Team (TISI) Q3 2011 Earnings Call April 05, 2011 9:00 am ET Executives Philip Hawk - Executive Chairman, Chief Executive Officer and Chairman of Executive Committee Ted Owen - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer Analysts Matt Tucker - KeyBanc Capital Markets Inc. Adam Thalhimer - BB&T Capital Markets Matt Duncan - Stephens Inc. Arnold Ursaner - CJS Securities, Inc. Richard Wesolowski - Sidoti & Company, LLC Presentation Operator
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Ted OwenThank you, Phil. As usual, first, 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 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. 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. With that, the financial results that both Phil and I will discuss today exclude the impact of a $2.2 million nonrecurring tax benefit that we recognized in the quarter, which increased GAAP earnings by $0.11 per share. Excluding that benefit, third quarter adjusted net income was $1.7 million or $0.08 per diluted share. Now let me describe the cumulative adjustment to our tax accounts. As disclosed in our press release, during the quarter, we identified and corrected accounting errors related to tax provisions for fiscal years 2007 through 2010 and for the first two quarters of this fiscal year. During those periods, reported earnings were understated by immaterial amounts because effective tax rates were overstated as a result of previously undetected errors in our tax provision calculations pertaining to the tax effect of share-based compensation. No restatement of previously issued financial statements was required because the effect on those financial statements was not material.
How did this happen? Because our processes regarding the determination of significant inputs into the tax provision process was not rigorous enough, which allowed faulty assumptions to be made and repeated over time. We are now strengthening our monitoring controls in this area to address the deficiency in our processes. The cumulative effect of the errors in the tax provision calculation was a tax benefit consisting of $1.8 million associated with the prior years and $400,000 associated with the first two quarters of the current fiscal year. Excluding the effect of the $1.8 million portion of the cumulative adjustments that relate to prior years, the company's effective tax rate for fiscal 2011 is expected to be 38% versus the 40% tax rate that we previously reported.Now with that, the rest of our discussion, as I said, will focus on adjusted earnings that exclude the effect of the tax benefit provided in the quarter. Revenues for the second quarter were $108.8 million, which include $6.6 million of revenues contributed by our recent acquisition, Quest Integrity Group. Adjusted net income available to common shareholders was $1.7 million in the current quarter versus $1.2 million in last year's third quarter. As we pointed out in our press release, some other financial highlights for the quarter were: adjusted EBIT increased 24% and 37% for the third quarter and year-to-date, respectively; adjusted earnings per share increased 33% and 47% for the third quarter and year-to-date, respectively; net debt, that is total debt less cash at the end of the quarter, was $46.7 million, a reduction of $16.7 million during the quarter. Now just for a few more cash flow related items. Capital expenditures for the quarter were $3 million, depreciation and amortization was $4.3 million and noncash compensation was $1.2 million. Adjusted EBITDA for the quarter, excluding nonrecurring items, was $8.6 million, and adjusted EBITDA for the trailing 12 months was $53 million. At February 28, our total debt was $69.3 million, cash was $22.6 million, and as I mentioned, our net debt was therefore $46.7 million. Read the rest of this transcript for free on seekingalpha.com