Good day, ladies and gentlemen, and welcome to the Q3 fiscal year 2015 Team Incorporated Earnings Conference Call. My name is Mark and I’ll be your coordinator for today. At this time all participants are in listen-only mode. Later we will facilitate a question-and-answer session. [Operator Instructions]. As a reminder this conference is being recorded for replay purposes. I would now like to turn the conference over to Ted Owen, CEO of Team. Please proceed.

Thank you, Mark, and good morning everyone. It’s my pleasure to welcome you to the Team, Inc. web conference call to discuss recent company performance. My name is Ted Owen and I’m the President and CEO of Team, and joining me today are Greg Boane, our Senior 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 quarter of fiscal year 2015, the quarter ending February 28. As with our past calls, our primary objective is to provide investors and analysts with an enhanced understanding of our company’s performance and prospects. This discussion is intended to supplement our quarterly earnings releases and our SEC filings. In a moment, Greg will begin with a review of the financial results and then I will follow that with a few remarks and observations about our performance and outlook. But before I turn it over to Greg, I want to make some broad comments about the quarter that we will both elaborate on more fully in our commentaries. Operationally, this was a solid quarter for Team, with adjusted earnings of $0.11 per share and an operating leverage of over 30% on revenue growth of 7%. Our revenues were negatively impacted by foreign currency exchange rate devaluations, which reduced our growth rates by about 2 percentage points in the quarter. We also faced headwinds associated with refinery strikes and pressures from customers impacted by falling commodity prices, but we met those challenges head on. In fact, in the U.S, our revenues were up 12% over the same quarter a year ago. Our gross margin performance -- gross margin improvement in the quarter of 1.5 percentage points reflects our continuing strength in execution over the last year. We remain on our way to a great year for Team, an expectation that we will achieve our budget target of $2 per share on an adjusted basis for fiscal 2015, which would be a record year and a year-over-year increase of 35%. But in the quarter, we also incurred several non-routine items, whose impact reduced our GAAP earnings to $0.01 a share. The most significant of those items are the decision to effectively write off our remaining investment in Venezuela, which impacted our GAAP earnings by $0.04 a share, our prosecution of a patent infringement lawsuit involving Quest patented data presentation software, which was about $0.03 per share, and foreign currency losses of about $0.02 per share which resulted from the rapid devaluation of foreign currencies against the U.S dollar. We’ll talk about all those items further in our comments. So Greg, with that, let me turn it to you.

Thanks Ted. Good morning. I’ll open with our Safe Harbor guidance. Any forward-looking information discussed today is provided in accordance with 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. 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. The discussions today will also include certain non-GAAP financial measures. We have excluded certain non-routine items when arriving at adjusted net income, adjusted EBIT, and adjusted EBITDA. Reconciliations of these adjusted financial measures are provided in our third quarter 2015 earnings release. I’ll now focus on the results for the current quarter. Revenues increased 7% to $175 million for the current quarter compared to $163 million for the prior year quarter. We reported adjusted earnings of $2.4 million or $0.11 per diluted share compared to $0.2 million or $0.01 per diluted share for the prior year quarter. Gross margin was $47 million and improved by approximately 1.5 percentage points in the current quarter to 27%. Adjusted earnings before interest and taxes or adjusted EBIT, increased to $4.4 million for the current quarter compared to $1 million in last year’s quarter. Our focus on service execution, quality, and cost control initiatives has contributed to the earnings improvement in fiscal year 2015. Adjusted…

Thanks Greg. Now let’s look in more depth at each of our business groups and the performance in the third quarter and then our overall outlook for the fourth quarter. As you all know, we’re organized into three businesses, the inspection and heat treating or IHT, which accounts for a little more than half of our revenues; mechanical services which is about 35% of our revenues and Quest Integrity group which is about 10% of our revenues. First let’s talk about IHT. IHT continued its impressive momentum by growing revenues in the third quarter by $10.2 million, a 12% increase over the prior year third quarter. And with that growth came excellent execution. Adjusted EBIT margins for IHT doubled in the quarter to 8% from 4% in last year’s third quarter. We continue to build on our capabilities in IHT in exciting ways. An example is the successful launch of our new wireless heat treat mobile smart rig. An additional 60 smart heat consoles have been built to support our fourth quarter turnaround season. And our advanced inspection services group, through collaborative efforts with Quest Integrity, secured our first high energy piping inspection projects that will demonstrate our new proprietary inspection capabilities using advanced phased array techniques. Finally, we continue to make great strides in increasing our inspection technician workforce through apprenticeship and employee development programs. And we opened our new Midwest training center in Woodville, Illinois during the quarter. Now, Mechanical Services. While revenues from our Mechanical Services group increased by only 2% in the quarter, operating profit improved 27% as compared to the prior year quarter. The improved operating margin is directly attributed to enhanced execution processes, procedural, quality focus and crew mix which improved gross margin for Mechanical Services by a point. Our process enhancements made over…

[Operator Instructions]. Your first question comes from Tahira Afzal from KeyBanc

Thank you very much, and Ted, good quarter given all the moving parts. I would love to get a sense from you qualitatively. We've seen the refinery strike. We've seen some skittishness from maybe some of your downstream customers given where oil prices are going. At the same time, I assume it’s having a positive impact on gasoline demand. So, from a longer-term perspective, I assume you still have an upbeat outlook on refinery maintenance in the US.

Absolutely, we do. Our end markets are strong. Our markets are not dependent upon commodity prices. Demand for our services as you know is a function of operating facilities, and we just think that we’re in a great space, that the midterm, long term outlook is just as strong as it’s ever been. So we’re very bullish about our space.

Got it. Ted, so would it be -- when you look at the past cycles and you’ve seen a few, do see some of this work that is being impacted from the refinery strikes, customer skittishness, does it get pushed out into the fall turnaround season or do you think it sort of trickles in over the next few seasons?

We’ve seen -- relative to refinery strikes for instance, we have seen some turnaround projects that have moved out of the current quarter, out of the fourth quarter into the fall. We’ve also seen some project deferrals out of the current year into fiscal 2016, that’s affected all of our business units, both IHT and Mechanical Services and in particular the process side of the Quest business. Projects get moved a lot and that happens all the time and that’s happened in every cycle, but in truth they don’t get moved very much. An important point I’d just make is, the utilization rates in refining are at a five-year high right now. So to your point, I think lower input cost, higher demand for gasoline. Refining is doing just fine.

Got it. Thank you very much.

Your next question comes from Edward Marshall from Sidoti & Company. Please proceed.

Hey Ted, hey Greg. How are you guys? So, listen, I wanted to ask you a question. You said in your prepared remarks that you made some great strides with the employment basis in IHT and MS. I just wanted to get your sense as to I guess in the start of the year we were concerned that labor might see some rapid inflation and that could hit your cost structure. It seems as though that’s muting and I'm just curious as to what the labor situation might look from you from the price of labor and wages. And then also on the opposite side, how might the price concessions that you are seeing from customers as maybe your labor is moderating a little bit.

I don’t know that I would say -- the way I would characterize it is we’re certainly not seeing the wage cost inflation that perhaps a year ago we thought we would be seeing because obviously we’ve got 150,000 -- not 150,000. That would be an overstatement, but we got a lot of upstream oilfield service company layoffs that’s becoming available to all industries. It probably helps us more on the mechanical side in terms of having a greater pool of resources than it does on the inspection side because inspection is certified inspectors that we’re looking for and we’re not getting a lot. So the layoffs upstream don’t really impact the imbalance there. So that’s still a pretty tight market for us, but certainly because of layoffs upstream, I think just the pressure is on wage inflation are mitigated. And so we’re not seeing the overall wage increases that we thought we might have seen so far. I think that’s just generally true. Relative to US, the second question about the impact of pricing pressures, I think we, like everyone else in the face of this softening commodity prices, the closer our customers are to those kinds of pressures and concerns, probably more pressure that we’re getting, and we’ve received a lot of requests from customers to help them with the cost pressures that they’re facing right now, and we’re dealing with those as they come. At this moment in time, again I think that we’ve kind fo navigated those waters reasonably well, but it’s a daily occurrence, and we have a very senior guy in our company who’s probably spending 100% of his time right now on those kinds of issues.

Are you saying that there is price -- are you conceding price or not quite yet?

We’re trying -- we don’t concede anything. We think our rates are very fair, but we certainly understand concerns that our customers have when they have legitimate concerns, generally when they’re -- the closer they are to upstream production, the more concerns that they have if you will and we’re just working through each of those. So without -- I’d prefer not to talk about individual issues that we have because they’re all different by the way. The requests are different in each case, but we’re responding to them. But I don’t think at this point in time it has had a great impact on our margins if you will.

Yes, it doesn't look like it on the reported quarter anyway. So as I look kind of on some of the union concerns that have been out there and I think one of their concerns has been that non-union contractors are taking union jobs. And I just wanted to get your sense as to how that lines up because it sounds pretty much aligned with what you do in going into a shop and maybe competing for union jobs. I wanted to see if you saw any impact from any customers or discussions with maybe how to operate around that?

Not really. I think those concerns that you read about from the union standpoint are really not directed at the kind of services that Team offers. Our services as you know are very, very specialty services. They have always been outsourced. We don’t take work from union personnel. What we do has always been non-union and it’s very, very specialized skill labor services that have never been unionized in the U.S. We’re talking about the U.S right now.

Yes. Finally, currency. You mentioned it was a 2% headwind on the top line, 2% I guess on EPS you said by both metrics. First, is that accurate? And secondly, as you walked into the beginning of the year, you are not moving your guidance at all, but currency obviously has had some impact in 3Q. It will most likely have a bigger impact in Q4 and you are keeping the guidance. My question is, is the business stronger than you anticipated at the start of the year? It sounds like it might be, considering that you have some headwinds around currency and you are maintaining that guidance. I’m just curious to get your thoughts.

I don’t know if I’d say it’s stronger. I think we’ve always said that we have a very, very strong business. We have a very -- the breadth and scope of our service network and the service offerings that we have just serve us well in negotiating headwinds of whatever sort they might be. So yeah, the underpinnings of our business are quite strong across all of our business units right now. And so yeah, we have currency issues that we face. We have the impact of strikes and the impact of pressures from the customers. But I think we just continue to work with our customers on those things and we just have so many exciting things happening within our company from the standpoint of new innovations, new opportunities. And so yeah, I think the underpinnings of our business are just quite strong.

Great to hear. Thanks, guys.

Your next question comes from the line of Craig Bibb from CJS Securities. Please proceed.

At Quest, it sounded like at the end of the second quarter you had some of your heater business pushed into the third quarter. Is that getting pushed now into 2016? Is that how we should look at it?

Yeah. We are seeing some heater business that is being pushed into 2016 for sure. A combination of a variety of factors drive that. Certainly the infringement on our patents is a factor in that for sure. But again the nice part again in all our businesses is that we’re not dependent upon just process side and the pipeline side of that business is just accelerating with 50% year over year growth. So we just have -- it’s like anything in our business. We can have a region or a unit that’s a little soft in a particular quarter, but then someone else makes up for it somewhere else. So that’s the nature of our business.

Okay, maybe you could help us understand, how are you damaged by the patent infringement? It’s a software presentation tool?

Yeah. Unfortunately while I’d love to talk more fully about that because it’s a subject of ongoing litigation, I just really can’t talk a lot about our damages and the case too much.

Okay. Was any of the FX hit related to Venezuela? Because it does sound impossible almost to hedge against that.

No, because it’s separate issues. So set Venezuela aside, we just effectively wrote the whole thing off. And then the other FX issues that Greg described as the non-routine, those result from U.S dollar denominated accounts sitting in foreign currencies that is a result of this re-measurement process and this rapid devaluation of Canadian, European and really virtually all currencies against the U.S dollar.

Okay, so essentially you are hedging your cash positions that you are holding in foreign currencies, but they just weren't enough to offset your size?

Yeah. We put the hedges -- in truth, we put the hedges in after these losses were realized. I think like a lot of people we didn’t see the impact or how this was going to impact us until it impacted us. And when it did, Greg put some hedging the first of March in place that I think will mitigate any further effects of this going on.

Okay. And just back to Quest for the last one. So we should think about the mix shifting during 2015 toward the pipeline business. Is that -- and that side of it remaining strong? What does that …?

Yeah. Again I think the mix has been shifting toward pipeline for some time even within Quest because as you recall the heritage of Quest, the development of our proprietary tools started in the process industry. Small diameter tools in -- focused on heaters in the process industry. And then over the last four or five years we have taken those tools and focused on the non-pickable space in the pipeline industry and that has certainly been the growth driver if you will of Quest is the opportunities in pipeline.

Right. And what does pipeline represent as a [worker’s] ballpark?

It’s a little more than half of Quest revenues today.

All right. Thanks a lot.

Your next question comes from the line of Matt Duncan from Stephens Inc. Please proceed.

Hey, good morning guys. This is Will on the call for Matt. Most of my questions have been answered, but I just wanted to hit on the share buybacks. How should we -- should we be thinking about those -- expecting more of those going forward or how do you think we should think about that?

We have a remaining authorization as you know for share buybacks. It doesn’t frankly mean if we needed more we couldn’t go ask our board to approve more. But I think the real way to look at it is what we’ve tried to do with the share buybacks is to offset the dilution event that will be caused by the true-up of the Quest earn out that occurs at the end of May, all of whose shares have been -- are in the fully diluted calculation. So what we’ve tried to do is use the buybacks to mitigate the impact of dilution caused by the shares that will be issued then. I don’t have -- it depends on what our stock price does and those sort of things. So we’re not signaling one way or the other what we’re going to do on share buybacks.

All right, great, I appreciate it.

Your next question comes from the line of Adam Thalhimer from BB&T. Please proceed.

Good morning, guys. Great quarter. First question, Ted, what are your thoughts, very high level and broadly speaking, on margins in 2016? Just from the standpoint of it seems like the execution issues are behind you and can you just remind us what your margin goals are?

Our goal is to always improve margins and we have longer term aspirations of a significant margin expansion. I think ultimately our margins, EBIT margins should be 10%. And so we’re a point and a half, a point shy of that right now. And it’s really about just continued focus on execution, the focus on improving the overall average performance if you will, addressing where we have lower performing branches if you will, kind of raising the bar of the underperformers to improve the average. A lot of operating leverage that’s inherent in our business because there’s a fixed cost structure to our business. So growth in revenues, managing our job cost and managing our SG&A should result in leverage on growth of 15% to 20% at the operating income line. That’s how we think about the business and it’s really just about man, if we execute well and don’t spill it, we will see the operating leverage from growth as we have in the current fiscal year.

Okay, that's helpful. And then again, kind of high level, but can you just talk a little bit about the competitive landscape, particularly in the US today and your thoughts on M&A?

Competitive landscape is, I think it’s not different than it’s ever been. We have some very strong competitors. It’s a very fragmented industry that we participate in. we think we’re the leader and employer of choice in our industry, but we have both -- what’s unique about us obviously is that we offer a wide array both mechanical services and inspection services and that makes us fairly unique and I think gives us a significant competitive advantage in our space. But we have great competitors, both in the NDP inspection markets and in the mechanical service market. So I don’t see that changing a lot. Again when we maybe have a 15 share overall in the combined market, that means there’s a lot of market we don’t have and there’s a lot of good competitors in both of our spaces. What was the second part of your question?

Just potential for M&A and any …

Again, like always our first and foremost focus is organic growth and execution on organic growth, but M&A has historically been about a third of our overall growth. We expect that’s probably going to continue to be true. We’re not interested in buying simply a smaller competitor in a space we’re already in. we’d rather just compete for that business and then our focus is always on M&A activities that expand or enhance our service delivery, our capabilities or improve our geography if you will in a way -- in a geographic area where we might be weak. So I think there’s a lot of continuing opportunities in our space. You’re not going to see us go off doing something outside of our comfort zone, but again I think it will comprise of our growth in about the same ratio that it historically has.

Okay, great. Thanks a lot.

There are no further questions. I would now like to turn it back over to Ted Owens for closing remarks.

Okay, Mark. Thank you very much and thanks to all of investors and analysts for your participation in this quarter’s call and for your interest in Team. We look forward to talking again after our fourth quarter results in early August. So have a good day, everyone.

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect and have a great day