Team (TISI)

Q1 2012 Earnings Call

October 04, 2011 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

Craig Bell - SMH Capital

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

Matt Duncan - Stephens Inc., Research Division

Arnold Ursaner - CJS Securities, Inc.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Richard Wesolowski - Sidoti & Company, LLC

Presentation

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. Mr. Hawk, you may begin.

Philip J. Hawk

Thank you, John, and good morning, 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. I'm the Chairman and CEO of Team. Joining me again this morning 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 first fiscal quarter ending August 31, 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, 8-K, 10-Q and 10-K filings to the SEC, as well as our annual report. Ted will begin with the review of the financial results. I will then follow Ted with a few remarks and observations about our performance. Following our remarks, we'll 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.

And with that, now for the financial results, I'm pleased to report the best first quarter in the -- of operating results in Team's history. For the first quarter, net income was $6.8 million or $0.33 per share on revenues of $141 million. That's an increase of 35% over the same quarter last year. On an organic basis, which excludes the effect of the Quest acquisition, revenue growth was 28% for the quarter. Operating income was up 75% over the first quarter of last year and net income was up about 80%. We are obviously off to a good start for the year.

Now with respect to some cash flow related items. Capital expenditures for the quarter were $5.3 million. Depreciation and amortization was about $4.1 million and noncash compensation expense was about $1 million. EBITDA for the quarter was $17 million and was $69 million on a trailing 12-month basis. At August 31, our total debt was $73 million, our cash was $21 million, and so therefore, net debt was $51 million. So our net debt to trailing 12-month EBITDA at August 31 was less than 1 to 1.

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

Philip J. Hawk

Thanks, Ted. Let me now add a couple of additional comments to Ted's summary. We are off to a very good start in this fiscal year. The primary driver of this good start is terrific broad-based revenue growth. Let me share several additional details on this revenue performance. As Ted indicated, overall growth in the quarter was 35%. Team's business in all major markets contributed to this growth. Total U.S. business grew about 18%. Our Canadian business increased almost 80%, which reflected increased oil sands activity, as well as a major repair project. And our business in the rest of the world, principally Europe, the Caribbean and New Zealand, Australia, nearly doubled, reflecting the timing of significant new projects and the addition of Quest business in those regions. Our business in non-North American regions represented about 15% of total Team revenues in the quarter. All of Team's service lines grew during the quarter. The onstream services increased about 10%. The inspection and assessment services increased about 25% and turnaround services increased more than 75%, reflecting expanded project activity in all major markets. This revenue growth drove very attractive profit growth. As mentioned previously, Team's net income for the quarter increased nearly 80% and operating income or EBIT increased approximately 75%. Operating profit margin as a percentage of revenue was 8.3%, an improvement of nearly 2 percentage points from the prior year. The margin improvement reflects improvements in both the gross margin and SG&A expense to revenue ratios. The improvement in the gross margin ratio reflects stable job margins and favorable volume leverage. Regarding SG&A, despite a significant overall increase in SG&A expenses, SG&A expenses as a percentage of revenue actually declined approximately 1.5 percentage points. The growth in SG&A expense reflects the addition of Quest, as well as increased compensation expenses related to targeted staff increases, salary adjustments and increased incentive compensation accruals.

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