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Team (NYSE:TISI)

F1Q 2014 Earnings Call

October 02, 2013 9:00 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

Analysts

Matt Duncan - Stephens Inc., Research Division

Arnold Ursaner - CJS Securities, Inc.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

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

Charles E. Redding - BB&T Capital Markets, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Team, Inc. Earnings Conference Call. My name is Katina, and I'll be your coordinator for today. [Operator Instructions]

I would now like to turn the presentation over to your host for today's call, Mr. Phil Hawk, Team's Chairman. Please proceed.

Philip J. Hawk

Thank you, Katina, and good morning, everyone. It's my pleasure to welcome you to the Team web conference call to discuss recent company performance. My name, again, is Phil Hawk. I'm the Chairman and CEO of Team. And joining me again this morning is Ted Owen, the company's Executive Vice President and Chief Financial Officer.

The purpose of today's conference call is to discuss our recently released financial results for the company's first quarter for fiscal year 2014 that ended on August 31. 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, our filings with the SEC, as well as our annual report.

Ted will begin with a review of the financial results. I will then follow Ted with a few remarks and observations about both our performance and future prospects. Following these remarks, we will take questions from our listeners.

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

Ted W. 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.

Now for the financial results. Adjusted net income available to shareholders was $0.23 per share in the current quarter versus $0.36 per share in last year's quarter. Adjusted net income for the current quarter excludes a $700,000 pretax nonroutine charge for severance costs associated with the business realignment that we announced in June.

Revenues for the quarter were $174 million versus $161 million in last year's quarter, an increase of 8%. However, adjusted operating income or EBIT was $8.8 million, 5% of revenues in the current quarter versus $12.8 million or 8% of revenues in last year's quarter. Nearly the entire decline in operating income was a result of the slow start to the year at Quest. However, results for the first quarter were also negatively impacted by weaker-than-expected margins in both our Inspection and Heat Treating and Mechanical Service business segments. Phil will discuss both of these issues more fully in his remarks.

Now here's a breakdown of revenue and operating profit by business segment. First, revenues. Inspection and Heat Treating revenues were $95.8 million, up 17% over last year, about 10% of that -- or about 10% organically. Mechanical Service revenues were $66 million, virtually flat with last year. And Quest revenues were $13 million, down about $1 million from last year.

With respect to operating income or adjusted EBIT, Inspection and Heat Treating operating income percentage was 10.6% for the current quarter and the Mechanical Service operating income percentage was 10.3% in the current quarter, both down from last year's percentages. Both business segments are facing a similar issue, pressure on margins. And as Phil will discuss more fully, Quest incurred an operating loss of $700,000 in the quarter versus an operating income of $3 million in last year's first quarter. That's a year-over-year change of $3.7 million, which reduced our first quarter earnings by approximately $0.11 per share.

Now with respect to cash flow-related items. Capital expenditures were $6 million in the quarter, and the combination of depreciation, amortization and noncash compensation charges was also about $6 million in the quarter. So adjusted EBITDA for the quarter was $15 million and is $76 million on a trailing 12-month basis. At the end of the quarter, our total debt was $88 million, up about $13 million since the end of the fiscal year due primarily to borrowings associated with the July acquisition of Global Ascent. Cash was $34 million at the end of the quarter, virtually unchanged from year-end. Therefore, net debt was $54 million, and our net debt to trailing 12-month EBITDA was 0.7:1.

I am also pleased to report today that our Board of Directors has authorized an initial $25 million stock buyback program, which reflects their confidence in Team's near-term and long-term prospects. The board and management believe that this will be an excellent investment for all Team shareholders.

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

Philip J. Hawk

Thanks, Ted. Now I would like to provide a few additional perspectives both on our recent performance and our outlook. All financial results referred to in my remarks will be adjusted results that exclude nonroutine items, consistent with the information in our earnings release.

Let's begin with a discussion of our performance in the first quarter. Ted shared the overall results with you. Revenues of $174 million, up 8% overall from the prior year quarter. Earnings per share of $0.23 per share down $0.13 from the corresponding period. Rather than discuss these aggregate results, I think it is more useful to review our results in 2 separate groupings: Quest Integrity Group; and then a combined rest of Team grouping that includes Heat -- Inspection and Heat Treating Services, Mechanical Services and the remaining corporate support services.

As a reminder, Quest Integrity Group became part of Team in fiscal year 2011. Quest provides integrity and reliability management solutions for the process, pipeline and power sectors. These solutions encompass 2 broadly defined disciplines: first, highly specialized inline inspection services for unpiggable process piping and pipelines using proprietary inline inspection tools and analytical software; and two, advanced condition assessment services through a multi-disciplined engineering team.

Quest Integrity Group has been a high-growth, highly profitable business for Team. In the fiscal year just ended, Quest revenues were $57 million, up 42%. Total operating profit for this period was $9.5 million, with an approximately 16% operating profit margin. We expect Quest business growth trajectory and profitability to remain strong in the current fiscal year and beyond. Our Quest business plan for the current fiscal year 2014 projects total revenue of $70 million and operating profit of $11.5 million, representing an approximately 20% growth in both revenue and operating profit versus the prior year.

As Ted indicated, Quest is off to a slow start in this first quarter. For the quarter, Quest had an operating loss of $700,000 compared to a prior year profit of $3 million. The driver of the decline related roughly 1/3 to softer revenue due to delays in some significant projects anticipated in the first quarter and 2/3 to higher costs, reflecting the expansion of the field service network and increased development spending on next-generation tooling.

Despite the slow start, we believe our budgeted results for Quest for this fiscal year are still within reach. Our project margins for Quest services and our SG&A spending levels are in line with our overall plan. We remain comfortable that Quest will achieve our operating profit plan if Quest meets its revenue plan, and we believe the $70 million revenue target for the year remains realistic. What makes the catch-up of this significant revenue shortfall in the first quarter possible in the remainder of the year is the very high operating leverage related to Quest services, particularly the specialty inspection services.

Regarding revenues, we currently anticipate that several significant projects originally expected to be performed in the first quarter will now take place in the second or third quarter. We have not seen cancellations from our prospect list, just some timing changes due mostly to customer preparation and staging issues ahead of our inspections. We continue to see exciting new business and project opportunities for Quest in the pipeline, process and power customer segments throughout the Americas, as well as in the Asia Pacific and Middle East regions.

Now let me move on to a discussion of the rest of Team's businesses. With the new organization alignment that became effective in July, in addition to Quest, we have 2 other business segments: Inspection and Heat Treating Services and Mechanical Services. However, since the business performance and continuing business issues for these segments are similar for this first quarter, today, I will discuss both of them together, along with the remaining corporate support groups.

I will begin with a discussion of revenue performance, followed by a review of our operating profit and profit margin performance. In the first quarter just completed, the combined revenues for the rest of Team businesses, excluding Quest, were about $162 million, up about $14 million or 10%. Approximately $6 million in revenue growth came from companies we acquired in the past year. Therefore, organic growth in the quarter was just above 5% or a little below our 10% long-term annual target.

While the overall organic growth in the quarter was a little behind our target, there were many encouraging indications. Team achieved double-digit growth rates in the U.S., Europe and the rest of world regions. The mix of very large customer projects, those with revenues greater than $2 million in the quarter, continues to track lower than last year by about $9 million in total for this first quarter. But this reduced revenue from very large projects was completely offset by the growth in revenue for projects and customers between $500,000 and $2 million in revenue in the quarter. In total, projects and customers with revenues greater than $500,000 overall represented about 30% of total revenues for the combined Inspection, Heat Treating and Mechanical Services segments.

We expect this current headwind of fewer very large projects to continue into the second quarter. We had strong very large project revenues in last year's second quarter which makes for a tough comparisons -- comparison. However, we don't believe that large project timing is or will be the primary driver of our overall revenues and prospects. We continue to believe we are well positioned to continue growing our business attractively both for this fiscal year 2014 and beyond.

Let's turn to operating profit and profit margin performance. In the quarter, the combined rest of Team business grouping earned $9.5 million versus $9.8 million in the prior year first quarter. Operating profit margins for this segment -- this grouping was, again, 5.9% for the quarter versus 6.6% last year. The entire source of the operating profit decline was the decline in gross margin percent. This approximately 1% difference in gross margin is significant. Had Team maintained its prior quarter average gross margin for these segments, total operating profit would have been about $1.6 million or $0.05 per share higher in the quarter.

It has always been true that our business is a mix of regions and service lines with varying and sometimes, volatile near-term market demand and competitive situations. It is predictable that a few branches or regions or service lines will be facing shifts in their respective markets in any particular time period that will depress their revenue and profit performance in the near-term while we adjust resources, business focus and corresponding initiatives. At the same time, we can anticipate that other branches, regions or service lines will enjoy local tailwinds due to project activity in the area, changes in competitive dynamics or other factors. The bottom line is that we need to achieve attractive overall average margins, recognizing that there will be volatility and variability in the individual branches and ridges -- regions due to changing local conditions.

The basic fundamentals for managing our business profitability remain unchanged. These are: satisfactory pricing with our customers that is in balance with our technician labor cost levels, outstanding execution with minimal or no rework or other job inefficiencies, effective utilization of our technicians on billable work and operations and other support resources that are appropriate for the near-term business activities of the branch or region.

In specific regions, we are working through challenges related to these fundamentals. In several regions, particularly in the Gulf Coast area, we are seeing upward technician wage pressure that is temporarily squeezing margins. These wage pressures are not unique to Team, and therefore, we should be able to reflect them in our pricing eventually. But currently, we are struggling with the lag effect in a couple of areas.

We believe we are in the beginning stages of a very tight labor market, particularly in the Gulf Coast, due to several major new construction projects planned in the region. Historically, conditions of rapid upward wage pressure have been a net positive for Team as workforce shortage concerns encourage customers to support Team in maintaining competitive wages for our technicians. And in a couple of regions where we had significant declines in project work, it is taking more time than we anticipated to rebalance our resources with current activity levels.

Now let's shift to the topic of earnings guidance. We understand that our investors expect consistent and accurate information from management regarding the company's projected business prospects and performance. Frankly, for many years, we have been pleased that we have provided Team earnings guidance that has proved to be generally in line with actual results. To allow for potential unforeseen issues, we have tried to project results conservatively.

Our earnings guidance performance for the past 3 quarters, beginning in January this year, has not been up to those long-term standards. We have been overly optimistic in the estimated timing of our expected margin improvement. As we indicated in our last call, our previous fiscal year 2014 earnings forecast was based on 2 primary assumptions: 10% overall revenue growth and a 1-percentage-point improvement in overall profit margins from fiscal year 2013 -- the 2013 levels that would be back toward our historical performance levels.

Our revised forecast issued yesterday removes the projected 1-percentage-point improvement from our base assumptions and also provides for some potential shortfall in either Quest performance or our rest of Team revenue performance in the low end of the earnings range. I remain confident about our overall position and longer-term prospects. I'm also confident that Team's margins will return to historical levels, and when they do, we will reflect that improved performance in our outlook and future earnings guidance.

In the past few quarters, we have struggled to maintain the overall balance of our business opportunities and resources and have experienced corresponding margin pressures. Our entire organization is focused on these improvement opportunities. I think you will all agree with me that it is time for Team to reflect these improvements in our results going forward. We are all committed to doing just that. I'm proud of our company and our Team colleagues. We are extraordinarily well positioned for continued attractive, long-term business growth.

Katina, that concludes my remarks. Let me now turn it back to you and open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Matt Duncan representing Stephens Inc.

Matt Duncan - Stephens Inc., Research Division

The first question I've got, really, I want to dig in a little bit more on what's going on with margins. If I'm hearing you correctly, the pressure is primarily 2 factors, and it's that you've got wage rate increases without the corresponding price that you need and then in other -- and in some certain local markets, you've got an underutilization of your tech force. Is that basically what it boils down to?

Philip J. Hawk

Yes. I would make the latter a little broader. It's both underutilization of tech force and it's a kind of rebalancing of our leadership and kind of branch infrastructure to the current activity levels.

Matt Duncan - Stephens Inc., Research Division

Okay. So Phil, in the past, when you guys have had substantial wage rate increases, your customers have been pretty willing to take price increases to help offset that for you. So what do you think is the disconnect right now that's not allowing you to get the price that you need?

Philip J. Hawk

I think there's not a -- there is a strong procurement kind of influence in the whole pricing kind of negotiation posture right now with our -- with, certainly, many major customers, and I don't think there's a perception of -- there's a perception of abundance, not shortage. So I think they are -- I wouldn't say they're rejecting price adjustments, but they're slow-playing them.

Matt Duncan - Stephens Inc., Research Division

So is it as simple as you need your customers themselves to start to feel that pain as well?

Philip J. Hawk

Well, I think the issue is, I think, all of our competitors have exactly the same kind of environment that we're in, so I'm going to presumably -- presume they're seeing price or wage increases as well. It would have to be so for them to kind of maintain their crews and technicians. And I think we have not had obscene profits in the past, so these things balance out, that we're going to be earning, I think, the profit levels that are necessary and that have been -- I guess, we need revenue -- or pricing that reflects the cost structure that we all have, and it's just a matter of timing for that to get back in balance.

Matt Duncan - Stephens Inc., Research Division

Okay. I think, last quarter, you guys have said you expected a gross margin this year of 30.5% to 31.0%. What is the new expectation in the guidance that you've given us last night?

Philip J. Hawk

Well, I think you've got Quest roughly the same, it -- although Quest is only about 10% of the total, so it's about a 1-percentage-point reduction.

Matt Duncan - Stephens Inc., Research Division

A 1-percentage-point drop, okay. And then last thing for me and I'll hop back in the queue. The TMS sales growth was 0.7% this quarter. I think that's probably a little bit below what maybe you would have expected, maybe not. I know you had some big project work in Canada last year, so I'm hoping that you can help us bifurcate what's going on within your Mechanical Services segment. How's Canada performing versus the rest of the company since you got that tough comp up in Canada?

Philip J. Hawk

Yes. I think the -- actually, I was -- I'm pretty pleased with a lot of our business development activities in the Mechanical Services group. You're correct, we had huge activities in Canada last year, both first and second quarters, that are dramatically smaller, so that's a big drag on it, a headwind. We also had very big projects in the first quarter in the Southeast regions that are much lower in this current quarter. If you look at the rest of Mechanical Services and you also look at the -- including Europe, by the way, there's some attractive growth there, and we've got a lot of interesting things going on. So it's more of a kind of a mix issue there a little bit in the quarter. We continue to have a positive view about our opportunities there.

Operator

[Operator Instructions] Your next question comes from the line of Ernie (sic) [Arnie] Ursaner representing SCS (sic) [CJS] Securities.

Arnold Ursaner - CJS Securities, Inc.

It's Arnie Ursaner from CJS Securities. We've been involved with you guys for many, many years, and you almost never change your guidance, your annual guidance, at the end of Q1 unless you see a material change in your view of the outlook. What are you actually seeing that's caused this material a change in your view in such a short time?

Philip J. Hawk

Arnie, I think the candid assessment is, and it's an embarrassing one to admit, is that we've been on a -- we've been too optimistic and on the wrong for 3, we've changed the guidance 3 quarters in a row. And you are absolutely correct, that is not our practice and we hate it, probably as much as you hate it. And we've just decided that when we looked at the first quarter and saw continuation of margin pressures, that it was time to get ahead of it and to kind of step up and get more conservative in our assumptions. And we're not getting more conservative in our aspirations, by the way, in terms of our business, but get more conservative in our assumptions so that this is the last adjustment and the last time we talk about guidance on the downside for a while.

Arnold Ursaner - CJS Securities, Inc.

Ted --Phil, so normally you do it, though bottoms up at the end of Q4 entering the new year. And again, you do it line by line, manager by manager. Again, something caused more than a rounding error change. You've obviously gone back to your personnel. What are -- are you making a choice to add more personnel in anticipation of future growth? Are you trying to make sure you don't lose people because of wage issues? Again, something has changed.

Philip J. Hawk

Well, I think what we certainly did not see in the first quarter -- we've had intense focus on margins, certainly in the last 6 months, and we did not see improvement. So we are trying to move pricing in line with our technician forces. We are trying and focused heavily on our utilization levels. So this -- it's not that we are -- just discovered that this is an issue, but we have not yet moved the needle, and that's the realization of the results of the first quarter. Now it's very -- it's tempting to blame it on a softer region. By the way, it is a gross margin issue, and half our regions had gross margin increase, improved in the quarter. So it's not that we're not seeing some areas of progress. But back to my comments in my statement, I think the bottom line is the average has to improve, and the average did not. And we can -- we are clear on what the fundamentals are. But I guess what I don't want to do and what we chose not to do is rather than dribble this out and keep hoping that the margin improvement will click in, and we know it will, we are just not confident on the timing right now. And we think the better place to be for all investors is to be more conservative and not to have that improvement baked into a forecast. And so that was a call we made kind of at the top, if you will, because we're not giving up on margin improvement, and I'm confident they will happen. Obviously, given our poor performance -- forecasting performance the last few quarters, we're trying to get a little more conservative.

Arnold Ursaner - CJS Securities, Inc.

Can you clarify one thing, if you don't mind? When you have work coming up for turnaround in Q2 within Q4 and you are being approached to do the work, why wouldn't you be able to price it according to your new costs?

Philip J. Hawk

Because you're working off master service agreements with pricing already in place and you have to negotiate a change in rates. You can refuse to do the work, but that's not what we have chosen to do. You -- and we have positive relationships with our customers and we're working through this, but it's a negotiation.

Operator

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

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

And so my first question is, is the refinery maintenance side, in general, just still too fragmented, that industry, where you don't have that pricing power when rates go -- start going up to, at least at the initial phases of an up-cycle, get that pricing fairly fast?

Philip J. Hawk

I think so. I think the -- to me, what changes the pendulum a little bit is the -- I'm going to say a little bit of the specter of shortage versus a confidence of abundance, as when there's a perspective of shortage, that there's much more kind of, I'm going to say, willingness and readiness of customers to move fairly quickly in adjustments because they are aware of the circumstances and aware that their own access to those resources from Team or others could be limited if they're out of balance. And so that's what I think happens on the front side. It's not that we haven't had any price movement. But I would just say that, in many instances, we're not seeing much -- I guess, we'll see -- we're seeing customers reflect or some customers reflect an abundance perspective rather than a shortage perspective in their negotiations with us right now.

Ted W. Owen

Let me -- just following up on that, Tahira, for a second. Again, we're on the front end of this right now, and again, we believe that we are looking at an environment of a very, very tight labor, particularly in the Gulf Coast markets, because of all the infrastructure projects that are coming. They're not here yet though, and so our customers aren't necessarily seeing the same kind of the -- experiencing the wage price increases themselves that we are experiencing. Our history has been, as Phil indicated, when that happens, and when you think back to 2006, 2007 time frame, where we had a lot of infrastructure projects, very tight labor markets, that seems to be the period where the pendulum swings back to kind of the operations guys versus the procurement guys.

Philip J. Hawk

And just as a point of perspective, these are -- I mean, it's very serious, right? 1 point means a lot to us, but it's not the difference between kind of going out of business and staying in business. We're still healthy and profitable, we're just not as profitable here in the short run as that -- we're used to and expect.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Got it, okay. That is actually helpful. And then my second question is in regards to Quest. Can you folks provide a little more color on the projects, the type of projects you're seeing some staging delays in? And what really gives you confidence that those projects will come back in the second to third quarter? Is that your conversations with clients? Or is it really looking at what's causing the staging issues and getting visibility outside of your discussions with the clients?

Philip J. Hawk

Yes. I think we have -- our groups have very good relationship with their customers. They're working closely with them. There are -- a handful of very significant pipeline projects, I think, were some of the biggest ones that were deferred. We're -- what we need to do with some of these, again, unpiggable pipelines, is they need to be cleaned and kind of put into a condition to be inspected. And there's just been logistical issues and kind of operational issues with the customer, and they have not been a responsibility of Quest, historically, to provide that front-end service. So the difficulties and timeliness of getting that done is what has caused these projects to push. There is kind of no question that they're going to happen if that's what has caused the timing. One of the things that Quest is doing or we're doing kind of through Quest is extending our whole project management service capabilities so that, in more instances, we can provide all those services on a turnkey basis that kind of increase value to the customer and provide a better -- kind of higher-value service to them, where they don't have to coordinate the various components of this.

Operator

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

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

I appreciate you guys providing some of the EBIT information with respect to the new segments, but I'm curious. Because this is sort of new -- a new look at the business, can you give us a sense of where do you see average margins for -- or at least a targeted range for margins over the long term for each of the 3 segments? You talked about Quest integrity at 16%. I mean, is that where you'd see that business sort of being over the long term and the same with respect to the other 2 segments?

Philip J. Hawk

I think we've kind of thought our -- if we go back, last year, our fiscal year, our total composite EBIT was about 7.8%. If you go to the year before, and again, this includes all corporate costs, it was a little over 9%. I think we've kind of always felt that our total business could be -- can approach or exceed, ultimately exceed 10% EBIT margins, again, because of continued growth and operating leverage on that activity. Quest will be higher than that. I think, the 16%, will it get dramatically higher than that? I'm not sure because of the continued investment in new technologies and the like. If you take the remainder of Team, kind of our -- as a rough number, our corporate costs are kind of 4%, something in that order of magnitude. So to kind of reach that 10% target, we would aspire to, kind of operating at EBIT margins full year. Remember, there's some seasonality, so this is not first quarter margins, but the operating margins for the other business is approaching 14%. We're running a little less than that today so we're -- because we're not at the 10% number. But the -- I think we were kind of budgeting something in the 12% range with our original estimate that we've now kind of dialed back 1 point because of our kind of working through some of these short-term margin issues.

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

And then on the severance in the quarter, was that spread across -- I mean, widely across the organization? Or was there particular areas?

Philip J. Hawk

No, that was -- it was an executive management. We had a couple of changes just as a result of the organization and elimination of positions.

Operator

[Operator Instructions] Your next question comes from the line of Charles Redding representing BB&T Capital Markets.

Charles E. Redding - BB&T Capital Markets, Research Division

As a little bit of a follow-up, how do you view the overall market for refinery services, I guess, in a broad sense? I mean, can you see the declining crack spreads, I mean, materially impacting overall refinery spending for the industry? Or do you view sort of margin weakness more as a company-specific issue for Team?

Philip J. Hawk

I think the total demand for our services from refineries is just fine, honestly. I think the -- our markets are good. I realize that refining crack spreads go up and go down and would probably vary by region and crude slates that various refiners are using. But I think just the basic kind of fundamentals for refiners in North America have been and will continue to be very good. So I don't -- I think that's a positive for us in terms of stable demand. I don't think our margin issues that we're challenged with in terms of balancing our pricing a little bit better really is -- it's unrelated to crack spreads. I think that's kind of a different -- that may affect -- their long-term view of crack spreads might affect their capital programs. But again, I think the sense I have is that they're -- our customers are generally positive to optimistic long term about their businesses. That, by the way, would also extend to other segments besides refining. I think it would be the same for petrochemical. It's booming in pipeline right now because of -- again, the very active development of new energy sources is kind of reconfiguring our whole logistical network in North America.

Charles E. Redding - BB&T Capital Markets, Research Division

Very helpful. And then in terms of the wage inflation, are there other areas really that, aside from the Gulf, where you are really seeing a material change there?

Philip J. Hawk

I think that it's spotty, yes. There are -- I mean it's not solely a Gulf issue. It's just that, that's a kind of point of emphasis right now with the clear big projects coming more in Louisiana area than Texas, but really along the Gulf.

Operator

With no further questions at this time, Mr. Hawk, you may now proceed to closing remarks.

Philip J. Hawk

Thank you, Katina. And I want to thank everyone for your participation in this call and your continuing interest in Team. We look forward to updating you on our progress during our second quarter call that will take place in early January. In the meantime, everyone, have a good day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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