, you're going to have a soft turnaround season. Is it that? Or is it -- is there something specifically keeping them from doing larger turnarounds like the really good crack spreads?

Ted W. Owen

I think it's the former. I think, for us, I don't -- I'm not sure I'd subscribed to your 18-month cycle. I think the unit cycles are a little bit longer for some -- it depends on the units. But the -- I think the main issue is just the coincidence of different mix for us due just to the particular mix of customers that we had and their effect in this quarter compared to the prior year period. We see no changes in turnaround philosophies and strategies that are changing the basic demand for turnaround services. Is that fair? Yes.

Adam R. Thalhimer - BB&T Capital Markets, Research Division

And tell me, when's the last -- I mean, you've been a Team since the, what, late '90s now. What's the last time that -- I mean, it feels like we're in a really good environment in terms of your customer spending levels, in terms of their health. I mean, when's the last time you kind of a disappointing quarter in the midst of really strong end-market demand?

Philip J. Hawk

Well, let's see. The last disappointing quarter we had, I guess, before this was back in '09, I think, wasn't it? It was the last we issued a guidance adjustment?

Adam R. Thalhimer - BB&T Capital Markets, Research Division

Does this feel different at all?

Philip J. Hawk

No. I think we're very confident of our company, and we're confident about our capabilities and very proud of our historical performance. And given our kind of our color or outlook going forward, we expect to be right back there on the same trajectory that we've been. But the reason we're issuing this guidance is we stumbled this quarter, and I personally think it's internal. We -- the market is not bad. It's a little bit -- as we mentioned, the mix is a little bit challenging for us, but we didn't meet our own expectations, and kind of adapting to that, and hence, the shortfall. I would point out that we're -- the new guidance is an EBIT margin in the quarter of about 10%. So it's a not -- it's below what we expected. It's below, a lot of times, our hot quarters, but it's we're not going broke.

Adam R. Thalhimer - BB&T Capital Markets, Research Division

No, no. It's still a good quarter. But I mean, comparing this -- see that's kind of a scary comparison, right, because 2009 was beginning of a weaker period. But I mean, I guess nobody really knows, but does that scare you?

Philip J. Hawk

No. I guess, Adam, again, this is Ted. I just, again, kind of simply said that we are -- we have slower revenue growth. We expected slower revenue growth, so that's consistent with what we expected. We also expected lower margins in the fourth quarter in comparison to the last year's fourth quarter. The issue is they're just lower, lower still than what our expectations were. Last year, our margins were about 34% in the quarter. Again, very hot quarter. When we reduced guidance a couple of months ago, we were expecting margins of about 32% in the fourth quarter. Again, lower than last year, recognizing that we had kind of some headwinds and expected slower growth. The issue for us, though, is just simply that our margins were a couple of points even less than our expectation. But our -- again, our view is that the markets haven't changed. It's just we have our utilization rates and the difficulty in a kind of a larger decentralized organization. It just takes a little longer to restore balance to our organization than we thought it would. But it hadn't changed at all our outlook about kind of our business outlook or our view of our business or our markets long-term.

Adam R. Thalhimer - BB&T Capital Markets, Research Division

And last question, I promise. But is it surprising to you that some of your customers didn't kind of upsize these turnarounds, and I guess, is there any -- do you ever know why that doesn't happen?

Ted W. Owen

I'm sorry. What was that question again, now?

Adam R. Thalhimer - BB&T Capital Markets, Research Division

Well, I'm just wondering, is it surprising to you that some of your customers didn't upsize their turnarounds, right? Because I think you said last quarter, when you get into these turnarounds, they can be half as much as you thought or 3x as much as you thought. And it seems like, in this case, maybe some of them were half as much. So I'm still trying to figure out the mindset of your customers a little bit.

Philip J. Hawk

Yes. I think that's a little misplaced, that kind of presumption on your part. What -- because some turnarounds did get bigger than the original forecast. Some got a little smaller. There was no -- the surprise here was not that the turnarounds didn't upsize like they used to, it's that the number, the mix of what we had going into the turnaround season was lighter, particularly among the larger, very large projects compared to last year. That was the revenue, softer revenue forecast that we issued in, I think it was a mid-March timeframe. That's roughly what happened. So it wasn't that we were disappointed, it's just not a big part of the myths from their forward, is that the revenue turned out to be grossly different than we thought. It was our execution and our performance against that. And still -- as we said, it's still a good quarter. We still had a lot of positive. It's just that we did not have that outstanding quarter that we expect. In the fourth quarter, we didn't leverage the turnaround lines that we had as effectively as we predicted that we would. And that is the miss. And again, it's not like it was a bad quarter, it was just not what we expected, and it's not what we would manage to, and again, a high activity period. Just for reference, our volumes will be above last year. It will be about 5% above last year in total, I think, for the fourth quarter. Organically, though, it's about half that. It's about 2% or 3%.

Operator

Your next question comes from the line of Tristan Richardson of D. A. Davidson.

Tristan Richardson - D.A. Davidson & Co., Research Division

Just a question on getting comfortable with -- you guys have talked about rebalancing the resources, et cetera. Just curious on the timing on that. Since you talked a lot on this call about how -- it just took a little bit longer than you guys had expected. And just going forward, are you comfortable with where you are now? Or are you still in the process and just sort of when you expect to be where you would like?

Philip J. Hawk

I think we expect to be there shortly. Here's, to me, are the 2 factors kind of leading to it. One is we're adding resources a very, very rapidly. If you look at -- I'm going to look at SG&A, that's easy one to measure. We're adding at about a 17% rates to the first half of the year because we're growing at 20%. We start growing in a slower rate. It was like 11% in the third quarter. Those -- very honestly, those rates -- the growth rates kind of stop in terms of kind of a net, and we start peeling back. And that's the process we're going to, is just kind of basically undoing the weaker bets or the less productive bets and getting -- just tightening up where our growth doesn't match our resources. That happens. It's again happening in the third quarter. That is happening in the fourth quarter in several areas. It's a little because of the highly decentralized nature of our business. It's always a little bit of a moving target where we're growing and adding some places and subtracting others. But again, I think we expect the -- we do not expect to be talking about kind of the imbalances and margin issues next year. We expect them to be behind us.

Tristan Richardson - D.A. Davidson & Co., Research Division

Okay. That helps. And then, I guess the only other question is, beyond the macro environment in Canada -- I'm sure that hasn't changed since we last heard from you guys. But I guess, you did have some micro customer-specific issues, just due to ownership changes, et cetera. I'm curious, working with those customers currently has -- have you seen work levels sort of resume, or how are conversations going there?

Philip J. Hawk

I think we're generally positive with our outlook. I don't -- we don't generally get into a lot of the specifics, kind of specific project or customer and things like that, but we're satisfied with the direction we're going. We are continuing to have, relative to last year, softer revenues overall in Canada. But I would point out, both Canada and Europe are profitable in contributing into our business, so it is not our viewpoint that -- but for this or that, that we would not have -- would not be here today. I think that the issue we're referring to is this execution issue, and kind of indirect cost is really a broader issue than Canada or Europe.

Operator

Your next question is from the line of Rich Wesolowski of Sidoti & Company.

Richard Wesolowski - Sidoti & Company, LLC

Just to be clear, you would not expect the utilization issues to crop up in the August or the November quarters? Is that correct?

Philip J. Hawk

Correct. We expect to get back in balance. Again, we, on the -- you have low utilization levels on the non-turnaround-intensive periods than you have in turnaround-intensive periods because of just the scale in volume. But in terms of kind of missing it and having -- being out of line from -- relative to where we expect to be, no. We do not expect to have the utilization issues relative to our kind of historical levels next quarter.

Richard Wesolowski - Sidoti & Company, LLC

Good point on the seasonality, understood. And lastly, you mentioned you're very decentralized and it -- I'm wondering if you would review broadly your routine for determining how many field technicians you need and where you need them and discuss whether or not you see a need for a lasting change in how you forecast that or how you go about it? Or whether you're just going to do the same thing better in the future?

Philip J. Hawk

Well, I think the -- I think that the basic premise is we have great tools in place, a great system that has worked and that we're going to continue kind of -- not writing that, but kind of focusing on that and utilizing that approach. And that basically is, again, decentralized P&Ls. It's -- we have a detailed job costing information that is available to our local managers. Again, the key to our success is being able to be responsive in providing outstanding service from each of our 130 locations to each of our roughly 7,000 customers. And that's kind of, by nature, inherently local. So we want our local managers to have the ability to respond to business opportunities, to resource appropriately so they can meet those needs. And that's how we do that. Now they have the tools that we also have. They have financial tools in terms of monthly P&Ls and really kind of a real-time P&Ls. They also have utilization levels of their personnel, kind of in a common format that's generated as frequently as weekly, but in depth every month, so they can very well see where they are from a utilization standpoint versus historical levels. That has worked well for us. That will continue to be our philosophy and focus. I think, maybe where we -- I think, we'll be building in some better planning in kind of vision and planning tools as -- around projects. Pete mentioned we kind of just assumed they would kind of always be all large numbers, that there would always be projects out there roughly the same nature and there -- they have -- historically always have been until this last quarter, or really, this spring turnaround season. So we're going to do a better job of planning and coordinating and then kind of forecasting those bigger projects because I think that helps us from a resource planning standpoint and provides a little more, I guess, information just on perspective of where we're going to need to support bigger projects, kind of, maybe from centrally or from other regions. So it'll just be a better kind of planning tool. But that's really to augment our basic approach to the business, not change that.

Peter W. Wallace

To follow up with what Phil was mentioning, we look at our growth rates for this past -- the third and fourth quarter, we had some growth, but we just didn't leverage because we got ahead of our costs on our indirects. And just slowing those rates or our costs or holding back, we're going to catch up with our growth that we anticipate going forward. Last year was an extremely good year with turnaround and large project activities. And again, we're encouraged to what the optics that we have right now if we look forward for the next 4 quarters, that it's going to return or it's going to be where we anticipate.

Operator

Your next question comes from Tahira Afzal of KeyBanc.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

I'll keep it a brief follow-up. It seems like Canada for you guys is now okay in terms of utilization. From the comments I can make, it seems all the adjustments you've made there at least seem to be sort of bearing fruit now. And just quickly, what would you, based on any preliminary outlook and commentary you can offer, really point to as being your really high-growth area still as you see it right now?

Philip J. Hawk

Yes. I think, just as a point of clarification on Canada, yes, we are. It's profitable. We're pleased with the -- that we're certainly not in the ditch or whatever we -- whatever the right characterization of kind of our third quarter challenges were. But Canada, like the U.S. and our other areas still have some indirect costs and kind of cost efficiency opportunities. So we're not here declaring victory anywhere in our company at this point. If you look at long-term kind of growth opportunities, I think the -- I think they will continue to be where they've been the last couple of years. I think the highest long-term growth opportunities will continue to be in the inspection and assessment areas. They've -- again, for the year, even with some of our challenges in the fourth quarter, I think our overall growth rate in inspection assessment will be over 20% for the year. That includes Quest, but not just Quest Integrity Group is part of that. So we're looking forward to that. But frankly, we see a lot of -- even in the mechanical service areas, which did grow much more slowly this year. We see kind of a fundamental growth and expansion of capabilities and valve repair in shop services, expanded exchanger repair services, specialty high-end welding, some additional fabrication work along the Gulf Coast or all areas that we think will be sources of growth for the TMS group. So we've got some positive things going, really, across-the-board for our company and we're, as I mentioned, that's what give us -- gives me confidence about what our growth potential looks like, both in '14 -- fiscal year '14 and beyond.

Operator

Ladies and gentlemen, I would now like to turn the call over to Mr. Phil Hawk for the closing remarks.

Philip J. Hawk

All right, thank you, Matthew, and we appreciate everybody's interest in Team and joining us -- for your joining us on the call today. Our fourth quarter year-end conference call will take place in early August, and we look forward to visiting with you again then. In the meantime, everyone, have a good day.

Operator

Thank you for joining today's conference. Ladies and gentlemen, this concludes the presentation. You may now disconnect. Have a good day.

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