Team, Inc. (TISI) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2016 Team, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to introduce your host for today’s conference, Mr. Ted Owen, President and CEO. Sir, you may begin.

Thank you, Maria. Good morning everyone. Again, my name is Ted Owen and I’m the President and CEO of Team. Joining me again today is Mr. Greg Boane, our Executive Vice President and Chief Financial Officer. The purpose of this call is to report on our third quarter earnings, update you on the status of our business integrations, and on our end markets and to share with you the excitement about the platform that we’re building for 2017 and beyond. This call will contain forward-looking information within the meaning of the Federal Safe Harbor Provisions. So I’ll ask Greg to read the full disclaimer relative to forward-looking information, and then go over the third quarter results, after which I will provide more color to our business outlook and integration activities. Greg?

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 that we believe are not indicative of Team’s ongoing operating activities, when arriving at adjusted net income, adjusted EPS, adjusted EBIT and adjusted EBITDA. All of these are non-GAAP financial measures. Reconciliations of these non-GAAP adjusted financial measures are provided in our quarterly earnings release. I'll now focus on the results for the current quarter versus the prior quarter by walking down the income statement. We reported current quarter revenues of $290 million, an increase of 19% over the prior year quarter. GAAP net loss was $4 million or $0.l4 per diluted share versus net income of $0.12 per diluted share in the prior year quarter. Non-GAAP adjusted net loss was $0.4 million or $0.01 per diluted share for the current quarter, versus net income of $0.24 per diluted share in the prior year quarter. Current quarter results include the results from Furmanite, which was acquired in late February 2016. In March 2016, we began integration activities and certain business operations, locations and technicians have been or in the process of being consolidated and/or transferred into legacy Team operations. As a result, the discrete standalone financial information of the acquired businesses is no longer readily available and we’re not managing or reporting on Qualspec and Furmanite as standalone business units. In order to help you understand significant variances between the two quarters, I’ll be comparing current quarter revenues to prior year quarter revenues on a pro forma basis, assuming the Furmanite acquisitions had occurred prior to July 1, 2015. We report our business results in three operating segments. TeamQualspec is our inspection and heat treating business. TeamFurmanite is our mechanical services business. Quest Integrity is our proprietary in-line pipeline and process equipment inspection and advanced engineering assessment services business. Current quarter consolidated revenues were $290 million and declined $38 million or 12% compared to pro forma revenues of $328 million for the prior year quarter. Continued market headwinds and reduced customers spending resulting from projects deferrals, deferred maintenance and the impact of severe flooding in Louisiana in the first part of the quarter led this soft market conditions in all three segments. We also experienced extreme volatility in activity levels between months during the quarter. In July and August, which are two of our seasonally weakest months, our revenues were unusually soft this year with much higher year-over-year revenue declines in these two months than we experienced during the first six months of 2016. Combined July August two months revenues were down 18% versus 2015 with August being down 23% for the month. Activity levels and quickly ramped in September increasing 45% sequentially from August and was down just 2% for the month versus 2015. Revenues for the entire current quarter were down 12% overall versus a prior year quarter which is generally consistent with the revenue decline experienced during the first half of 2016. But the extreme volatility between months was highly unusual. Within the team prospect segment each revenue were down $11 million or approximately 45% in the current quarter versus the prior year quarter due to continue to borrow the large turnaround projects. Heat reeling is a specialty service with demand type closely to larger more complex turnaround projects. Theme prospects NTD and special revenues were down $3 million or approximately 3% versus the prior year quarter. Theme Furmanite revenues were down $22 million or approximately 14% in the current quarter versus the prior year quarter. We estimate the flood impact was approximately $5 million or 3%. Historically, maintenance and repair services have been less resilient in NDT and special services during period were softener end markets as customers are more in line to continue and not run clients to maintain safe efficient equipment utilization but they have tighter discretionary spending on maintenance and repairs. Cost integrity revenues were down $1 million. We’ve recently executed a successful wave one rollout of our ERP system to 17 branches. I'll now cover the operating results, and will be comparing EBIT and EBITDA results as presented in the earnings release schedule. These are not pro forma prior year quarter. TeamQualspec adjusted EBIT, or operating income margin was 6.1% in the current quarter versus 9.5% in the prior year quarter. The decrease relates primarily to unfavorable service mix on 35% lower heat treating revenues which generate higher profit margin. TeamQualspec adjusted EBITDA margin was 9.5% in the current quarter versus 12.6% in the prior year quarter. TeamFurmanite adjusted EBIT, or operating income margin was 5.0% in the current quarter versus 5.2% in the prior year quarter. TeamFurmanite adjusted EBITDA margin was 9.3% in the current quarter versus 9.4% in the prior year quarter. Quest Integrity adjusted EBIT or operating income margin was 6.5% in the current quarter versus 9.6% in the prior quarter. Quest Integrity has a higher fixed semi variable cost structure and higher operating leverage impact on revenue fluctuation. Quest Integrity adjusted EBITDA margin was 15.5% in current quarter versus 18.3% in the prior quarter. Our acquisition integration and cost reduction efforts have reduced SG&A. Total adjusted SG&A was $75 million in the current quarter and decreased by $4 million compared to $79 million in the prior year quarter, which is on a pro forma basis. For the current quarter, total depreciation and amortization expense was $13 million and non-cash stock comp expense was $1.3 million. I'll spend a few minutes discussing the non-routine items in the current quarter that we do not consider to be indicative of our normal ongoing operating activities. Non-routine items during the current quarter totaled $6 million before tax or $0.13 per diluted share after tax. The most significant non-routine items related and non-capitalized ERP implementation costs at $2.3 million and legal, professional and other fees of $3.5 million, mainly related to integration efforts. I'll now give an update on the ERP project. As previously disclosed, we rolled out the new Microsoft Dynamics AX system to five pilot branches in February. We recently rolled out the new system to 17 branch locations in the U.S. The rollout was very successful. We did not encounter any significant business or transactional disruptions. The plan forward is to roll out the system to the remaining North American and waves recurring every three months and to complete the North American installation by the end of 2017. We've spent $48 million today on the project. We capitalized $40 million and expensed $8 million. I’ll now wrap up with some balance sheet and cash flow information. Year-to-date, cash flow from operations was $61 million. Year-to-date, CapEx was $36 million, $15 million related to ERP. We paid down $37 million of debt during the current quarter. Going forward, our primary use to free cash flow will be towards debt pay-down. At quarter end, total balance sheet debt was $389 million. Our leverage ratio, the debt to EBITDA ratio including outstanding letters of credit is below the current leverage covenant of 4.25 times. Borrowing capacity under the facility was approximately $38 million at September 30. Our cash balance was $38 million at September 30. That completes the financial review. I'll now turn it back over to Ted.

Thanks, Greg. As I've reported to you in each of our calls this year, calendar 2016 has been and continues to be a difficult year for our business and for our customers. Our clients continue to be strongly biased toward deferrals or scope reductions, wherever and whenever practically safe, regulation compliant and within applicable industry operating standards. As I have reported in our last two calls, we continue to track projects that have been deferred or canceled in 2016. A listing that now total $60 million that have either moved from the original start date, that's about $45 million or have been canceled all together, and that's about $15 million. 70% of the deferred have been moved to 2017 or later with only about 20% of those projects still expected to occur in 2016. That leaves about 10% of the projects whose timing is uncertain. That’s exactly the condition we reported in May and again in August, and that drove our decision to discontinue earnings guidance for 2016. In addition to in-market headwinds as Greg reported our business is also subject to significant seasonality with a summer and winter months being our weakest months during the year. And as we both have indicated in our press release and in the Greg’s commentary, the months of July and August were significantly weaker than any months we’ve experienced so far this year. For those two months, our revenues were actually down on a pro-forma basis by 18% year-over-year, where the month of August being down by 23%. In fact, for the two months, the first two months of the quarter July and August, we were actually sitting on a loss of $0.25 per share. The good news is that the month of September represented our best month in over a year in terms of revenue and incremental profitability and actually got us back to nearly a breakeven adjusted EPS for the quarter. While one month does not necessarily tell a story or indicate a trend, I do want to spend a moment focusing on September, because I think it's indicative of the results we should expect as end market conditions improve. On relatively flat, month-over-month revenues we achieved a gross margin of 31% for the month of September, which was two points better than pro-forma results for a year ago. Our total SG&A cost in the month adjusted of 21% revenues was two percentage points better that pro-forma September 2015. Our month of September adjusted EBIT percentage of 10% was four points better than pro-forma September 2015 and our adjusted EBITDA percent for the month of 13.4% was 3.5 points better than pro-forma EBITDA for September 2015. The even better news about the follow recovery is that the strong activity levels that we saw in September have extended through October. While we haven't closed the books, on the month yet, I can report that year-over-year activity levels have continued on the trajectory of September signs have continuing - that continue to point to end market recovery. We have set all along that the soft market environment of 2016 is temporary. Customer project and maintenance deferrals can only last for a relatively short period of time and we expect our markets to begin improving in 2017. The corollary to softer than expected market conditions into 2016 is that more pent up demand has shifted into and is developing for 2017 and 2018. In fact, we're beginning to see signs from both larger, major integrated operator and smaller more downstream focus operators of improving end markets based on our fall activity levels and on our customer's commentary about their 2017 and beyond plan. We're also making excellent progress toward achieving the merger related synergies we’ve targeted in the Qualspec acquisition and Furmanite merger. As you know, we've estimated total merger related cost synergies to be about $25 million and at this point in time, we have already specifically identified 22 million of that target estimate. These synergy driven savings will be realized over the course of the next year. Additionally, we've identified margin expansion opportunities for the combine team Furmanite well beyond the cost synergies identify. These performance improvement opportunities relating to service and product mix standardization, specialty service pricing, technology applications and enablement and business process reengineering will take longer to consistently capture. The lead time maybe longer but these performances improvement opportunities are within our direct control and influence to effect. And we've already begun opportunistically realizing these benefits. The point is no one will be better positions and team to capitalize and improving market conditions in 2017 and 2018. If you recall my commentary from our last call, I said that by the end of 2017, even with modest growth targets, we believe our total business should be achieving 9% EBIT margins and 13% EBITDA margins. For calendar 2018, that would represent an adjusted EBIT of about 130 million and an adjusted EBITDA target of nearly 200 million on revenues of about 1.5 billion. Our soft overall results for the third quarter have not changed our view of that at all. In fact, our September results and our October activity levels are firmed I believe in those targets. So what would have to be true to move us in a normalized market toward these goals? Simply achieving the same margins for full year that we've achieved in the month of September, that’s our goal and we are confident we can do that with normalized end market environment and attention to execution and resource balancing and the realization of merger related and performance improvement initiatives we have underway. As Greg reported, we are also well-underway with a rollout of our advanced ERP implementation with our first wave of locations up and running, just this week. I want to pause here and congratulate our entire ERP project team, a team that we call Project Next. There are more than 100 of our team colleagues who been dedicated to this effort; Project Team, Pilot Branches, Wave One Branches and Functional Support Personnel. These guys and gals have been diligently working long hours over an extended period of time to make this happen. And I just want to just pause for a second and say thanks to all of you for a job well done. Now back to my prepared remarks. Integrating Furmanite and Qualspec to take full advantage of our respected streams and expanded service capability and market access is hard work. We’re consolidating customer contracts. We’re moving people and equipment across all three legacy organizations. We’re combining physical locations among many other things. This is not just managing three distinct businesses. It's fully integrating Qualspec and Furmanite into our legacy businesses. And while we're doing it, we are focusing on building upon the Team culture of safety and quality awareness and service excellence that has been such an important part of our success for many years. The deeper we have engaged in the integration processes for both the Qualspec and Furmanite, the more confident I have become about the associated value creation. I've spoken during each of our past three calls about the five key elements that we believe constitute our value - our current value proposition, and the foundation by which we are extending the magnitude and sustainability of our competitive distinction. In summary, these competitive advantages are, first, industrial services market leadership, offering a balanced portfolio of inspection in specialty mechanical services. Second, the ability to provide standardized services all the way up to customize fully integrated solutions to our customers. Third, having a highly trained and experienced workforce of now more than 8000 employees delivering safe reliable service. Fourth, the practical use of technology. As an example, we're developing a fully digitalized - digitized process from data capture to data analysis to field level work order generation and reporting of actions taken; a tool already gaining customer acceptance. And finally, regional resources and responses. That's leveraging the availability of our resources and equipment at over 220 locations in 22 countries. 2016 has indeed been a difficult year, tough end markets, heavy lifts involving two major business integrations and the implementation of a robust ERP platform to support our growth for the foreseeable future. As we say internally, 2016 is the year to get it done. 2017 is the year to turn the corner and 2018 is the year to fully realize the economic potential of being the premier global industrial service company. We're well on our way. And with that, let me open it up to questions.

[Operator Instructions] Our first question comes from the line of Matt Tucker with KeyBanc Capital. Your line is now open.

Hi. Good morning, gentlemen.

Good morning, Matt.

So I guess, the commentary provided on September and kind of quantify and some of that was really helpful. I guess, I actually wanted to kind of come back to you know, what happened in July and August. I mean, overall, in the quarter of the margins are similar to the first quarter. And back then, you indicated a lot of stuff was pushed out or canceled or reduced, kind with the last minute, you didn't have much time to right-size for the activity levels. Heading in to the quarter you seem to kind of be expecting that so may be could you just talk a little bit about the - the challenge in kind of adjusting in July and August to that - activity levels that you actually saw.

Well, it is a challenge because - the seasonality of our business just always present a challenge from a resource balancing standpoint because if you - I will tell you, if you - if you manage our resources to the activity levels of July and August, we would've had no ability to meet the demands for September, in the fall. So that - so the way we manage the business is always trying to look forward, anticipate activity levels over the next course of the next, not one month or two months, but over the course of the next six months and make sure that that we are fully able to meet whatever our expected demand is. So it's a difficult challenge. July, August was quite honestly much, much weaker than - while those are traditionally the week months of the year very clearly they were much weaker than expected. As Greg mentioned at a significant impact in those particular months where the floods from in the significant flooding in Louisiana that had a pretty significant - we're kind of out of business in the in the state of Louisiana from - for a couple of months. That's also part of the pickup in September as those projects started to come back on-stream, but it’s always difficult to get resources for precisely right, but certainly, July, August were softer than we expected. Again part of it because of the floods but September, October are really, really encouraging for us.

Got it. Thanks. So I think that make sense. And I guess maybe, could you talk a little bit more about why do you think September was so strong. Maybe what you're hearing from your customers and it sound like you feel like this inflection may not just be short-lived and we’re kind of moving back towards a more normalized market going forward. So I guess what gives you that confidence as well?

Well, first of all I'm not I'm not standing on the aircraft carrier declaring mission accomplished because it’s again, it’s a tough environment. We’ve said all along that 2016 was going to be a tough environment, but we've also said and part of the reason that I think maybe we are starting to see a shift is, A, because we've been in this down cycle market environment for about a year. And all our prior experience is that these down cycles last about a year. So, indeed, that's a kind of a historic data point. But more importantly, we are starting to hear from our customers in conversations that we're having with, a variety of customer groups about their plans for 2017 and beyond. You know, anecdotal, not just one but several customers, characterizations of what their plans for 2017 and beyond seem to suggest for them they realize that we're kind of at the end of the ability to push maintenance and turn around and inspection programs and because of that, we might start seeing some normalcy in our markets. So I think the third thing is simply while, crude prices perhaps have been down a little bit this week, I think there's an overall expectation of perhaps volatility for 2017. I don’t think anybody believes we’re going to see a return of $85 oil, but if we see kind of stability in commodity prices, again, I think that just kind of bolsters confidence on the part of our end market. So those are the kinds of things that we're seeing in addition to our own activity levels in the fall that would perhaps suggest that more normal environments are ahead of us.

Thanks. That was very helpful. And just last question. We've heard from some of, the larger kind of project or EPC focused competitors of yours, they've been talking about, maintenance and turnaround activity, it sounds like they're kind of trying to make a shift a little bit more towards what you guys do. I'm just curious if you've seen that, if you've seen kind of any maybe non-traditional competitors trying to take market share in your space? And then just generally, how well have you been able to hang on to market share with the combined team Furmanite business in areas where you want to?

Well, I think we're - we will always have plenty of competitors. So we are not - I'm not worried about running out of competition. I don't know that I see any particular shifts in terms of new competitors entering our space in any kind of a significant way, but it's a fragmented industry that we participate in. There are plenty of competitors. Some frankly are more irrational in their behaviors than others. We've seen some of that. But I'm not so sure that it's any different. Relative to market share, I mean we ask ourselves a lot in trying to identify are there any leakage because of the combination of - with Furmanite. And I think clearly on the front end, we anticipated some in our business models, particularly where perhaps both Team and Furmanite might have had a contract in a facility with one or the other being the preferred vendor and the other being the secondary vendor. Some customers have kind of reacted to G [ph]. We still want a secondary vendor, so it's created an opportunity for kind of the third guy to come in if you will. But not beyond - but that has not occurred beyond our expectations because we certainly had an expectation in understanding of where that risk might exist and so it hasn't been any different than what we would have expected.

Sounds good. Appreciate the color. Ted, I'll turn it over.

You bet.

Our next question comes from the line of Craig Bibb with CJS Securities. Your line is now open.

Good morning, Craig.

Morning. Hi. Congratulations that third quarter is over.

Yeah. I'm glad it’s over else. In August, I was ready to jump out of the window to be honest about it.

You’re saying October is similar to September, so we're looking at minus 2% revenues year-over-year on October more or less?

Well, honestly, I'm not really commenting on revenues for October. As you can appreciate we’re in the process of - we’re two days after the end of the month. So what I can comment on is activity level so what we’re looking at from an activity standpoint is not is not revenues per say, but build hours. So we can see hours we can translate that into revenue. But again based on hours you charge to work orders was strong month.

Okay. And then do you know how much of that is the catch up from Louisiana?

You know that’s very difficult to know. Again, I think that Greg and I think we’re talking about $5 million of…

Shift.

The revenues that we could see that shifted out of July, August. Some of that was actually we got picked up in September. I don't know what that number is, but I think by the end of this, by the end of the fourth quarter that will, it will have been - it will work itself through.

Okay. And it sounds like I mean, your - most of your forward looking commentary is more based on customer commentary. How a backlog of projects that are moving through the funnel and getting closer to…

We don’t, Craig, we don’t. Our business is not a backlog driven business. We used to say before that the two acquisitions and I haven’t kind of try to figure it out since then that we were the product of 150,000 jobs. That was before Qualspec, before Furmanite, so where we’re now probably the product of 300,000 jobs on an annual basis. So most of our jobs are kind of smaller in scope, we’re kind of the - what we call ourselves, we are the COOs as opposed to infantry. And so we don't have - we don't have big backlog projects. And so visibility for us is difficult. We can kind of see two or three months out, so we know where we are in the fall. We have bigger clarity, if you will about the spring. Again anecdotally, we have reason to be optimistic about the spring, but I remind everyone that projects move, that's why we are kind of tracking these projects and there is not a lot of significance about the tracking that that we see today but it's becomes the trend over time or are we seeing fewer projects move beyond their original plan time or more. So I don't think we have - we don’t have an update on that at this moment in time. So again customer [indiscernible] and again it’s not just a facility but kind of customer comp, you know broader customer commentary about 2017 pent-up demand project activity is encouraging. You know, activity levels are encouraging, but we'll see.

Okay and so - it seem a presumably when you have the visibility for the remainder of the year, in a quarter, is that kind of flattening - is a way for us to think of it in broad terms year-over-year?

I think right. I would say it's probably flattening out. Yeah.

All right. And then guys are - repay 37 million of debt in the quarter. Do you have specific goals for leverage or EBITDA by the end of next year?

I don't think we have a specific goal Craig. Our objective is - the use of cash flow, you know is indeed to pay down a debt. Certainly in the softer markets, I prefer little less leverage than we have and so we are making a concerted effort to kind of marshal cash and consistent with prudent tax considerations on foreign cash to move as much as we can and just be prudent about leverage and so I mean that certainly we’re going to use cash flow pay down debt.

Okay and then just last one. So you guys are moving quickly of that realize your expected synergies from the deals and incremental to that is added dollars for standardizing service and products mix and some of the pricing, how much of - can you put dollars around what you might realize there in 2017 or is that well like…

That's a little more difficult. We said publicly and I think in - perhaps in my last call or one of the other calls that we kind have a - we have a stake in the ground relative to measurable performance improvement opportunities that is over and above the cost synergies have about $20 million. I mean that’s not to say that that’s our project list we have a lot of initiatives, not all underway yet but things that we’ve identified frankly we think the opportunity is well beyond that number. But we are not going to share those individual items with you in any detail because that’s sort of there, you know, our playbook, if you will, for our competitors. But there's just a - again, this merger creates a lot of opportunities as we create - as we have more scale you know kind of moving to a well north of the billion-dollar company from a company that was well south of a billion-dollar company. That creates stale - scale. That creates opportunities in all sorts of areas. There are some underperforming assets that we've inherited, that we’re dealing with. There are some supply chain issues that we think because of our scale in - and a little more focus on now we can achieve significant performance improvement. just the old notion of moving more toward making sure we are getting fair pricing for special - for the things that we do that are really, really specialized. We should be pricing those services not to - never to gage our customers but to achieve a more fair and equitable return on our - the risk in investments that we have. So it’s just lots of our - we’ve got a lots of opportunities and that we have and not just kind of things that are just out in the air somewhere, but things that are - that we’ve kind of documented opportunities and that we’re prioritizing and focusing on. But again, as I indicated those are the things that take a little longer, require some investment, some process changes for some of them, but they're very, very real.

Great. Thanks a lot.

Yeah.

Our next question comes from the line of Matt Duncan with Stephens, Inc. Your line is now open.

Hey, good morning, guys.

Good morning, Matt.

Good morning.

So I want to go back a little bit on sort of try and rehash maybe what happened in…

Hey, Matt? Matt, I don’t know if you are on the speaker, but I am having difficulty hearing you.

Is that any better Ted?

That is better. Thank you.

All right. I want to go back to try and rehash if we can kind of what happened in July and August as you do kind of a postmortem on those two months. Is there any particular type of activity that you are seeing get pushed out with your customers coming to you and asking you maybe to pull some people out of plants where you have, run and maintain, so just trying to better understand what caused the sudden kind of dropdown in revenue levels there?

Well, you know, I wish I had a simple answer to that. I really don't. I would just tell you that the activity levels - again July and August are always, you know, difficult - difficult months.

Sure.

You don't - you just don't usually see them because we don't usually - report on that separately. But they were so severe this year that's - September was such - a major shift that that's why we did that obviously.

Well, and I…

I'll say that July-August were it wasn't in one place it was kind of across the board. It was every business unit experienced the same thing. You know, just significant contraction of - of activity levels, you know, kind of right after the 4th July, if you will. So projects were deferred, canceled, and running maintain scopes were reduced. And again, I don't know that it was say, I think it was simply just a continuation of what we'd experienced all year, only in - only steroids.

Right.

I wish I could tell you that it was because of - this, this, and this, but I don't know that.

Well, let's do this then. September, you're just down 2% versus down 23 in August. The thing that's different is that the fall turnaround season starts after Labor Day. So you are seeing turnaround activity coming. It is - the improvement in September is simple as customers are no longer deferring their scheduled maintenance because as you said it's kind of been a year and history tells us that that's kind of about when things start to normalize.

Well see - I think so. I mean I think that's kind of beginning evidence that the world is getting better. Again, we have a pretty, I mean, I will tell you there are weeks in September, we are frankly just sold out. I mean, we just didn't have any available technicians anywhere because there was just an acceleration. There was no movement. What we've seen so much out of new deferrals, new cancellations we were not seeing in September or October. We are seeing projects that were happening when as scheduled, you know, no scope reduction. You know, so it just - the world, just - it's something like the lights went on and the world got better now. So is a month or is two months indicative that were now and to catch-up pent-up demand mode. I think two months is a little short of it period for me to declare. That's true. But I'm - I feel a lot better about it. I'll tell you.

Sure, and then in October when you saw the activity levels are higher still, when you look at man-hours year-over-year, I understand there is a pricing of mix components to get to revenue number, but when you look at man-hours year-over-year, are your man-hours up in October on sort of a pro forma year-over-year basis?

They are up.

They are up, okay. So that indicates we could see actual revenue growth in October versus last year. And then I guess for the four quarters just kind of come down to what happens around the holidays and obviously anybody’s guess is good as model that, so tough to know?

Right.

On the margin side, the September numbers that you gave so I know those are kind of close to more annual targets, but obviously, September is a higher activity level month relative to kind of the full year average, given the turnaround activity that occurs in that month, so I want to make sure we’re all carefully here that that we shouldn't extrapolate those margin levels across to 2017 because of that seasonality in your business, but it is a good indication that were moving in the right direction, is that the way to think about it?

That’s exactly the way to think about it. Again those of those are more consistent with our targets for 2018, right.

Right. But there are steps to be taken yet to get to that annually take.

There are steps to be taken. There is a lot of steps to be taken to get to those levels on an annual basis, but we’re encourage.

Okay. Greg for you, on the Furmanite cost synergy side, I guess Ted said, we’re 22 million annualized as of today. We were at 19 million annualized on August 8. So we've we continue to see some improvement there. Can you maybe tell us in terms of realized synergies 3Q versus 2Q what were those numbers. How much of it’s in SG&A and much of it’s in cost of revenues?

Okay, for Q2 total - and these are estimates. What we estimated for Q2, it was about 1.8 million, 1.4 million was SG&A and for Q3, we estimated 4.7 million and 2.6 is SG&A.

Okay, very helpful. And are there any big buckets there you would point too. I know you had the change in property and casualty insurance. Is there anything else that was a big contributor there?

No. The only real changes from Q2 have been more tuning relating to staffing.

Okay. And the last thing for me, trying to focus on the future here, you know, Ted, last call, you said you had last customers, largest turnaround, is that still kind of the case and are you getting a little clearer picture based on what your customers of saying? We know the desire is here to work we just don’t know the budget number yet and that’s going to be key factor here?

Well, again, I think consistent to my comments were several our customers have given us a good anecdotal commentary about their plans. Not necessarily for spring 2017, but 2017 per say but 2017 in general. So a lot of those - so it wasn't kind of a sack up of - you know, of the spring. It’s more about compensatory relative to all of 2017 kind of expectations of project, turnaround activity for the year but also again, at this moment in time, probably stacking up pretty good.

Matt Duncan>: Okay. And as we try and think through how to translate that into some kind of growth outlook, again I want to make sure people only care and wait here so is this more of a normal market that you are thinking is shaping up or do you think we're going to get into seeing that sort of the differed maintenance get down on the stuff the normally schedule staff or is it just too early to know.

I mean I think it's very too early to anticipate that. So just to kind of give you insights of our internal plans, you know, we - we have deferred our own internal processes relative to budgetary matters for 2017 because we want - we want to get some - you know, we want to get closer to 2017 closer to spring turnaround season. So consistent with kind of our past practices, you know, our what our budget is, when we kind of disclosed year-end numbers in early March or capture in guidance, you know, I don't know yet. But we're - we're deferring internally our budget development until we can have a much better sense of kind of where are we in this market recovery. I certainly would - I will tell you, I'm certainly not - my planning is not based on pent-up demand for 2017. It's kind of over normalized kind of returned to normal.

And normal for you guys, if I'm looking at the two segments and kind of normal growth rates, that's probably something around the high single-digits, in terms of revenue growth?

Correct.

Okay. All right. Thank you, Ted.

Our next question comes from the line of Marty Malloy with Johnson Rice. Your line is now open.

So good morning.

Hey, Marty.

As I look out over 2018 and 2019, there's a lot of petrochemical plants, LNG plants coming online on the Gulf Coast, Texas. Can you just talk about what the - your scope of potential work would be there in the commissioning activities and is it meaningful?

It is meaningful. The way we characterize our involvement in these projects generally it's a big turnaround for us. Obviously, these are in total scope of the projects certainly these are billion plus dollar projects. But for us, there's not a lot of difference between commissioning pipes or kind of rehabilitating pipes in the course of a turnaround. So new construction these new projects have a meaningful impact on our kind of local businesses along the Gulf. As we've said over time, if you think about our business, about 10% of our business on average is associated with new construction projects. That's been sort of consistently true over time. The nature of timing and location of those kind of projects shifts, in 2007 2008, it is focused up in Canada on oil sands activities and in other times it’s been associated with up with Pennsylvania for instance and Marcellus, right now it's along the Gulf with kind of the new petrochem build-out. But by and large, it represents for us, on average, about 10% of our total revenues. And that's still pretty consistent I think.

Okay. And then I just wanted to ask the oil sands, what are the activity levels like there, was there a catch up at all in terms of some of the potential revenue deferred out of 2Q?

We're not seeing a lot of catch up on those projects at this moment in time. Some, but, I don't even remember what our numbers relative to deferral projects. The difference between the Louisiana - deferrals in Louisiana are kind of everything is back up and running in the same pace. It’s not true in the Oil Sands. There were some major projects that just - and some major turnaround by the way also that just have continued to be deferred. I think a lot of existing facilities are back up and running. Most of them are, but some of the project-related activity or even some big turnarounds that has been planned have just not come back yet.

Okay. Thank you.

I am not showing any further questions in queue at this time. Mr. Ted Owen please proceed with any further remark.

Okay. Well, again, I want to thank everybody for your interest and participation in this morning's call, and have a good day.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day.