Team's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Team (TISI)

Q2 2012 Earnings Call

January 04, 2012 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

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

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, 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 and 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 the very strong second quarter results. Net income available to shareholders was $10.3 million, and earnings were $0.50 per diluted share. 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 and 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. 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, big repair and hot tapping services.

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