Welcome to the Team IR call. My name is Sandra, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Mr. Phil Hawk. Mr. Hawk, you may begin.

Thank you, Sandra, and good morning. It's my pleasure again to welcome you to the Team Web Conference Call. 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 third fiscal quarter ending February 28, 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 a review of the financial results. I will then follow Ted with a few remarks and observations about our performance and prospects. As Sandra indicated, following our remarks, we will take questions from our listeners. With that, Ted, let me turn it over to you.

Thank 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.…

Thanks, Ted. Now I would like to provide some additional perspectives on our business, recent performance and our outlook. Let's begin with a high-level look at the entire fiscal year. Overall, we remain on track with previously communicated expectations. We are maintaining our full year fiscal year 2011 adjusted earnings forecast of $1.10 to $1.25 per fully diluted share. This current estimate corresponds to earnings growth for the full year of 40% to 50%. We are pleased with the progress we are making. Now let's shift to a more detailed review of our third quarter results. As context and background, let me remind everyone that our business experiences seasonal fluctuations in both revenues and net income, and our third fiscal quarter, which runs from December 1 to February 28, is typically our weakest quarter. There are a number of reasons for this. From a revenue standpoint, the third quarter encompasses both the Christmas and New Year holidays, which are typically very low activity periods. It is also generally a period of lower turnaround activity. There is also one additional cost that Team incurs primarily in this quarter. Many payroll-related taxes are at their highest levels during the first few months of the calendar year. For example, the total amount of federal and state unemployment tax expenses in the most recent quarter were about $1.5 million or $0.04 per share higher than in Team's first fiscal quarter this year with roughly similar activity levels. Let's now shift to actual performance in the quarter. I was pleased with Team's metrics in a number of key areas. Team's overall job margins remained unchanged versus both the prior year quarter as well as the most recent trailing quarter, that is Team's second fiscal quarter ending in November 2010. Team's field labor utilization levels continue…

[Operator Instructions] Your first question is from Matt Duncan from Stephens.

The first question I've got is with regard to the project startup delays and adverse weather you referred to in the quarter. Is there any way to quantify the impact of those two items on your top line this quarter?

I'm going to resist trying to do that. We've kind of done a little bit of estimating internally, Matt. The problem is comparing to prior year, because weather happens every winter, right?

Sure.

To say that it's -- I can point to, kind of, branches and closures that we lost a week here or there. But to say that, that's comparable to prior year, it's difficult. So I'm going to resist that. And the same with project starts. These are projects that are happening, again, that we just were -- two different ones that are significant events for us, both got pushed about 30 days for issues completely unrelated to Team.

And those projects, Phil, are still ongoing presently?

Yes.

Okay. Now that we're obviously squarely in the middle of the spring turnaround season, can you talk a bit about the industry dynamics that you're seeing for this turnaround season? Are projects, by and large, going forward? Are they doing their typical starting at y and end up being 1.5x that size? Are you seeing sort of a normal healthy spring turnaround?

Yes is the answer. We're very busy, and we expect to stay that way for the quarter. I mean we're very positive about our activities. And as I said, we're kind of a month into it, and it was a very good month, activity-wise, very strong.

Okay. Quest is still relatively a new part of Team, but can you give us some commentary about how it's performing to date relative to your expectations?

We're delighted. I would just caution that it's early, but this was their first full quarter. It's a seasonally weak quarter for them as it is for us for the legacy businesses for the same reasons. And they had a solid quarter. As I said, $6.6 million revenue is good performance for them.

The next question is from Rich Wesolowski from Sidoti & Company. Richard Wesolowski - Sidoti & Company, LLC: Is there any change to the annual revenue outlook versus the range given in January?

I think we tightened it down a little bit. I believe it's $485 million to $500 million.

To $500 million, right. We reduced it by $10 million. Richard Wesolowski - Sidoti & Company, LLC: Okay. So taken in isolation, is the May quarter shaping up any better or worse than you had planned when you reset the guidance in January, or was all the change in the February quarter?

You mean in terms of revenue? Richard Wesolowski - Sidoti & Company, LLC: Right.

I think that the bigger impact was on the third quarter. Richard Wesolowski - Sidoti & Company, LLC: Okay. Can you comment on your potential for further operating leverage and, specifically, the room for revenue growth that would not require any additional indirect costs?

I think the guidance we've given is that we expected kind of operating leverage, organic leverage in the 30% range until we kind of get back to kind of running rate that we've run historically, which would be kind of a little over $500 million. And that's what we really are projecting here in the fourth quarter. Richard Wesolowski - Sidoti & Company, LLC: Okay. And then looking out a little further, is it reasonable to assume you would at least post, say, mid-teens incremental operating margin as you move past the $500 million?

Yes. Our goal is 20% operating leverage kind of long term, and I appreciate your point that we haven't always achieved that over the years. But I think it's going to be a little -- it's going to be favorable for that certainly for the rest of this year and perhaps as we get into the next year. Richard Wesolowski - Sidoti & Company, LLC: Great. And then lastly, just a quarter-end headcount?

Quarter-ended headcount is about 3,200 people, full-time employees.

And the next question is from Arnie Ursaner from CJS Securities.

I can appreciate you may not be able to quantify the weather, but I assume you could quantify the losing 30 days or slowing down 30 days on two projects where you probably had people lined up ready to work. And I assume it also relates to the Canadian revenue being down 18%. Can you expand a little bit on both of those, please?

Let's talk about each of those items. The easy one is the Canadian project. Frankly, last year, there was a very significant project, a heat treating project in Canada, kind of special circumstances that caused it that is not present today, and that's virtually the entire difference in Canada in terms of revenue variance. So it's really not related. It wasn't something that we planned to have this quarter. It just is kind of on a comp basis. We look at the turnarounds, the revenue isn't lost, it just didn't happen at the time frame that we had anticipated and so the bulk of it, or a significant bulk of it is not happening or did not happen in the third quarter. In terms of kind of direct labor or lost labor wages, there was very little of that. But what you have in our business is we have a fairly high -- when you count all of the kind of readiness costs of our company with all our locations and expenses, if you have low revenue overall, you have less absorption of that cost or you have less revenue over which to spread that entire infrastructure cost. So it squeezes margins. But it wasn't that we lost revenue. It's just the lack of that revenue in this quarter gave us less revenue over which to spread our costs.

I guess where I'm going with that is, have you thought about or quantified the margin impact you think it had?

Well, I think it kind of goes both ways is if the incremental revenue up is, as we're saying, 30% in this environment, the incremental revenue down is probably even a little bit more than that because of benefit costs on individuals. So I suspect it's a 30% to 40% impacted delta EBIT on revenues in the quarter. But we're going to get that back, though, in the next quarter. And that's a little bit of the message of why we're not changing our overall outlook is we don't really think the world is worse. We think it's lumpy and the amount that we realized in the quarter is less than certainly the analysts expected and a little less than we were anticipating. But our, kind of overall view continues to be pretty much unchanged and positive.

My second question relates to Quest Integrity. According to your filings and comments, it did $22 million in revenue in 2010. You mentioned it created or had $6.6 million of revenue in this quarter, which is seasonally weak.

Yes.

If I look at that, it's a 26.4% annual rate, and you haven't even gotten the benefits yet of cross selling, subcontracting to ownership and some of the other initiatives you have underway. Any additional comments you'd care to make about Quest?

Well, it's early, is what I would say. But as we told you when we bought the company, we're excited about it and so are the management team, all that came with this. And we have high expectations. I don't want to declare victory on a single quarter, but it's a good start. But I don't think any of us are satisfied just that we're done. It's just a start. It's an exciting future for that company and for Team.

[Operator Instructions] The next question is from Pat (sic) [Matt] Tucker from KeyBanc Capital Markets.

It looks like in terms of the organic revenue that the weakness really came on the TCM side and which also includes Quest, which you indicated you're happy with the performance. Can you talk a little bit about why was the TCM legacy business, that seemed to be impacted more? And then looking forward, do you see a different outlook for Quest versus the legacy TCM business?

Yes. Your basic facts are correct in terms of what we posted in the press release, is that the lack of growth appears to be resident in the TCM business, not in the TMS business. But I would just tell you that, that is a little misleading and not the way I look at it, and certainly not the prospects that we see. And here is why. If you look at the TCM business, it has a higher proportion of Canadian activity than the TMS business just by kind of some historical reasons. And that's the weaker of our businesses. So there's a lot of impact to that. We talked about the big project last year, which was a TCM project. So again, it negatively affects those results. TMS has had a very good year in total as you look at the results. But even within the quarter, I would just say that the total TMS number reflect a very strong activity in the Gulf Coast region, but they had some of the same weather and kind of project issues as other areas. So I don't see them -- even though the data is different, the underlying reasons for that really don't speak to the potential of those businesses. I think the businesses have the same -- they have a lot of structurally the same characteristics, nearly the same margins, same outlook. And so our expectations for all those are the businesses and service lines in both divisions really are comparable. So we are pleased and excited about both of them, although I understand the basis of your question from the data that we put out.

That clarification is very helpful. And can you talk a little bit about where you are in terms of integration of Quest and how far along you are in deploying Quest capabilities at your existing locations? And then if you could also comment on employee retention with the Quest business?

Okay. Well, first of all, in terms of integrating, we are not going -- it's not our plan to integrate Quest into the business. It's going to continue to operate as a stand-alone entity for a lot of reasons related to the technical nature of the business and the differences in that business versus our other businesses. We do expect to coordinate our, kind of, marketing presence and activities with one another across the markets, and we're just getting started on that. We've got a couple of exciting kind of anecdotes and kind of plans. And we've got a couple of committees looking at high potential areas involving both the Quest leadership as well as other TCM managers. So we continue to be quite positive about it, but I can't point to, kind of in the bag successes that are kind of really leverageable yet. But our optimism and enthusiasm about potential is as great as ever, so we remain very, very positive about that. In terms of personnel retention, to my knowledge, I'm certain about it at the senior levels, but to my knowledge, we have 100% retention within the Quest Integrity Group since we bought them.

Great. Could you just comment on the outlook for the Canadian business going forward?

It's actually good. And kind of, ironically, there is clear movement of activity in Western Canada related to the tar sands activity. That is starting -- actually, we're seeing some kind of remnants of it this spring, but we expect it to continue to ramp for the next year or so. A lot of exciting things happening.

[Operator Instructions] The next question is from Adam Thalhimer from BB&T Capital Markets. Adam Thalhimer - BB&T Capital Markets: Let's see, you touched on the oil sands. What specifically are you seeing out there? Because I think at one point you talked about half a dozen projects. What would be the update to those projects?

I don't have specific current status of every one of those. But certainly, directionally, our belief is that many of those are moving forward, and some sooner rather than later. You just have to look at kind of the oil prices and I think an outlook, kind of a more bullish outlook on oil prices. At these ranges, the economics of the bitumen, in my understanding, are really quite attractive. So I would expect we're going to see a lot of ramp-up. What happened in the boom, the last boom, in the 2007, '08 period is, again, we had high oil prices that made it, the economics, very attractive in anticipation of high oil prices. But there was such a rush to develop that the costs really got out of line for the developers just competing for resources. And so what I expect is a little more, I'm going to say cautiousness or deliberateness in terms of the development approach just to avoid the complete overheating of the market with regard to any of the input, kind of service companies and input components to this development activity. But it's going to be positive, I think, for several years to come. Adam Thalhimer - BB&T Capital Markets: How big of a deal is the proposed Keystone pipeline? Are some of these projects dependent upon a Keystone expansion?

I'm not sure I know, Adam. I mean, I don't think so, Adam. Certainly, the Keystone project would be a big deal. It is a major, major pipeline that's kind of, as you know, under review right now. But whether that bitumen is shipped to the United States in that pipeline or somewhere else, I don't think it will have a lot impact, would be my sense on activity in the oil sands. Adam Thalhimer - BB&T Capital Markets: Okay. Do you have a figure for organic growth for the entire business in March?

We track a lot of activity metrics. The thing that I hesitate to do is kind of segment and break our business down into such small components that I think it can be misleading or it just encourages unhelpful extrapolation of kind of small data points. So I think if you look at our total revenues that we're guiding to for the fourth quarter, it's $135 million to $150 million. If you kind of delta off the full year forecast versus $125 million last year, kind of in a comparable period. So that's going to be in the $12 million to $25 million range is what we are projecting our revenue growth to be for the quarter. Adam Thalhimer - BB&T Capital Markets: Okay. Where are we in the timeline of discretionary projects coming back, Phil? Do you think that happens this turnaround season, spring turnaround season?

I think we're seeing improvement all along. The economics of our customers are very good. And as they stay good, that makes those projects more interesting to them, right, because they're looking to de-bottleneck or on the margin, kind of increased production activity. So I think we have an environment that's going to be favorable. And as I said last fall, we saw kind of pretty normal turnaround activity, and we expect the same this spring. Adam Thalhimer - BB&T Capital Markets: It's funny because the crack spreads are obviously very favorable, but the utilization rates haven't really ticked up that much. Is there no historical correlation there?

I'm not an expert in refining, so I don't really know. I don't track utilization rates very much because I don't -- one thought was that utilization rates drive the demand for our services, and I have not been able to discern that. So I don't really focus too much on that myself. Adam Thalhimer - BB&T Capital Markets: And then last, just a couple housekeeping issues. What was the quarter-end share count, the diluted share count?

20,400,000 shares. Adam Thalhimer - BB&T Capital Markets: 20.4 million shares. And I think I heard you say that cash at quarter end was $22.6 million?

Correct.

[Operator Instructions] Arnie Ursaner from CJS Securities is back on line with a question.

In your mind, what are the factors that would get you to the high or low end of your guidance? And how much of the work in Q4 is in hand, in your opinion?

I think it's all about revenue. I mean, very simply, I think every other aspect of our business, we feel like is kind of operating very well. And what gets us to the high end of the range is how hot and long the turnaround season runs. If it runs all the way to the end of May, the end of the quarter, we go to the high end of the range. If it kind of wraps up earlier, we kind of on the other end.

Okay. And the weather and other issues you had in the quarter, when I think about utilization, do you even have the capacity of staff to make up the weather and other shortfalls you had in Q3? Do you have enough capacity to make it up in Q4?

We supplement our permanent staff with contract people, and we're up to 350 contract personnel are supplementing our full-time staff currently. So we are moving to the high end of our kind of utilization rates and near-term capacity and are, frankly, taking steps to start, which is a very positive thing, to start broadening our permanent staff again, as we see the kind of demand expanding.

And when you use these third-party people, does that impact your margins in a noticeable way?

No.

Okay. And then you really haven't touched much on it, but it's been a kind of a two-year issue on pricing. You were getting clobbered in the downturn. People were really pressing you very hard. You're now talking about a dramatically better environment and a pretty strong outlook where you need to hire people. Is your pricing beginning to reflect the change in the underlying demand?

Not yet. But what I think I did mention is that our job margin, which is really a reflection of pricing to a large extent, job margins were flat not only versus the trailing quarter, but also versus a year ago. This is kind of independent of kind of overhead utilization, so individual kind of direct job margins, which I think is a positive because it's not that there is no cost sensitivity. There is, and there's going to continue to be. But it's not leading to a degradation or deterioration of our, kind of, underlying, kind of, profit drivers of job margins. My belief is that if we get into an environment or a more inflationary environment where wages begin to creep up, that we'll be in a position to pass that along.

And when you look to the fall turnaround season, what is the pricing outlook for that business?

I don't have any. I guess my expectation from a pricing and margin standpoint is that it's going to be similar to what it is today. We're not expecting recovery in job margins or an improvement in job margins. And frankly, we don't plan for that. We plan that any improvement in net margins will be to leverage or productivity improvements.

Matt Tucker from KeyBanc Capital Markets is back online with a question.

Forgive me if I missed this, but could you just give us a sense for what type of projects were those two that were delayed? And would you consider those more discretionary-type projects?

No, they are big turnarounds.

Rich Wesolowski from Sidoti & Company is back online with a question. Richard Wesolowski - Sidoti & Company, LLC: The 350 contract staff, that number is not included in the 3,200, correct?

Correct. Richard Wesolowski - Sidoti & Company, LLC: Okay. Of the five organic initiatives that you ran through, InsertValves and heat exchanger maintenance, et cetera, do any of those individually have the potential to move the needle for the company wide sales over the next two to three years? Or is it perhaps only in aggregate that they can raise the top line?

I think the potential revenues associated with any of those individual items, excluding Quest here for a moment, is probably in the $50 million revenue range. It's not a prediction that we would get $50 million next year, but that's kind of the order of magnitude. So it's a nice addition, nice incremental addition is how I would say it. Richard Wesolowski - Sidoti & Company, LLC: Right. And then lastly, what is the best tax rate to use for 2012 and beyond?

38%.

Mr. Hawk, at this time, there are no further questions. I'll turn it back to you for closing remarks.

Thank you, Sandra. And I want to thank all of you for your participation in this call and your continuing interest in Team. We look forward to updating you on our progress with our year-end conference call in late July or early August. In the meantime, everyone, have a good day.

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