Ted Owen - CEO Greg Boane - CFO

Tahira Afzal - KeyBanc Capital Markets Matt Duncan - Stephens Pete Lukas - CJS Securities Martin Malloy - Johnson Rice Tom Radionov - Corre Partners

Good day, ladies and gentlemen, and welcome to the Team Second Quarter 2017 Earnings Conference Call. At this time all participants are in a listen only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ted Owen, Chief Executive Officer. Sir, you may begin.

Good morning, and again, I’m Ted Owen, Team’s President and Chief Executive Officer. Joining me again, today is Greg Boane, our Chief Financial Officer. On July 24, we preannounced very disappointing results for the second quarter 2017. And yesterday, we reported our final results that were consistent with those preliminary disclosures. Importantly, in the last week, we also announced the completion of a $230 million convertible debt offering, as well as major cost reduction initiatives. Unfortunately, because of the convertible debt offering, I have been unable to speak to equity investors since our July 24 announcements. Frankly, during the time when being available to investors was most critical, I just wasn’t able to do that. I’m sorry for that, but I’m glad to be able to speak with you today. Before I do that, Greg will read through the safe harbor information and then review the financial results in detail. Greg?

Thanks, Ted. Good morning. This call will contain forward-looking information within the meaning of the federal safe harbor provisions. 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. Today’s discussions will also include certain non-GAAP financial measures. We have excluded certain items that we believe are not indicative of Team’s core 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 and adjusted financial measures are provided in our quarterly earnings release. I’ll now go over the results for the second quarter, and we’ll start off by discussing segment performance before moving on to our consolidated results. TeamQualspec current quarter revenues of $158 million were up approximately 1% from second quarter 2016 revenues. TeamFurmanite revenues of $133 million were down 17% from second quarter 2016 revenues. As we’ve stated in prior calls, the decrease in revenues in the TeamFurmanite segment is the result of a combination of project deferrals, job scope reductions and customer maintenance deferrals. While our TeamQualspec and Quest Integrity inspection and assessment segments have shown some momentum in 2017, maintenance and repair services have lagged behind, as customers are more inclined to continue essential inspections to maintain safe, efficient equipment utilization, while deferring discretionary spending on maintenance and repairs where possible. Quest Integrity revenues of $21 million were up roughly 9% in the current quarter versus the prior year quarter. The increase was largely the result of higher volume across inspection services, which were driven both by improvements in market conditions and the impact of an acquisition during the prior year, which contributed approximately $800,000 in revenues. Now turning to our consolidated results. We reported second quarter revenues of $312 million, a 7% decrease from the prior year quarter revenues of $336 million. Consolidated gross margin in the current quarter declined to 27.1% versus 29.3% in the prior year quarter. Consolidated gross margin declined approximately $14 million in the second quarter of 2017 compared to the prior year quarter. At a revenue level of $312 million, we would have expected gross margin for the quarter of just under 28% versus the 27.1% actual gross margin reported. $12 million of the unfavorable gross margin variance is attributable to the overall revenue decline of $24 million. All of the revenue gross margin volume decline relates to TeamFurmanite. The remaining $2 million of gross profit variance relates primarily to unfavorable operating cost impacts at TeamQualspec, which were partially offset by favorable operating cost impacts at TeamFurmanite. Consolidated SG&A expense for the second quarter was $91 million and includes roughly $7 million of other items that I will discuss in a moment. Adjusted SG&A was $84 million, up from $79 million in the second quarter of 2016. The $5 million quarter-over-quarter increase was the result of higher corporate expenses, mainly IT-related costs, and increased incentive compensation costs in the Quest Integrity Group. For the current quarter, total depreciation and amortization expense was $13 million, and noncash compensation expense was $2.5 million. I’ll spend a few minutes discussing the excluded items in the current quarter that we do not consider to be indicative of our core operating activities. In the current quarter there was $7 million of excluded items comprised of the following: $4 million of noncapitalized ERP implementation costs; $2.8 million in professional fees for acquisition integration; and about $300,000 in other costs, primarily severance-related costs. The estimated effective tax rate for the current quarter was virtually zero and was 23% year-to-date June 2017. The estimated tax rate in the first quarter of 2017 was 39%. The interim period tax rate is based on estimated fiscal year 2017 domestic and foreign taxable income, taking into consideration the June year-to-date pretax losses and estimated taxable income for the remainder of 2017. After reducing the estimated annual tax rate from 39% in Q1 to 23% in Q2, the tax benefit recorded in the current quarter was virtually zero. I’ll now cover the convertible notes in a little more detail. As Ted mentioned, we recently issued $230 million in unsecured convertible notes due August 2023. We paid down a total of $223 million of existing secured bank debt, which was over 50% of the total outstanding amount under the facility. The 2023 convertible notes carry a coupon of 5% and have a conversion price of $21.70 per share. Upon conversion, the notes may be settled in cash, Team shares or a combination of cash and shares at the company’s discretion. After giving effect to the convertible transaction on a pro forma basis, our senior secured leverage ratio was 3.04x EBITDA as of June 30, 2017. We do not anticipate any covenant issues going forward related to the senior secured leverage ratio was 3.04 times to EBITDA as of June 30. 2017. We do not anticipate any covenant issues going forward related to this team. While preliminary, the accounting for the notes is complex as the $230 million principal amount is required to be separated between the debt and equity components. As a result, reported interest expense will be higher than the 5% coupon rate, because the equity component mentioned earlier is treated as original issue discount, and along with the transaction-related fees will be amortized over the 6-year term of the debt as interest expense. Combined, these items will result in an additional $40 million to $50 million of noncash interest expense over the term of the notes. While at this time, we estimate total interest expense over the 6-year term will be approximately $115 million, $69 million of that relates to the cash interest on the 5% coupon, plus $46 million of noncash interest expense related to the items described above. I’ll move on to a few other topics. Our year-to-date cash flow from operations was a net use of $13 million on lower earnings and increased working capital funding over the last part of the second quarter. Year-to-date CapEx was $19 million, with $1.2 million related to ERP. Going forward, our primary use of free cash flow will be towards debt reduction. At June 30, our cash balance was $29 million and we had approximately $121 million of available borrowing capacity under the amended revolving credit facility. Regarding the cost reductions, plans are in place and significant actions have already been taken. We expect to be at our approximate $7.5 million per quarter savings run rate in early Q4. For modeling, assume 50% of the savings are indirect field support costs within operating expense, and 50% is SG&A related. The approximate savings split by segment are as follows: TeamQualspec, 30%; TeamFurmanite, 56%; Quest, 6%; and corporate, 8%. That completes the financial review. I’ll now turn it back over to Ted.

Thanks, Greg. There are several things I want to cover today. First, why did we do a convertible debt offering? Secondly, why were our Q2 results so disappointing? Third, what are we doing about it? And fourth, what’s the near-term and long-term outlook for the business? First, let me address the convertible debt offering. As is well-known, we took on a lot of senior bank debt when we acquired Qualspec and Furmanite. Due to our declining EBITDA during the market softness of the past 18 months, our senior debt-to-EBITDA ratios have been increasing, which required us to amend our credit agreement several times to raise the maximum leverage ratio permitted under the credit agreement. During that time, we’ve evaluated several debt and equity offering alternatives to solve that problem, but the disappointing Q2 results required us to reject other alternatives in favor of the convertible debt offering. Why? Because it offered a much lower coupon than other debt alternatives and provided a great deal of financial flexibility to ultimately settle the debt in cash, stock, or a combination thereof. The immediate benefit to Team is that we’ve reduced our senior bank debt by more than 50% and eliminated total debt maximum leverage covenants through March of 2018, allowing us time to benefit from the expected market recovery and to realize the cost reduction initiatives that we’ve implemented. The immediate financial pressures on our balance sheet are over and we don’t expect covenants to be an issue prospectively. Now let me talk about the quarter at a high level. As Greg reported, total revenues in the quarter were down 7% from Q1 of ‘16, with TeamFurmanite revenues being down 17%; Quest Integrity’s revenues being up 9%; and TeamQualspec revenues being relatively flat year-over-year. It would be easy to attribute our shortfall in the quarter to TeamFurmanite as that 17% decline in revenues resulted in a 61% decline in adjusted EBIT. However, our margins also contracted 37% in our TeamQualspec business unit on flat revenues, reflecting the margin pressure on the business in this tough market environment. Quest Integrity continued to be a bright spot throughout the second quarter, reporting an operating margin of 18%. In fact, on a year-to-date basis, Quest Integrity has generated an adjusted EBIT margin of nearly 19% on revenues that are up roughly 30% over last year. So while revenue declines and mechanical services contributed significantly to our underperformance in the quarter, margin pressures and cost creep were also material contributing factors to our disappointing bottom-line results. So what are we doing about it? The disappointing earnings and continuing lag in our business activities prompted us to undertake a $30 million -- in cost reductions in order to rightsize our business in line with current market conditions. Sadly, we were forced to say goodbye to many of our colleagues over the past couple of weeks as a part of that cost reduction initiative. On a personal note, I’d like to express my sincere appreciation to each of the employees impacted by this decision for their dedicated service to Team. So why $30 million? It represents about 4% to 5% of our total fixed cash costs, or slightly more than 10% of cash basis-adjusted SG&A. It’s the amount that on a pro forma basis would have made us profitable in the second quarter, even at reduced revenue rates. And it’s also an amount that we believe and most importantly that we can safely reduce without compromising our ability to serve our customers in an outstanding way or our commitment to invest in key innovation and performance improvement opportunities. So why not sooner? The fact is that as May results became apparent, it was clear that our total SG&A costs on an adjusted basis would exceed the SG&A target we guided to, about $80 million a quarter. In fact, our adjusted costs actually came in about $84 million in the second quarter. So with the continued softness of our mechanical service businesses throughout the spring, and the contraction in TeamQualspec margins coupled with our higher-than-expected overhead run rate, we took the announced actions as soon as feasible. Now let’s turn to the near and long-term business outlook. We started 2017 with an expectation that the difficult business environment of 2016 would be behind us. By now, we expected to be pivoting from the soft market of 2016, turning the corner into a more promising 2017. Unfortunately, 2017 hasn’t worked out that way. While we’re still seeing softness in our served markets though, we are continuing to see year-over-year growth in our inspection-related businesses. In fact, based on where we stand today, I believe that Quest Integrity is likely to have one of its best years in its history, driven in large part by an inspection and condition assessment activity. And TeamQualspec is now showing modest year-over-year growth. That’s a good thing, and I believe a good barometer for broader market condition improvements, which will ultimately be reflected in higher customer demand for our mechanical services offerings. Unfortunately, we just haven’t seen that year-over-year improvement in our mechanical service business yet. And why is that? Because demand for mechanical services in the U.S. generally continues to be weak, characterized by deferrals and/or smaller projects when planned. That’s a pattern that we and others in our industry believe is unsustainable, particularly when you think about the continued maintenance pressure on infrastructure, given the high utilization and refinery throughput rates. You all have access to lots of industry data, but let me just share a couple of data points to put this in perspective. Planned turnaround activity in the U.S. is running about 40% of the past eight year average for planned turnaround spend, and the 2018 backlog for planned turnaround activity now stands at about a 10 year high. And let me provide some additional perspective on what’s happening in our space from the services supply side. We’re not alone. Several public companies in mechanical service adjacencies have reported similar year-over-year revenue declines. So while inspection activities are beginning to improve, the pent-up demand for repair services has not yet materialized. But we’re not waiting for the markets to help us, though. We’re taking the necessary steps to improve our financial results, irrespective of market conditions. With the cost reduction steps we’re taking and the $230 million of new capital, I believe that Team is well-positioned to respond to anticipated market pressures and opportunities over both the near and long term. Our capabilities and ability to serve our customers in an outstanding way have not and will not be compromised. This is a great company. We’re a strong organization that survived and thrived in challenging times, including steep and extended energy sector down cycles. We’ve done it before and we’ll do it again. We will demonstrate our resilience and resolve to our customers, our colleagues and our shareholders as we work to improve our performance. Our vision for Team is unchanged. This year, we will be completing three major initiatives: the integrations of the acquired Qualspec and Furmanite businesses; and the North American implementation of our new ERP system. As I’ve indicated, all of those initiatives have been hard, but we knew that they would be hard. It’s hard but it’s worth it. We are unifying very proud organizations, standardizing on composite best practices and beginning to now more fully leverage our deepened industry domain experience, more integrated service capability and broader geographic footprint. The integration end is in sight and we look forward to realizing our goal of being the premier industrial service company in our space, an equally balanced portfolio of inspection and engineering assessment services on the one hand, and specialty mechanical services on the other hand. And not just a balanced portfolio but the market leader in all that we do. Our end markets will improve. And no one is better positioned to take advantage of improving markets than we are, based on the safety, quality and size of our technicians and equipment pools and of our supporting infrastructure. No one is more disappointed in our results and our stock price performance than I am. But I also know that we will return to Team-like performance soon, and when we do, the stock price will take care of itself. With that, let me open it up for questions.

Thank you. [Operator Instructions] And our first question comes from Tahira Afzal. Your line is now open.

First question is really in regards to what seems to be happening, as you said, the near-term is clearly a little more challenged in terms of activity levels. So in terms of the cost cuts you have announced, what are your underlying assumptions around the fall turnaround season and the next spring turnaround season?

We expect the fall turnaround season relative to our kind of internal forecasts and our cost cuts to be generally flat, if you will. We’re not anticipating a robust season. We’re expecting kind of a continued modest growth in inspection services. And a generally flat outlook for inspection, for -- sorry, mechanical services in the fall. We continue to believe though, that 2018 is going to be a pretty robust year. There’s a lot of scheduled project activity that we expect to benefit from in 2018. But we’re not seeing it again in -- for mechanical services in the second half of the year.

I guess, in terms of cost cuts then, as we go into a lighter seasonal quarter in a sense, do you feel your cost cuts will be in place to sort of deliver something that is breakeven or better? If there any help around that timeline would be helpful as well, Ted.

Yes, Greg, why don’t you discuss the timeline for the cost cuts?

We’re well underway on the cost cuts. The majority of the cost reductions, as Ted mentioned, are related to headcount reductions. A significant portion of those are completed, probably in the range of 90%. We would expect though, any remaining reductions, along with some of the soft costs that we’ve identified that we’re going to be working on, we would expect the majority of those to be completed and in place in the first part of Q4.

Okay. That’s helpful as well...

There will be savings impacts in Q3 as well, as a lot of the things that we did, we did at the end of July. So there will be 1 month of savings, or a couple of months of savings related to Q3. But we won’t achieve the full run rate until Q4.

And our next question comes from Matt Duncan from Stephens.

So Ted, first question just as a follow-up to your answer on Tahira’s question there. What gives you guys confidence that the fall turnaround season is going to be flat? And what are you seeing in the end market right now? I know, go back 12 months ago, we thought the spring was going to be pretty good and the fall was going to be great. And spring came in down a good bit for you. And so now you’re expecting fall to be flat. So what are you seeing that suggests that, that’s what’s going to happen?

Well, what we’re meant -- what we’re basically seeing right now, Matt, is our own project activity for the fall turnaround season. So we’re beginning to kind of get a sense of projects that are scheduled for the fall. And again, what I’m saying to you is that it is not -- that we’re not seeing an uptick in the fall. We’re seeing a -- kind of a continued pattern that existed in the first half of the year. So we’re not -- when I’m saying flat, I’m saying kind of flat to the spring season. We think it’s going to be -- look a lot like that.

I got you. So flat, flat with the spring down year-over-year, is what that would look like?

Well, perhaps -- down to fairly flat. I think, again, I think inspection is going to be up. And mechanical services, up, obviously it’s a -- because we haven’t seen the turn in mechanical services, we’re -- we don’t have a strong point of view about the fall. It feels like the spring to us.

Okay. All right. And then on the cost side, on the first quarter call, you guys told us that SG&A was going to run at an average of $80 million a quarter for the balance of this year. If -- like, current activity levels, and obviously, it came in at more like $84.5 million on an adjusted basis. So what surprised you guys on the cost side? And then as you look out on the cost cuts that you’re making here, how much of these would you call permanent, don’t come back in a recovery-type expenses versus things that you’re going to have to add back as the business grows?

Well, first of all, relative to the second part, all of these are what I call permanent type reductions. These are not costs that I would expect to add back as recovery grows. I think we are -- I think we have to learn to -- and our customers expect us to do more with less. And that’s the challenge. And -- so these are not reductions that are just temporary and when the world gets better, we just kind of add them back, that is not our intention at all. With respect to the first part of your question, again, there’s a couple of things that surprised us relative to the -- to costs in the second quarter, the $84 million. There were -- and I’m not going to wallow in what they were, but there were -- we had some kind of out of period-type costs that impacted the quarter. But the more important point was that our run rate was running higher than our targets and our expectations. And because of that, and as soon as it became apparent to us that, that was the case then we started taking action to make sure that, that cost curve in fact turns.

Matt, this is Greg. Just one of the things that’s a challenge for us right now is -- and as you can understand, all 3 businesses had legacy systems that they had been using for a long time. And we -- 2017 as it relates to IT, it is really a transition year as we’re pivoting from these legacy systems to the new system. There’s a lot of things that are fluid. One of the things that happens is as we -- as we’re pivoting from implementation in the field to actual support of live system, the accounting for those is what I’d call run and maintain as opposed to nonroutine. There’s just a lot of transition as it relates to IT as we’re getting our arms around the tools and the resources that are needed, both to complete the project and to support the system going forward. So there’s just a lot of -- just transition related to IT. And honestly, until we’re finished with the implementation in North America, it’s a bit of a challenge to sit back and say, "Okay, where are the areas within IT that we need to go after from a cost reduction perspective?" Because there’s just so much going on in that area right now as we transition to the new system.

Okay. Greg, if I can sneak one more in then. Is the -- I know you guys knew about ERP obviously, when you bought Furmanite. But it sounds like maybe there are other IT investments that you had to make, that maybe you weren’t anticipating, that are part of why costs are going up even as you’ve integrated Furmanite taking cost out presumably through that process. So are the higher IT costs something you contemplated when you guys bought Furmanite? Or is this something you kind of discovered as you put the pieces together, that you needed to invest in a more robust organization?

That is exactly what’s happened. As it’s related to our evaluation of all the -- there are a lot of tools that are being utilized in addition to just the ERP system. At the end of the day, one of the things we found out that -- is that across, I’ll just call it, the new organization with the 3 businesses, a lot of those tools were not as robust. There may have been some people that needed to use tools that didn’t have the license to use the tools. So there’s just a lot of -- there is a lot of investment in tools and capabilities within IT in addition to just the ERP rollout that, to your point, have come up this year as just part of this whole transition to the new system.

And our next question comes from Craig Bibb from CJS Securities. Your line is now open.

It’s Pete Lukas for Craig. I may have missed it earlier, I apologize, I had some phone problems here. Do you have an estimate for the range for the all-in annualized cost for the recent financing?

The all-in interest expense as it relates to the convertible, you should model the total interest expense, that’s the cash interest on the coupon plus the amortization of the equity component and transaction fees, it’s probably going to be in the range of $7 million to $8 million over the remainder of 2017 on the convertible.

Great. And then just one more follow-up for me. In terms of TeamFurmanite, do you see an opportunity for them to pivot to pursue more of the new construction business?

Kind of yes and no. The broader no is that we serve existing infrastructure. The services that we offer are typically -- particularly on the specialty mechanical side are particularly related to existing infrastructure as opposed to new construction. New construction gets us more into project management activities. While we do that on a small scale and in a very niche capacity, it will not be our intention at all to compete with many of our customers, if you will, who are offering broader scale project management type services that typically are associated with new construction. So I think 90%-plus of our activity levels will continue, have been and will continue to be existing infrastructure, which I think again, is a good thing.

And our next question comes from Martin Malloy from Johnson Rice. Your line is now open.

I was wondering if maybe you might address kind of the competitive situation out there. And my I guess concern is that -- are you all losing market share in any way? And we’re seeing some large public companies make some investments and trying to come into the space, Quanta, Fluor. And just trying to figure out if there’s any sort of loss of market share that you’re aware about there by Team?

Well, I mean that’s a very good question, Marty, and one that we ask ourselves continually. And again, when we bought Furmanite, we expected to lose some share particularly when we were both in the same plant. So we’ve contemplated that on the front end. And there is also, I would tell you, and I think I said this before, there’s been, and again in the early days, there was kind of what I call poaching and kind of unrational behavior by some competitors to poach technicians with the view of taking business. And honestly, that did not work and many or most of those guys have come back into our fold. So what we do is we look at, who are our customers today, who are our customers a year ago, do we have the same customer base, are we looking -- can we identify new competitors in our space that -- who we believe have taken more share or who are benefiting, if you will, from the TeamFurmanite merger? And honestly, we do not. We don’t see any. We can’t identify any significant loss of business that we would have -- that was unexpected, certainly on the front end. And I will also tell you that we look at this -- we look at publicly available data from competitors who have kind of adjacencies, have mechanical service adjacencies in our space. And the notion that we’re not alone, again, while it doesn’t make us feel good and it certainly hasn’t helped our performance, it is indeed indicative that the decline in TeamFurmanite mechanical service revenues is consistent with what other public companies who have mechanical services in adjacent spaces have reported. So we’re not seeing any significant new competitors in this -- in our space. We’re not seeing -- we can’t identify significant loss of business. It’s just there’s just less of it right now. But that’s why we focus a lot on -- kind of the notion of -- infrastructure’s under a great deal of pressure. Throughputs are high, utilization rates are high and Mother Nature is persistent, and I -- makes us -- and again, we’re starting to see the pickup in inspection-related activities. Not yet in mechanical service activities, but we believe that will come.

And that kind of leads into to my second question. We’ve seen this now for eight quarters, where the results have been below expectations. And eventually the course of nature, of a lot of what goes through your customers’ pipes, would lead one to think that they’re going to have to -- there’s going to be some catch-up here. Are you seeing any increase in terms of emergency call out work? Or any sort of incremental work that would indicate that there’s starting to become some issues here? And I guess relating to that, any impact on your business or your customers from the changing crude slate, with more sweet crude coming from the U.S. shale plays? Does that impact the amount of services that they might demand from you?

Relative to that question, Marty, we don’t think so. And we’ve looked at kind of crude slates and kind of the components over time of changing crude slates. And if you look at it on balance, it’s modestly moving towards sweeter crudes. But it’s a fairly slow, slow change. And so it doesn’t account, in our view, for any kind of change in the corrosive nature of the media, if you will. So we don’t think that’s a factor at all. And honestly, I’ve just -- I slipped on the first part of that question.

Just any sort of incremental work you’re seeing in terms of emergency call out work that might indicate that there’s kind of...

Yes, I mean, it’s a little hard to measure directly, but I will tell you, what we are seeing is, and kind of -- and data supports is that while -- and I indicated, I think, in my comments, that planned turnaround activity is like 40% of the 8-year average over the last couple of years, while unplanned turnarounds are -- have been increasing, I think they are like 15% higher over a couple of years, don’t hold me to that because I’m trying to recall the data that I’ve seen. But the point is, that’s not a very efficient -- that’s not very efficient for our customers in our view and in the view of others that we’ve talked to, if you’re deferring planned activities and the impact is to cause you to have more unplanned activities, there’s probably a better way to do that. And again, I don’t think that’s sustainable over a long period of time.

Marty, this is Greg. We heard of an example this week at a specific location, where there was some work that had been planned in the spring that was deferred. And they had an unexpected failure occur just recently and needed an emergency callout, which we went out and have worked on. So yes, there are those isolated one-offs that can and do occur.

And our next question comes from Tom Radionov from Corre Partners.

I was just hoping to get a bit more granularity around some of the end markets. And specifically, I’m curious if the trends you’re seeing in your refinery customers, if those are different from what you’re seeing from the petrochemical customers -- or anybody else, just trying to figure out if most of the pressure is coming from the refining side of the business, or if it’s a broader issue with everybody else as well.

The IIR data that we look at, specifically the petrochem planned spending activities thus far in 2017, and this is a forward-looking index, but for every month in 2017 as it relates to the petrochems, the planned spending activities over the remainder of the year have been robust, year-over-year increases in planned spending activities. As a comparison on the refining side, for -- through the first 7 months of the year, they were positive for the first 4 months of the year and they’ve just recently pivoted the other way. And the last few months of the -- and this is polling data. This is not actual spend data. This is polling data of refinery customers and their planned spending over the remainder of the year. That polling data has softened on the refining side.

I’m just trying to...

Just as a follow-up to that, there’s a lot of new construction and particularly in the petrochem space, in the LNG space, in the -- particularly along the Gulf as you probably are aware. We’re benefiting from that. And there’s a lot -- those facilities become infrastructure. And so certainly, the pressures we’re seeing in our business are concentrated principally in the refining space. Refining represents for us about 40% -- 40% to 45% of our business. Petrochemical is about 20%, pipeline is about 10%. So there’s a lot of positive developments in the petrochem space that I think is going to be very significant prospectively, even now as it relates to some of the new construction activity. But as those facilities come onstream, that creates maintenance and inspection opportunities. A lot of pipeline regulations, it’s an -- pipeline space is an aging infrastructure of pipelines. New regulations that are driving more inspection in kind of moderate-consequence areas and things like that. So it is fair to say that the most significant negative pressure on our business right now is in refining.

Got it. And as a follow-up to this, do you have the IT systems in place, given sort of all of the M&A that you were going through over the past couple of years to be able to look at any single customer within the refining business, for example, and be able to figure out precisely how much business you generated last year, the year before, how much you’re generating this year and sort of try to kind of draw some conclusions from that? Or is that a part of the problem, that maybe some of that visibility is not necessarily there...

Yes, that’s absolutely an issue for us, is the visibility, because we are -- if you think about it, we have 4 major legacy systems that we’re continuing to operate on. The new kind of modern dynamic ERP system that we are implementing across our North American network, that’s about 70% implemented at this moment in time. So as we’re standing that up, we’re laying down the legacy team systems. We’re laying down the legacy Furmanite systems and the legacy Qualspec systems. So you’re really kind of looking at data across 4 different platforms, if you will. That’s why the implementation of this ERP system across North America is so critical to us, to have the kind of data more visible that you’re referring to.

And I just want to sneak in a very quick second question. When you look at the -- your total business from a sales perspective, just roughly, like how much of that would you characterize as a percentage of revenue, would you characterize as being related to turnarounds, sort of the typical seasonal turnarounds versus your regular maintenance work that needs to be done throughout the year versus maybe emergency work? Just trying to get a feel for the relative size of these 3 buckets within the total revenue pool.

About one third.

I think you should look about it, like about -- it’s about one third.

Got it. And you’re saying the pressure is -- I guess, and the pressure is across all 3 buckets? Like, it feels like we spend a lot of time talking about the turnarounds, but it seems like you’re seeing a reduction in scope in all of these 3 buckets, is this sort of a fair...

Yes, I mean that’s absolutely true. The routine maintenance and inspection, there’s significant downward pressure there as well. There’s not -- no question about that. It is easier to identify turnaround spend, if you will, than perhaps those other buckets. But there’s no question, it’s not just turnarounds, it has been a minimalist mode on the part of our customers, really for the last 18 months.

[Operator Instructions] And our next question comes from Matt Duncan from Stephens. Your line is now open.

Greg, on the interest expense, to maybe get a clear answer to the question that was asked earlier, what is the total all-in corporate interest expense that’s going to flow through the P&L, both the convert and your other outstanding debt on a go-forward basis after the convert?

Well I think, rough-cut, we’ve got 230 million of convertible debt. I think the all-in effective rate on that is probably around 8.95%. That’s inclusive of the 5% coupon and the amortization of the equity component and the transaction-related costs. And then on the revolver, probably looking in the 5% range on the outstanding balance.

Okay. That helps. Because you’ve got this noncash component of interest expense, are you going to break out for us, each quarter, how much that is? So that if we want to come up with kind of an earnings number that takes away the effect of having to amortizing those costs on the convert, we’re able to do that, is that something you guys are contemplating doing?

Yes. I mean that would be very easy for us to break out. And I mean, there’s clearly going to be a component of the interest expense related to the convertible that’s noncash, that would be a calculated number every quarter using the effective interest method. And we can easily provide that information on a quarterly basis, yes.

Yes. I think I would. I think that’d be a good idea. And then lastly on the convert, you said in your prepared comments, it sounds like the company’s discretion if someone wants to convert those, you can give them cash instead of shares. Is that going to be your choice? And I guess, would you do that with bank debt? I assume obviously the EBITDA is going to have to gone back up to be able to add bank debt back again. But what is the company’s preference in terms of if someone -- if the stock does well, someone wants to convert that, what is your preference in terms of how you would handle that?

Well, that’s the thing about the structure of the deal. We’ve given ourselves optionality relative to -- we could pay the principal back in cash, and just pay the premium in shares, or we could do it all in shares. That’s something that we -- it was important to us to have that optionality in the structure of the deal, such that when the time came to "settle", we could make an evaluation. I think fundamentally, our view would be to sell as much in cash as possible.

Yes, just said another way, Matt, again, very complex instrument. But if you think about it this way, that we have -- it’s callable by us after four years. It’s -- the maturity of the notes are in six years. It would certainly -- so it’s a little bit difficult to answer the question you’re posing right now, when we’re really talking about an event that’s going to be six years from now, or four to six years from now, if you will. But clearly it was not -- would not be our first choice to have a significant dilution of EBIT relative to the convertibles debt.

And what is the premium on those, if you do call them earlier or if you want to buy them out with cash, what’s the premium?

Our premium is plus 130 over the conversion price, which, I think, is a little over $28 a share.

Conversion price was plus 40 to the stock price on the day of the deal.

Thank you. I’m not showing any further questions at this moment. I would now like to turn the call back to Ted Owen for any further remarks.

Thank you. And again, I appreciate your attention to today’s call. These are challenging times for Team. These are very difficult times for our -- certainly our long-term shareholders including us, management, the employees and our colleagues at Team. But again, my message now is more to our internal -- our colleagues at Team. Our job is to perform. We’re going to do that. We’re going to fix this, if you will. We’re not going to spend a lot of time worrying about the stock price, because we can’t control that. What we can control is our destiny, if you will, from the standpoint of our own -- of the performance of the company when we -- and that future is very bright. And the stock market, as I said, kind of will take care of itself. So thank you all for your interest in today’s call. And have a good day.

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