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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

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

Unknown Analyst

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

Matt Duncan - Stephens Inc., Research Division

Arnold Ursaner - CJS Securities, Inc.

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Richard Wesolowski - Sidoti & Company, LLC

Team (TISI) Q2 2012 Earnings Call January 4, 2012 9:00 AM ET

Operator

Welcome to the Team IR call. My name is John, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Phil Hawk, CEO. Mr. Hawk, you may begin.

Philip J. Hawk

Thank you, John, and good morning, and happy new year to everyone. It is my pleasure to welcome you to the Team, Inc. web conference call to discuss recent company performance. Again, my name is Phil Hawk, and I'm the Chairman and CEO of Team. Joining me again today is Mr. Ted Owen, the company's Executive Vice President and Chief Financial Officer.

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, 2011. 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 to 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 our performance and prospects. Following these remarks, we will take questions from our listeners. With that, Ted, let me turn it over to you.

Ted W. Owen

Thanks, Phil. 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 Litigation Reform Act of 1995. We've 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. I'm pleased to report very strong second quarter results. Net income available to shareholders was $10.3 million, and earnings were $0.50 per diluted share. The reported GAAP earnings for the second quarter include a non-routine charge in SG&A of $800,000 for settlement of a decades-old personal injury matter. Excluding that item, for the second quarter, adjusted net income was $10.8 million or $0.53 per share on revenues of $158 million, an increase of 19% over the same quarter last year. On an organic basis, excluding the effect of the Quest acquisition, revenue growth was 13% for the quarter. Adjusted operating income was up 24% over the second quarter of last year, and adjusted net income was up 28%.

Shifting to year-to-date results. I'm also pleased to report that total revenues for the first half of the fiscal year were nearly $300 million, up $61 million or 26% over the prior year. Adjusted EBIT or adjusted operating income for the year-to-date was $29.6 million, an increase of 40%. And adjusted operating profit as a percentage of revenue was 9.9%, up nearly a full percentage point over the same prior-year period.

Now with respect to some cash flow-related items. Capital expenditures for the quarter were $5 million, depreciation and amortization was about $4 million and noncash compensation expense was $1 million. We also spent $2.3 million in the quarter for the acquisition of a small business that expands our presence in the pipeline integrity management sector. And on December 30, just last week after the quarter end, we spent $17 million to acquire a west coast mechanical service business of a former TMS competitor. This acquisition substantially enhances our TMS presence on the West Coast and nicely fills a geographic void that existed in TMS in the Pacific and Northwest.

Moving on. Adjusted EBITDA was $24 million for the quarter and $74 million on a trailing 12-month basis. At November 30, our total debt was $74 million, cash was $19 million and thus, our net debt was $55 million. Our net debt to trailing 12 month EBITDA was less than one to one, even after considering the additional debt added in December of the West Coast acquisition.

So with that, Phil, I'll turn it back to you.

Philip J. Hawk

Thanks, Ted. Let me add a couple of additional comments to Ted's summary. Overall, I'm pleased with our financial performance for both our second quarter and our fiscal year-to-date. These results reflect our steady and sustained progress in the continued growth and development of our company.

As Ted indicated, overall revenue growth was about 19% and organic revenue growth was about 13% in the quarter. The revenue growth was broad-based from a geographic perspective. Overall U.S. growth was about 14%. However, the mix of business within the U.S. did change from the prior year. Turnaround-related service lines, heat treating, field machining and bolting were down slightly from the prior year due to fewer and smaller refining turnarounds being scheduled this quarter compared to stronger turnaround activities in the prior-year second quarter. These small declines in activity were offset by attractive growth in the onstream and project-related services, including inspection, leak repair and hot tapping services.

Team experienced much higher growth rates in its other geographic regions. Team's total Canadian business was up about 25% for the quarter due to strong double-digit growth rates in virtually all service lines. For the quarter, approximately 20% of Team's total revenues were in Canada.

Team's business in the rest of the world increased approximately 50% to about $17 million. About 1/2 of this revenue increase came from organic growth in Europe due to good turnaround levels and an expanding market share in our served markets there.

Quest's market presence in New Zealand and Australia substantially increased Team's revenues in Asian markets compared to the prior-year period. And Team's top line revenue growth in the quarter drove attractive bottom line profit growth.

Overall adjusted operating profit grew 24%. The adjusted operating profit margin, as a percentage of revenue, grew about 40 basis points to 11.3% in the quarter. Overall gross margin was about 32%, about one percentage point below the prior-year period. We believe this difference is primarily due to mixed FX and the corresponding natural lumpiness in margin data, particularly compared to the very strong margins reported in the prior-year period. The 32.9% gross margin in the prior-year quarter was the highest quarterly gross margin Team has reported in the past 3 years. This year's 31.9% gross margin exceeds all other Team quarterly gross margins in any other quarter in that same 3-year period. Consistent with this view, both job margins and overall labor utilization rates, the key driver of indirect expense levels, are remaining fairly steady with no negative trends.

Overall SG&A expenses increased about 12%, reflecting the addition of Quest as well as expanded resources in several field and corporate support areas. SG&A expenses as a percentage of revenue declined about 1.4 percentage points to 21.3% for the quarter. We are pleased with the improved SG&A cost ratio. However, continued focus on SG&A cost remains a priority for our managers.

Adjusted net income for the quarter was $10.8 million or $0.53 per fully diluted share, an increase of $0.10 per share compared to the prior-year period.

Overall, it was a very good quarter. My assessment of year-to-date performance is virtually the same. I am pleased with the level and breadth of our business growth and with the corresponding attractive profit growth.

We remain positive about our business prospects for the remainder of the year. We recognize that there are several general economic headwinds that could impact our customers and their plans, but we also see new and additional opportunities that may be available. Within the U.S., we expect spring turnaround activity to be very strong. We see continued growth in Canada, both in the oil sands region, as well as in other markets. Despite uncertainty in the Eurozone, we remain fairly positive about our European business prospects.

As Ted mentioned, we are also utilizing small acquisitions to expand our capabilities and presence in a couple of areas. During the second quarter, we completed a small acquisition to expand Team's pipeline project management skills and capabilities. While that business is small, we expect that these project management capabilities and current pipeline company relationships will help facilitate a larger service presence with this customer group, utilizing several other additional Team and Quest service lines as well. And in December, we expanded our TMS division presence in the Pacific Northwest with the acquisition of a successful small business in that region. This increases our capabilities in the Seattle, Portland and San Francisco areas.

Reflecting our results in the first half of the year and our continued positive outlook, we have increased our full year fiscal year 2012 revenue and earnings estimates. We now expect total revenues for the year to be between $585 million and $610 million. We now expect adjusted earnings to be between $1.55 and $1.70 per fully diluted share.

As a reminder, Team's third quarter, which spans December through February, has been our seasonally weakest quarter in the last few years. We will continue to review and update our earnings guidance on a quarterly basis or when conditions warrant.

To wrap up, we are pleased with our continued growth and progress this year. We are on track for another record-performance year in fiscal year 2012, and we believe we are very well-positioned for continued, attractive, broad-based growth for years to come. We have exciting development and growth opportunities in virtually every service line and geographic region where we operate.

That concludes my remarks. Let's now open it up for questions. John, can I turn it back to you?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Matt Duncan from Stephens Inc.

Matt Duncan - Stephens Inc., Research Division

The first question I've got for you is I wonder if we could get maybe a bit more detail on the 2 acquisitions you guys just made. Any help you can give us on sort of combined annual revenues and earnings accretion from these 2 deals?

Philip J. Hawk

Yes. The combined revenues of the companies are about $12 million annually, and it'll be accretive but just marginally so. I don't know if you have a number. Ted, a couple of cents?

Ted W. Owen

They'll be a couple of cents a year with the amortization of intangibles.

Matt Duncan - Stephens Inc., Research Division

Okay. So then the new guidance is probably including about $6 million in sales and maybe $0.01 in earnings from the 2 deals for the balance of FY '12?

Philip J. Hawk

That's a good estimate, yes.

Matt Duncan - Stephens Inc., Research Division

Okay. And then the last thing I've got and I'll hop back in queue is, Phil, you made a comment on the strength of the spring turnaround season. Can you add some color maybe to what your expectations are? I know the spring of '11 was a bit longer than normal on the back end, it carried through most of June. It sounds like maybe this turnaround season is actually starting a little early. Can you just talk about what you guys are seeing on the spring '12 turnaround period?

Philip J. Hawk

Yes. I think you're right on it, Matt, that I think that's the big difference from last year is it's starting earlier. We're seeing -- I think our first kind of significant turnaround activity starts about mid-January, in a week or 2, which would be several weeks earlier than normal. And just generally, there's a lot of big projects happening.

Matt Duncan - Stephens Inc., Research Division

So Phil, does that mute some of the normal softness you would see in a February quarter or is it just too early to tell?

Philip J. Hawk

I think it's too early to tell, but it will sure help. We're looking forward to it.

Operator

Our next question comes from Matt Tucker from KeyBanc Capital Markets.

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

First question is about the guidance. It's still $0.15 wide even though we're halfway through the year. So, I guess, is there any reason you didn't feel comfortable kind of narrowing that a little bit? And could you talk a little bit about the factors that could result in achieving the higher or lower end of guidance?

Ted W. Owen

I think it's basically driven by activity levels, Matt. We've been humbled many times before where we think we're smarter than we are about being able to precisely forecast timing of events and activity levels and the precise margin of an individual project. So I think our lesson learned from past is that we're not that good in our forecasting. So I think the wider range just reflects, frankly, kind of the inherent kind of lumpiness in our business. We try to give as much guidance and some underlying perspectives of kind of what's driving our results, but the notion that we can lock it in tight just -- we haven't been successful doing that historically, so we're kind of a little bit humbled by the challenge.

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

I think that's fair. And I guess you alluded to this a little bit, but kind of on average, U.S. refineries enjoyed very strong profitability levels in 2011, crack spreads have come down a little bit over the -- well, I guess, prematurely over the past few months. How do you think your customers are kind of viewing that as they think about their maintenance spending going forward? And is that a bit of a concern, if not maybe for the spring turnaround season, but longer term?

Philip J. Hawk

This is a personal view is I don't think the customers and their maintenance based on what their crack spreads are. I think that's a necessary evil of spending. What they might plan their maintenance spending on is whether or not they're going to keep plants open for the long term. And so if cracks go to an area or level or margins that they no longer see it as a viable business, that will affect their activities. I see no indication of that other than in the pockets in the northeast of the U.S. with some -- the simple or low complexity refineries up there where we've had some announcements in the Philadelphia and New Jersey area. Other than that, I see no indications that there is kind of lack of interest in or support for long-term refining business. Given that, I think refining maintenance expenditures are going to be basically consistent with needs or what mother nature and just the natural operating requirements demand. So I see them. I don't see them growing, I just see them to be a steady in kind of in near-historical levels.

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

Great. And just one more, and I'll hop back in the queue. It looks like Quest really had easily the strongest quarter in terms of revenue contribution since you acquired that business. Can you talk a little bit about what drove that strength in the quarter and then maybe kind of what you expect in terms of a run rate from Quest going forward?

Philip J. Hawk

Well, Quest's 12-month trailing '12 run rate or revenue rate is $32 million through the second quarter, so that, if you recall, well, I think it was roughly $22 million when we bought it. So that's a nice bump already. They're getting growth really across their service areas. I think the bigger growth is in their in-line inspection tool percentage-wise and then both percentage and absolute dollars. But we continue to expect growth across their portfolio of services.

Operator

Our next question comes from Arnie Ursaner from CJS Securities.

Arnold Ursaner - CJS Securities, Inc.

Just talking about your business a little bit more, can you give us a heads-up on what you're seeing on pricing trends, employment trends, your ability to find people in a more robust environment and how we should think about both of those going forward?

Philip J. Hawk

Pricing, I think, is stable. We are -- you're correct, our space is getting a little more active, not only for us, but for others. I mean, it's not that there has been a rebound from the recession, if you will, of a couple of years back, so there's little more competition for labor, which is creating a little bit of wage cost increase for us. And we're having discussions to pass that through. But I think I would just say that what we're kind of view as an environment is that we're expecting to kind of maintain margins, not increase margins. So we still have price sensitivity on the part of customers and expect that to continue. In terms of kind of ability to recruit and add resources, I think it's slightly more difficult than it was a year or 2 ago, but we've been here before and we don't anticipate difficulties in kind of meeting our needs.

Arnold Ursaner - CJS Securities, Inc.

Okay. But you, in the past, had very aggressive plans to expand people, recruiting in the military and other places. In the current environment, is it stable enough that you don't have to use what I'm going to call "less efficient resources" to grow your business?

Philip J. Hawk

I'm not quite sure how to respond to that. I think we are always looking for great people. I think we're -- so we have a kind of an aggressive attitude and mindset towards kind of attracting good resources. And I'll just point out, I think we added 400 -- hold on, I've got a number here. Our total personnel right now, full-time personnel, is about 3,600 worldwide. That compares with about 3,200 last year. So we've added a little over 400 people in the last 12 months. I wouldn't say that we're going to all, every job fair, kind of looking at kind of all the unusual places, but we have a pretty aggressive, I'd say, traditional search process and recruiting process going, both for full-time but also for project-related resources.

Arnold Ursaner - CJS Securities, Inc.

Okay. Just think about the second half of the year, usually, your second half in total is stronger than your first half. You indicated you're seeing an earlier start to the turnaround season, you've made 2 acquisitions. And just if I look at the math of the first half revenue, you're not implying very much growth in the second half versus the first. Again, is that just the typical "let's try to be conservative" or is this mix shift that impacted Q2 affecting your view of the back half of the year?

Philip J. Hawk

No, I think you are correct. Your analysis is correct that it's kind of roughly 1/2 and 1/2 or maybe slightly, if you look at several years, slightly higher than the second half. I would point out we had an extraordinarily strong first quarter because of the overhang of the turnaround season last spring into our first quarter. So I think because of that, we have little bit of conservatism that we wouldn't just normally project the same -- because it's so strong when that first quarter that we wouldn't normally, we wouldn't have the same projections or ratios that perhaps we'd have in other years. But we're positive about the year. There's no -- I mean, I'm not trying to downplay our expectations, which are -- that it will be good.

Operator

Our next question comes from Rich Wesolowski from Sidoti & Company.

Richard Wesolowski - Sidoti & Company, LLC

If I'm not mistaken, this is the first quarter in sometime when your U.S. growth was driven by onstream activity and project work rather than from turnarounds. Do you infer anything from that change with regard to the sustainability of today's activity rates over the next few years?

Philip J. Hawk

No, I might clarify it slightly, because I think we've had growth in onstream services virtually every quarter. I think the difference this time is we did not have growth in the turnaround services so that we -- in the U.S. and we did, actually in aggregate, because of other markets. So it's not that the U.S., the onstream hadn't grown before, it's that, that it's been the -- it was the driver of the growth in this particular quarter. And now to your question, does that portend trends? No, not at all. I think we, again, believe we have share growth opportunities in both onstream and turnaround services. What we had, and I think this was confirmed by us in talking with just some of the general turnaround contractors that aren't competitors of ours but kind of just do turnaround activity in the U.S., that they also saw this second quarter, the fall turnaround season, was weaker for them and for their business than it was in the prior year. So, to me, it's just the timing and lumpiness of kind of turnaround schedules in the U.S. It was particularly Gulf Coast, mid-continent for us, that's where the big differences were.

Richard Wesolowski - Sidoti & Company, LLC

And separately, would you contrast your business in Western Canada today with what was going on in 2007, 2008 when it was roughly the same size? Is there anything that would give you confidence that the results would be steadier if we saw a drop in oil prices?

Philip J. Hawk

I think we have bigger maintenance programs today than we did then. We were very heavy on new construction in the new upgraders. And now we have a better mix of both new construction projects and ongoing maintenance.

Richard Wesolowski - Sidoti & Company, LLC

I'm sure the new construction up there is higher than the typical company-wide 10% or thereabouts. Is that correct?

Philip J. Hawk

Correct. Absolutely.

Richard Wesolowski - Sidoti & Company, LLC

Okay. And lastly, the numbers that I see show even less refinery expansion in Europe than we have now in the U.S. and, of course, their economies aren't strong. What gives you any optimism regarding your European business?

Philip J. Hawk

What we're seeing on the ground. When you look at our activity levels, and I think Europe kind of quarter-to-quarter was up 40%, something like 40% overall.

Richard Wesolowski - Sidoti & Company, LLC

You think that's customer spending more money or Team expanding?

Philip J. Hawk

I think it could be a little bit of just the turnaround activities aren't affected by the general economy. So that it's the fact that the Eurozone is going down or general consumer spending is going down or whatever those headlines mean isn't directly affecting our type of customer. But yes, we do. We're proud of our business over there, and we do think we're increasing our presence and penetration in the markets that we're serving.

Operator

Our next question comes from Martin Malloy from Johnson Rice.

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Could you talk a little bit about your pipeline integrity business and if you're seeing some growth potential there that's being driven by regulatory changes?

Philip J. Hawk

Well we're, if you take -- we'll come back to the question. If you take Team, our origins are really in plants, but we have services that are very applicable to pipelines. It's not that we have done no pipeline work, but we have not been a major player in the pipeline maintenance service. The Quest acquisition, I -- obviously gave us more with the in-line pipeline inspection tools, gave us more kind of access and kind of breadth of capabilities in that area. But what we're seeing and saw was that what our customers or pipeline customers are looking for is more integrated and believe more integrated kind of maintenance capabilities. And that's what this acquisition was about, was to basically acquire a small company that provided project management capabilities for pipeline customers. And we think that kind of gives us the introduction to these customers at an appropriate level where we can now kind of bundle and bring our services plus other related services that the pipeline companies need to bear in a far more integrated package. So we're quite kind of pleased and excited about our capabilities, expanded capabilities in this sector. There's no question that the pipelines in the North America, really, around the world, but certainly in North America, is an aging infrastructure asset. And there have been several high-profile failures that bring to light the importance of mechanical integrity management of these assets. And we think we're very well-positioned to assist pipeline customers in that management of those assets. That's both inspection or identifying kind of service maintenance requirements but also then providing some of that maintenance requirement, those requirements once they're identified. So we think we -- with the project management capabilities, with our inspection capabilities and then with our subsequent, both prove-up capabilities on the inspection side but then maintenance capabilities, hot tapping, in particular, would be one that would be very relevant to the pipeline industry. We're excited about our growth potential.

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Is this an area where we could see you possibly make some more acquisitions in the coming year or 2?

Philip J. Hawk

I think the philosophy we have toward acquisitions is that we are looking to buy things that expand our capabilities or allow us to grow faster than we could otherwise grow organically. So yes, I think as we identify or if there are other special needs or kind of areas of presence that could accelerate our growth, that would be something that we'd be receptive to. I don't have a belief that we have to acquire other companies in order to be successful. But if we could accelerate the growth, much like the acquisitions that we made over the last several months here, to us, they all fit that same test that they give us expanded capabilities in a relevant area that accelerates our growth and presence.

Operator

[Operator Instructions] And our next question comes from Adam Thalhimer from BB&T Capital Markets.

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

For the larger acquisition, the $17 million acquisition, what EBITDA multiple did you pay?

Ted W. Owen

It was a multiple paid at about 6x EBITDA.

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

Okay. And then I keep reading about the low natural gas prices that you're seeing, more chemical and fertilizer plant construction in the U.S. Remind us what percentage of your business is petrochem and is that growing for you guys?

Philip J. Hawk

It's about 15%. And honestly, we don't track business by customer segment really carefully. So I read like you do. I'm very positive about the expansion that's, I think, in my view, driven by the lower feed stock costs that look like they're here today and on the horizon for the long term with really the shale gas and shale liquids. And we see those projects coming as well. But in terms of kind of tracking, is that a direct increase in our volumes for there, I don't have much insight on that.

Unknown Analyst

Okay. And then just lastly, you and others in the space that I talked to certainly indicate the next 6 months there is a very good outlook. Can you help us understand maybe looking out 12 months, what would be the reason to remain excited about your primary market refinery spending?

Philip J. Hawk

I think the thing that I would say that it's not excited about we're going to have expansion or growth, it's steady. When we look at our growth, we're taking advantage of kind natural consolidation taking place in our industry. So our long-term revenue growth is a function of both the expansion of our service capabilities and market share growth, it's not really market growth. And so, I think, the premise here of your question was that there's market growth that we should get excited about and I don't think that's really driving our business. It is true, I think we expect kind of just the lumpiness and timing. While it was a little bit weaker in the second quarter or our second quarter in the fall than it was the prior fall, I think the turnaround activities are going to be a little stronger in the spring than it was in the fall. But that's just a little bit of lumpiness of timing. I don't think it really reflects a notion that the market is fundamentally changed or the demand levels are fundamentally higher.

Operator

Our next question comes from Matt Tucker from KeyBanc Capital Markets.

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

Just a couple of follow-up questions. During the downturn, I remember you commented that it was difficult to tell whether you guys were gaining market share, now you sound pretty confident that you have been. Can you give us a little detail in terms of where you're gaining market share, from whom, in certain service lines? And is that just being driven by the consolidation overall trend that you mentioned in your industry? Or was there any kind of new trend or strategy that you think is driving that?

Philip J. Hawk

Well, I think, our just aggregate growth rates speak to, we believe, are higher than demand growth rates. So that's kind of why I kind of have confidence that we're gaining share somewhere. Here's, again, the difficulty for us, Matt. I think last year, we did an order magnitude of 130,000 individual jobs. Who did we compete with in every one of those? I really don't know. It's just so difficult to say, "Well, this customer -- on one of those, I can say we got that piece of business from competitor X, Y, Z, but we don't know where they're getting all their business. So to have a view that we're taking it from this particular company, we really don't have much insight on that. I do think just structurally, larger companies, multi-service, multi-location companies are advantaged, and they're going to be doing better, like Team, they're going to be doing better than the smaller companies.

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

Okay. And then just to touch on the spring turnaround season again. Last year, it was strong, it had a nice tail to it. This year, you're starting of early and also think it's strong. Do you think that the turnaround season this spring overall is going to be stronger than last year?

Philip J. Hawk

I don't know. I mean we're getting positive. Our field managers are positive about their opportunities, and I agree with you, last year was also strong, so I don't have a -- I just think it depends on so many different factors, and we'll kind of know when we look back at it. But as you say, we're guiding to a strong quarter, a strong second half of the year and it reflects our optimism.

Operator

Our next question comes from Rich Wesolowski from Sidoti & Company.

Richard Wesolowski - Sidoti & Company, LLC

Would you remind us if the seasonality of Quest's business mirrors your own?

Philip J. Hawk

Yes, by and large, it does.

Richard Wesolowski - Sidoti & Company, LLC

So same way the November and May quarter should be bigger?

Philip J. Hawk

Yes.

Richard Wesolowski - Sidoti & Company, LLC

Okay. And then lastly, you mentioned the in-line inspection area is outgrowing the engineering assessment, but is the engineering assessment growing at a reasonable clip as well?

Philip J. Hawk

Yes.

Richard Wesolowski - Sidoti & Company, LLC

Okay. As you look out at your vision of Quest 3 or 5 years from now, I know you think it's going to be a lot bigger company than it is today, but does in-line become consistently a much bigger portion of what they're doing?

Philip J. Hawk

Probably, because it's just such a huge opportunity for them in that area and it's so leveraging as, again, they're expanding their capabilities in terms of sizes, and it's just there are so many exciting applications and just the revenue growth from that expanded capability I just think is greater than kind of building an engineering assessment capability.

Operator

We have no further questions at this time.

Philip J. Hawk

Great. Thank you, John. Let me just wrap up then. 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 with our third quarter call sometime in early April. In the meantime, everyone, have a good day.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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