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

Craig Bell - SMH Capital Adam R. Thalhimer - BB&T Capital Markets, Research Division Matt Duncan - Stephens Inc., Research Division Arnold Ursaner - CJS Securities, Inc. Tahira Afzal - KeyBanc Capital Markets Inc., Research Division Richard Wesolowski - Sidoti & Company, LLC

Welcome to the Team IR Call. My name is John, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Phil Hawk. Mr. Hawk, you may begin. Philip J. Hawk: Thank you, John, and good morning, everyone. It is my pleasure to welcome you to the Team, Inc. Web conference call to discuss recent company performance. Again, my name is Phil Hawk. I'm the Chairman and CEO of Team. Joining me again this morning is Mr. Ted Owen, the company's Executive Vice President and Chief Financial Officer. The purpose of today's conference call is to discuss our recently released financial results for the company's first fiscal quarter ending August 31, 2011. As with past calls, our primary objective is to provide our shareholders and potential shareholders with an enhanced understanding of our company's performance and prospects. This discussion is intended to supplement our quarterly earnings releases, 8-K, 10-Q and 10-K filings to the SEC, as well as our annual report. Ted will begin with the review of the financial results. I will then follow Ted with a few remarks and observations about our performance. Following our remarks, we'll take questions from our listeners. With that, Ted, let me turn it over to you. Ted W. Owen: Thanks, Phil. First, as usual, I want to remind everyone that any forward-looking information we discuss today is being provided in accordance with the provisions of the Private Securities Litigation Reform Act of 1995. We've made reasonable efforts to ensure that the information, assumptions and beliefs, upon which this forward-looking information is based, are current, reasonable and complete. However, a variety of factors could cause actual results to differ materially from those anticipated in any forward-looking information. A description of those factors is set forth in the company's SEC filings. Accordingly, there can be no assurance that the forward-looking information discussed today will occur or that our objectives will be achieved. We assume no obligation to publicly update or revise any forward-looking statements made today or any other forward-looking statements made by the company, whether as a result of new information, future events or otherwise. And with that, now for the financial results, I'm pleased to report the best first quarter in the -- of operating results in Team's history. For the first quarter, net income was $6.8 million or $0.33 per share on revenues of $141 million. That's an increase of 35% over the same quarter last year. On an organic basis, which excludes the effect of the Quest acquisition, revenue growth was 28% for the quarter. Operating income was up 75% over the first quarter of last year and net income was up about 80%. We are obviously off to a good start for the year. Now with respect to some cash flow related items. Capital expenditures for the quarter were $5.3 million. Depreciation and amortization was about $4.1 million and noncash compensation expense was about $1 million. EBITDA for the quarter was $17 million and was $69 million on a trailing 12-month basis. At August 31, our total debt was $73 million, our cash was $21 million, and so therefore, net debt was $51 million. So our net debt to trailing 12-month EBITDA at August 31 was less than 1 to 1. With that, Phil, I'll turn it back to you. Philip J. Hawk: Thanks, Ted. Let me now add a couple of additional comments to Ted's summary. We are off to a very good start in this fiscal year. The primary driver of this good start is terrific broad-based revenue growth. Let me share several additional details on this revenue performance. As Ted indicated, overall growth in the quarter was 35%. Team's business in all major markets contributed to this growth. Total U.S. business grew about 18%. Our Canadian business increased almost 80%, which reflected increased oil sands activity, as well as a major repair project. And our business in the rest of the world, principally Europe, the Caribbean and New Zealand, Australia, nearly doubled, reflecting the timing of significant new projects and the addition of Quest business in those regions. Our business in non-North American regions represented about 15% of total Team revenues in the quarter. All of Team's service lines grew during the quarter. The onstream services increased about 10%. The inspection and assessment services increased about 25% and turnaround services increased more than 75%, reflecting expanded project activity in all major markets. This revenue growth drove very attractive profit growth. As mentioned previously, Team's net income for the quarter increased nearly 80% and operating income or EBIT increased approximately 75%. Operating profit margin as a percentage of revenue was 8.3%, an improvement of nearly 2 percentage points from the prior year. The margin improvement reflects improvements in both the gross margin and SG&A expense to revenue ratios. The improvement in the gross margin ratio reflects stable job margins and favorable volume leverage. Regarding SG&A, despite a significant overall increase in SG&A expenses, SG&A expenses as a percentage of revenue actually declined approximately 1.5 percentage points. The growth in SG&A expense reflects the addition of Quest, as well as increased compensation expenses related to targeted staff increases, salary adjustments and increased incentive compensation accruals. Overall, these financial results were the best we have ever achieved in a first fiscal quarter, and I'm very proud of our team. We also continue to be pleased with our new Quest business. Quest initiatives related both to the proprietary in-line inspection capabilities and our engineering assessment services are driving attractive business growth in the pipeline, process and power industries. Shifting to our outlook for the remainder of the fiscal year, we continue to have an optimistic view of our prospects. The market fundamentals and profit margins for our major customer groups remain attractive. We expect normal turnaround activity levels both this fall and next spring, and we are pleased with our market position and growth prospects from a number of initiatives. However, I caution that our optimistic view should not be interpreted as a straight-line extrapolation of our first quarter growth rates. First, as we have discussed in previous calls, the results in any particular quarter can be significantly impacted, either favorably or unfavorably, by the timing of a few projects or events. And we remain cautious about the potential negative impact of weak general economic conditions and an unsettled political environment. While at this point, we do not see any material changes to customer activity levels or plans, we remain concerned that activity levels could soften if conditions deteriorate further. Consequently at this time, we are affirming our current full fiscal year earnings forecast of $1.45 to $1.60 per fully diluted share. To wrap up, we are pleased with our start to this new fiscal year. It reflects the continued positive business momentum and attractive market opportunities available to us and we feel we are very well positioned going forward. That concludes my remarks. Let's now open it up for questions. John, can I turn it back to you?

[Operator Instructions] And our first question comes from Matt Duncan from Stephens Inc. Matt Duncan - Stephens Inc., Research Division: The first question I've got is with regard to your gross margin expansion, you had about 130 basis point improvement year-over-year there. Can you talk about what factors drove that? Philip J. Hawk: Sure, Matt. It's really all volume leverage and in the indirect costs. If you look at our job margins which, as you will recall is really revenue minus the direct -- actual direct labor and direct expenses on our individual jobs, though, some of those aggregate job margin for our whole business for the quarter was really nearly flat with the prior year. Matt Duncan - Stephens Inc., Research Division: Okay. So Phil, are you beginning to see any willingness from your customers to take price increases as labor continues to tighten for you guys? Philip J. Hawk: Well, I think, what I would -- how I would interpret flat is that we are because -- we are beginning to see some creeping expenses in some areas that we're able to recover those modest increases and expenses with some pricing adjustments. Having conversations, but it is not our view and expectation that we're going to expand margins through pricing. We're just trying to hold the line. Matt Duncan - Stephens Inc., Research Division: Okay, Phil, that's very helpful. And then if you look at the new services that Team has added over the last 12 months, I know there's been a number of them such as heat exchanger repair. I'm curious how much revenue you were able to get from those services in this quarter, sort of looking at how much new service line additions have added to your growth rate this quarter. Ted W. Owen: Matt, we don't disclose the individual service lines, but just kind of looking in the aggregate of revenues associated with the new initiatives that we have discussed, and it's in our website, on our kind of new initiative slide, it was about $4 million in total in the first quarter. Matt Duncan - Stephens Inc., Research Division: Okay. And then the last thing I've got and I'll get back in the queue is, you guys obviously had a very strong quarter. Phil, I appreciate the insights you gave us on what you're seeing in the outlook for your business. But thinking through the maintaining of your guidance rather than raising it after such a strong quarter, I know historically that given that the August quarter is a seasonal low point, you guys have typically left guidance unchanged. But I think with the uncertain economic backdrop, I just want to be clear that you are not seeing any deterioration of demand for your services, but rather you're just choosing a cautious route early in your fiscal year given the uncertainty. Philip J. Hawk: Yes, I think, yes, that is correct. Both, given the uncertainty of the market, but just the other point you made is a good one is that our seasonally weaker quarters are the first and third quarters. And to extrapolate from what is already just a weaker percentage of the total year, I think it's just -- we're just more cautious not to read too much into just a good start.

Our next question comes from Rich Wesolowski from Sidoti & Company. Richard Wesolowski - Sidoti & Company, LLC: Are you confident that the job margins will ultimately retrace what was lost in 2009, 2010? Or is there a possibility that this is the new typical rate for you in the rest of the industry? Philip J. Hawk: We're planning on the latter. It would be great if -- it's not that we're opposed to having higher margins, but it's a competitive world out there. We have sophisticated customers, so the -- it's not our expectation or plan that margins will increase. Richard Wesolowski - Sidoti & Company, LLC: Okay. So as I look at your operating margins, historically, Team is capped out around just below 10%. You put a big record in the first quarter here, at least for an August quarter, and your volume seems to be going in the right direction. So is there a potential that merely through volume and leverage on the indirect costs that you get above 10%, if not in '12 and something near in the future, or is that sort of a natural cap for you? Philip J. Hawk: No, I don't think so at all. I agree with your analysis and observations is that, in fact, I think if you look at the last 2 quarters combined, we're at 10% right now or maybe slightly above it. It rounds to 10%. But no, we don't see that as limit at all. I think there's a significantly more kind of, if you will, scale or volume leverage as we continue to grow our business. Richard Wesolowski - Sidoti & Company, LLC: Lastly, would you mind relaying your sense of the atmosphere in Western Canada especially with oil prices falling lately. Are people starting to get worried? Are people starting to talk about projects maybe being put on hold? Philip J. Hawk: I don't know that we are close enough to the inner sanctums of kind of capital budget planning guys to know how they're thinking. We have seen no evidence of any change, but candidly, it's very, very short time period since you've had some pullbacks. So we -- obviously, our results reflect increased activity. It is nowhere near the white-hot euphoria that existed in the '08 kind of '09 period. It's just kind of, again, half step back or full step back that we're seeing. And so I think for that reason, I think we'd be more confident that we're going to see some sustaining of what's happening now. It's just not -- it's not a sense that it's just overcooked like it was before.

Our next question comes from Arnie Ursaner from CJS Securities. Arnold Ursaner - CJS Securities, Inc.: You in the past have talked about people as a strategic weapon, having enough people ready to do the work when it's there. Can you comment on your headcount additions in the quarter and what you are seeing these days in terms of labor availability? Philip J. Hawk: I think the -- what I'm going to do is talk to what's -- and if we look at versus 1 year ago, we're up about almost 500 people. Now about 130 of that is Quest people, so the remainder then would be kind of other non-Quest growth. If you actually looked at it versus the -- on, if you will, August 31 versus May 31, I think we're actually down a few heads because, again, coming into a seasonally weak quarter, we'll have some ebb and flow from that standpoint. So I think we feel confident that we -- as we have for the year, we can add resources when we need them and we're obviously always looking for great resources that can kind of help us not only principally with technicians, but also great business developers and people that can join our team as well. We do not perceive that we are labor-constrained to support our growth. Arnold Ursaner - CJS Securities, Inc.: And the cost of this labor, has that shown a noticeable change given the tightness of the market? Philip J. Hawk: Not noticeable change but it's creeping, I know. And so we have some cost creep just from rate or wages kind of in our business. Arnold Ursaner - CJS Securities, Inc.: Okay. My follow-up question relates to the quarter that just ended. It's part -- normally, when you have a very strong first quarter, it's carryover turnaround work that you didn't complete in the May fiscal year or its specific projects. Can you comment on whether either or both of those factors impacted the quarter and to the extent you can quantify them? Philip J. Hawk: Sure. Good question. About the quantifications, is a little tricky here, but you're absolutely correct. I think on both fronts, it's correct. We had a very strong June this year, and I think one has to conclude and we had big project works. So I think there's no question that the spring turnarounds, I don't know whether this is a trend or episodic to this year, but we are seeing turnaround spread longer. We did this year, anyway, spread longer and run well into June. And as I mentioned in Canada, we had a -- there was a major repair project which is kind of a one-off thing that added maybe a couple of percent, a couple, 3% to the total revenue numbers that was kind of a one-off thing.

Our next question comes from Craig Bell from Enerecap Partners. Craig Bell - SMH Capital: Phil, I wanted to touch on your comments on the outlook again. It sounds like what you're saying which is you're mainly concerned about that, that activity levels could deteriorate. And it sounds like you're a little bit more cautious than you were, sort of say this point in '08, '09 timeframe when it sort of seemed like you guys got almost surprised by the sudden dropoff in activity there. Is that a fair statement that you're a little bit more cautious? And then secondly, do you think as a company, you're more prepared if you saw a drop in demand like that if the activity levels fell off? Philip J. Hawk: Well, just in terms of perspective, it's not our view or our outlook that we are going to see a decline in activity level. What we're -- in fact, our forecast still implies continued growth on our business the rest of the year. What we're just saying, being a little cautious is that just like you, I read the papers, and again, this is not industry-specific to us, but general economic malaise around the world is a little bit creating a lot of uncertainty. And so the perspective we have is that we don't understand and know how that uncertainty is going to kind of filter through and affect our customers and then ultimately, our business. So that's the sense of our caution in terms of our forecasting. Are we going to -- we'll adapt to whatever environment that we have. And candidly, I was pretty proud of the way our company adapted the last time. We had a very significant revenue drop, but we almost, within a quarter, had kind of locked back down to where that was and adapted. And I don't forecast that happening this time. I think the environment is -- the fundamentals to our business are better than they were at that time. But we'll adapt to whatever comes our way.

Our next question comes from Matt Duncan from Stephens Inc. Matt Duncan - Stephens Inc., Research Division: Phil, kind of following up on that, I'm wondering kind of thinking through maybe what has changed fundamentally in the markets since 2008. It seems like refiners have shifted from sort of scheduling maintenance on a calendar sort of every 5-year turnaround kind of maintenance scheduling. They've gone to more risk-based maintenance planning which, in theory, would result in a more sticky turnaround calendar. Are you guys seeing that in the market? Philip J. Hawk: Well, I can say, we haven't seen a lot of -- certainly in the near term, we haven't seen a lot of changes in kind of project plans, turnaround plans, so I suppose that would be consistent with that observation that you are making. I think a little bit is that when we -- again, if you go back to the '08, '09 period, you had a kind of the end of almost a euphoric era of many years of very, very strong margins. And I think our kind of underlying expectation of the industry that this would -- the new normal was going to stay very, very good for a long time. We had a lot of expansion activity. Obviously, we had almost white-hot activity up in the oil sands. And so when their demand and kind of -- and margin environment changed significantly and dramatically, almost collapsed in some segments, they reacted strongly. But because they had been -- it'd been such an aggressive kind of forward-looking growth environment, there's a lot they could stop in the short run, and they did. I think while our margins have been good the last year, I don't think there's that underlying euphoria that life is just going to be fabulous forever, at least in the kind of the eyes of our customers. So they're running a lot tighter. We haven't seen back to the good old days in terms of the procurement approaches and planning approaches. So because they're running tighter and kind of managing tighter I think the, if you will, the degrees of flexibility they have to defer or put off is less now than it was 3 years ago. Matt Duncan - Stephens Inc., Research Division: And, Phil, do you think that they have caught up on maintenance, that they were differing back in 2009? Or there's still some -- maybe a backlog of some deferred maintenance activity that you might be benefiting from now? Is there any way to gauge that? Philip J. Hawk: I don't know any way to gauge it, but I don't perceive that there's any backlog at this point. Matt Duncan - Stephens Inc., Research Division: Okay. And then 2 more final, just sort of numbers questions, on the growth rate in the U.S. of 18%, was that all organic or does that include Quest? Philip J. Hawk: That includes Quest. If you take Quest out, it's about 13% to 14% organic. Matt Duncan - Stephens Inc., Research Division: Okay. And then the big project you referred to in Canada, I'm assuming that's repair work at the horizon upgrader that had an explosion back in January. Can you talk at all about the kind of revenue contribution? I guess you said it was maybe 3% or 4% added to the growth. Ted W. Owen: Yes, I think it was about $4 million, $5 million. Ted W. Owen: About $5 million. It was about $5 million in the quarter.

And our next question comes from Aleena Khan from KeyBanc Capital Markets. Tahira Afzal - KeyBanc Capital Markets Inc., Research Division: This is Tahira actually on behalf of Matt. I guess if I look at the last cycle, there seems to be a fairly nice correlation between free cash flow for lot of your sponsors and really some of the maintenance activity. And if you really look at the free cash flows in general, there seem to be pretty strong still. And to your point that you made earlier on, even on the oil sands side, we've seen the work, the tap being turned on, but being turned on fairly cautiously. So if you look at your pricing scenario and if you look at the outlook, what are the markets that you feel that things have been -- could have been turned on a little more aggressively as you compare it to some of the other markets that you think it's been turned on cautiously? And I know you said broad-based, it seems like everyone's being cautious. But are there any areas where you feel that there might be a bit of a worry? Philip J. Hawk: In terms of worry that someone might be overextended -- segments that are overextended? Tahira Afzal - KeyBanc Capital Markets Inc., Research Division: Well, sponsors that might have aggressively come back. Philip J. Hawk: Not really. And again, I don't really study our business at a micro level kind of segment-by-segment basis in great detail on that. But I don't sense that and I would just say that we're seeing a lot of just fundamental strength kind of underlying these segments. So it will be macroeconomic pressures that I'm a little bit concerned about affecting the, if you will, the underlying industry kind of environment. If you look at chems right now, chemical industry is really strong. The weak dollar, of course -- dollars not weaker the last week, but if you take a week or 2, but if you -- weak dollar plus shale gas liquids, there's just a lot of fundamentals that are really good for chems. Pipeline, very, very strong with a lot of the development work in the U.S. That's more gathering system than big pipeline systems, but that's a positive. I don't have a real good read -- recent read on power, but kind of my general perception is that's -- it's steady and doing just fine. And then refining, you wouldn't know what -- and it's kind of segment specific. If you go to the Northeast, obviously, there's some concerns in the Northeast region with a lot of announced plant sales and potential closures. But the crack spreads, the rest of North America are -- continue to be pretty good. So I just think if those conditions remain, no one's out there stretched out. They're not betting on something getting better. Again my caution is that those could get worse if general economic conditions dramatically change and there's all kinds of reads about whether that is going to happen or not. That's why we're cautious. Tahira Afzal - KeyBanc Capital Markets Inc., Research Division: Right. Got it, okay. And I probably agree with you. It seems hopefully its all the same sentiment. It just seems fundamentally this sector and your business is really better positioned for slowdown because versus the last time where it more of a surprise. Philip J. Hawk: I agree with that. And certainly our customers are more cautious -- have a more cautious posture than they had last time.

Our next question comes from Arnie Ursaner from CJS Securities. Arnold Ursaner - CJS Securities, Inc.: It's Arnie Ursaner. My question relates to the guidance you provided back in July. I think embedded in the guidance for revenue at that point was high single-digit organic revenue growth somewhere in the 7% to 9% range. Obviously, you were well above that in Q1, and I think you would clearly seem to be indicating you expect a pretty good turnaround season. How do you think about organic growth for your company overall for the balance of the year? Philip J. Hawk: Well, yes, it's back to can we extrapolate our organic growth for the last couple of quarters is really the question you're kind of referring to. And we feel positive about where we are in our position. We're just -- and as you know, Arnie, we aspire to double-digit, long-term organic revenue growth, and we like our position where we are. It's just with the coming off, again, a seasonally weaker quarter, we're just a little bit cautious about extending the line here or trying to draw too many conclusions from our start to the year, but we remain positive. Ted W. Owen: Arnie, said in other way, I think what we believe about the rest of the year is that exactly what we believed when we started the year that for the rest of the year, we expect kind of high single-digit growth. As you know, we're going to be facing a really difficult comp when we get into the fourth quarter. So I think what we're simply saying is that our expectations about the last 3 quarters are unchanged relative to where we were in July. Arnold Ursaner - CJS Securities, Inc.: Okay. Well, your headcount is up 15% year-over-year. I guess where I was trying to go with that also is did you incur any margin hit? Are these people fully ramped up or are you still kind of going through a training process on some of them impacting margin? Philip J. Hawk: Well, I think they're fully on board. And I think they way you see that, as you see it in gross margin that the -- where the ramp ups would be, where the big numbers of heads would be in direct expense or in the gross margin line and we're seeing a continued high utilization of labor and you're seeing the volume leverage in terms of our growth, kind of our SG&A expense increases either related to our ads, I should say, are either related to Quest or they're related to, I guess, significant targeted bets that we expect to have very short-term payoffs. Ted W. Owen: And just to follow up on that, Arnie, you've got to be a little bit careful on those kind of headcount growth comparisons because that 15% that you referred to is a point-to-point first quarter of this year versus first quarter of last year when, really, if you think about headcount, it's more sequential. So we're actually down from the fourth quarter. And so we will -- the comparisons are not as dramatic as you move through the year as you would expect. Arnold Ursaner - CJS Securities, Inc.: Okay. In Q4, 13 of your 17 regions have had double-digit growth. What was the number this quarter? Philip J. Hawk: It was actually the same. We only had 3 -- we had best regions out of 11 that didn't grow, 8 did and all of our non-U.S. regions grew.

[Operator Instructions] We have a question from Adam Thalhimer from BB&T Capital Markets. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Most of my questions have been answered. I did just wonder if you could talk a little bit about maybe just give some anecdotes about the Quest business. I know you had a pilot program where you're putting the engineers or the guys who read the data on the ground, and I was just wondering how that worked out or maybe some other anecdotes that how that -- how the synergies are coming along with Quest? Philip J. Hawk: Just talking about more general, I don't know I have a lot of anecdotes about a single job or project. But we're really pleased with Quest. And yes, in addition to kind of I'm going to say Quest-only business development, which is in their in-line inspection activity and engineering assessment. We have 3 specific kind of initiatives. They're really the initial ones that we're rolling out that are kind of combined Team and Quest capabilities. One's related at tank maintenance management, one at pipeline integrity management and then one for the power services. So we're -- I think on both fronts, we're delighted with our capabilities, delighted and excited about some of the integrated opportunities that will evolve. It's still early, so we're not here to kind of report specific sales to this customer or that one, but we're getting a lot of positive feedback and expect this to be good.

We have no further questions at this time. Philip J. Hawk: Then allow me just to wrap up, I want to thank everyone for their -- all of you for your participation in this call and your continued interest in Team. We look forward to updating you on our progress with our second quarter call in early January. 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.