Team Inc (TISI) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Team, Inc., quarterly earnings conference call. At this time all participants have been placed on a listen-only mode and the floor will be open for questions following the presentation. It's now my pleasure to turn the floor over to your host, Mr. Phil Hawk. Sir, the Floor is yours.

Thank you, Sarah. Good morning, and welcome to the quarterly -- 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 is Mr. Ted Owen, the Company's Senior Vice President and Chief Financial Officer.

As with prior calls, the purpose of today's conference call is to discuss our recently released financial results for the Company's third quarter and year to date fiscal year 2005, ending February 28, 2005. 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, our 8-K, 10-Q, and 10-K filings to the SEC as well as our annual report.

Ted will begin with a review of the financial results. I will then follow Ted with a few remarks and observations about our performance and prospect. Following these remarks by Ted and me, we'll take questions from our listeners. Those wishing to ask questions should call 1-888-896-0862 and ask to join the Team IR conference call.

With that introduction, Ted, let me turn it over to you.

Thank you, 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. Such information is subject to certain assumptions and beliefs, based on current information known to us, and is subject to factors that could result in actual results differing materially from those anticipating in any forward-looking statements that we discuss today. So please read the last paragraph of our press release for a complete description of those factors.

Now to the financial results. Revenues for the quarter were $56.3 million compared to 25.1 million in the third quarter last year. That's an increase of over 120%. Certainly, that's due in large part to the acquisitions of Thermal and Cooperheat-MQS, which were not in last year's quarter, but is also a result of substantial revenue growth in our legacy mechanical service offerings.

Operating income or earnings before interest and taxes, was 2.9 million in the 2005 quarter, versus 1.7 million in last year's quarter. Net income for the quarter was $1.3 million compared to $1 million last year. Earnings per diluted share was $0.14 versus $0.12 last year.

Now let's look at the results by segment. First, as a reminder, our Industrial Services segment includes an array of specialized services related to the construction and maintenance of pressurized piping and process systems, as well as specialized NDT inspection services.

As a result of the recent acquisitions, we have reorganized the Industrial Services business into two groups: Team Mechanical Services, whose acronym is TMS. TMS includes leak repair, hot tapping, fugitive emissions, monitoring, field machining, technical bolting, and field valve repair services. And then the second unit is Team Cooperheat-MQS, and the acronym for that is TCM, which is comprised of field heat treating and NDT inspection and includes the former operations of Thermal Solutions, Cooperheat-MQS, as well as Team's legacy inspection business, X-Ray Inspection.

In the table to our press release, we have once again provided enhanced disclosure about the revenues and margins for these two separate groups for the quarter and year to date, again, because of the significant change in our year-over-year comparisons as a result of the acquisitions.

Now, revenues for the Industrial Services segment in the quarter were $51.7 million compared to 20.9 million last year. That's comprised of 25.3 million for TMS and 26.4 million for TCM. The TMS revenues, which is essentially our legacy businesses, if you will, grew by 40% in the quarter over the same period a year ago. Nearly all of the TCM growth of 23.6 million is associated with the Thermal and Cooperheat businesses.

With respect to the TCM unit, the issue for us is to get the same financial performance in that business as we've achieved from our mechanical service offerings. The gross margin percentage from the TMS business is 37% in the quarter, while the gross margin from TCM is only about 30%. Phil will discuss this disparity and the activities that we're taking to improve that performance in just a few moments.

With respect to the equipment sales and rental segment -- and that, as you will recall, is the Climax Portable Machine Tool business. That business continued to perform very well in the quarter. Revenues were 4.6 million. That's up 10% from last year's third quarter. The segment earned $750,000 in the quarter. That's down about 120,000 from last year, but as a remainder, last year's quarter included a very profitable special tool order of $1 million. So that in spite of the very high comps from a year ago, Climax continued to perform very well in comparison..

Now, moving to corporate costs, our total SG&A costs were $2.7 million in the quarter, and that included $500,000 of integration cost and $100,000 of costs associated with compliance with Sarbanes-Oxley Section 404, or SOx, in the vernacular. By the way, to tie out numbers, there's an additional $200,000 of integration cost that's embedded in Industrial Services segment, SG&A. So in our press release we talked about a total of $800,000 of integration in SOx-related cost.

We expect a continuing high level of cost associated with these activities in the fourth quarter, although we expect the mix to be more toward SOx cost, which we estimate will be about $500,000 in the fourth quarter, and we estimate integration costs will be about $200,000 in the fourth quarter. While integration costs are expected to be substantially completed this year, we will continue to have high level of SOx-related expenses into the first quarter of next year.

Unfortunately, as I said, our Sarbanes-Oxley expenses are not mostly behind us, as the integration costs are. We talked about the projected cost of $500,000 in the fourth quarter, relative to the documentation and testing of our internal control systems. Additionally, during our year-end external audit we expect substantially higher audit expenses related to the auditor's requirement to evaluate and test our documentation and assessment of the internal control environment. Candidly, our current estimate for complying with Sarbanes-Oxley requirements is approximately twice the level of our original estimate. Based on recent articles that we've seen in the financial press, we believe that that's an experience that, frankly, most other companies in America are also experiencing.

Relative to this year, our primary focus has been to smoothly integrate our acquired businesses into our Company. As we move forward from here with most of the major integration activities behind, we will be focusing on streamlining and automating corporate support activities where appropriate to capitalize on the opportunities and scale of our expanded business.

Now let me talk to debt and cash flow for the quarter and year to date. Obviously, there have been significant changes since year end associated with the Cooperheat acquisition. To remind you of its impact, the total acquisition price was approximately $35 million. Total assets associated with the acquisition that are included in our footings are approximately $43 million, including 16 million in current assets, 12 million in property, plant, and equipment, and 15 million of other assets, which is principally goodwill.

We assume current liabilities of approximately $7 million and incurred debt of about $36 million to close the transaction. And by the way, we're still in the process of asset appraisals and assigning the fair market value to those assets, which will be completed in the fourth quarter and could cause some shifting between property, plant, and equipment and goodwill carrying values.

Financing for the transaction was provided through a $75 million credit facility through a six-bank syndicate led by B of A, Bank of America. The facility consists of a $25 million term loan and a $50 million revolving credit facility.

While since the end of the second quarter, our debt actually decreased by about 650,000 to the end of the third quarter, debt has increased by about $5 million since the conclusion of our third quarter. That's a result of substantial growth in working capital, principally accounts receivable, associated with our rapid business growth, which has continued into March and April of this year.

The substantial working capital growth in the second and third quarters has resulted in a negative cash flow from operations for the first nine months of about $1.9 million. Additionally, year to date, capital expenditures have been approximately $3 million.

We are now at the very peak of our annual business cycle and are focused on collection activities to significantly reduce our accounts receivable and related debt. We expect to see cash flows dramatically improve in the short term. However, to assure ourselves that we have sufficient near-term capacity, we've asked our banks to increase our line of credit by $5 million in the short term and modify certain financial covenants that are due to be in place on May 31st. We expect to receive that commitment from the banks this week.

And so with that, Phil, I will turn it back to you.

Thanks, Ted.

Let me begin with just a few general comments and observations. I think it's clear the Company took many positive steps during the recent quarter. First of all, we saw nice progress in our overall financial performance. Despite absorbing over $800,000 in special costs associated with the integration activities and Sarbanes-Oxley compliance activities, our net income grew 30% versus the prior year quarter. If you recall, last quarter when we had our conference call, we were a little behind that prior year quarter, so -- and this quarter we're a little ahead, and then as we look forward we expect continued progress as we look to kind of performance in the current quarter.

This financial performance is driven by our strong revenue growth. Our business activity levels and revenues were excellent across both business segments. For both the quarter and on a year-to-date basis, we have achieved double-digit revenue growth or more in both components of our industrial services business segment as well as with Climax.

As Ted indicated our overall revenue growth for the quarter was 124%, again, principally reflecting the impact of acquisitions. Industrial Services segment revenue growth was -- for the quarter -- was nearly 150%. Again, reflecting those acquisitions. Yet, when you look at Team Mechanical Services revenue growth, which in this growth is organic, because it's not driven by the acquisitions, it was a very impressive 40%. And Climax, again, was another 10% for the quarter and 22% year to date.

Finally, we are also making -- continuing to make progress with the integration of our new Team Team Cooperheat-MQS heat treating and inspection service lines. The biggest step forward this quarter was the implementation of our J. D. Edwards financial system in all domestic Team Cooperheat-MQS branches, effective in February. This system provides detailed information on individual job level profitability, customer profitability, and technician utilization levels. We are confident that this enhanced information will help drive further improvement in our TCM profit margin performance.

Also during the month of February, we consolidated all financial, information technology, and personnel and benefit support activities into Team's Alvin headquarters and vacated the former Cooperheat-MQS headquarters. To summarize, we are pleased with the progress we are making but still have more progress to go.

Now let me make a few comments about our individual business segments, beginning with the Industrial Services segment. Segment operating profit was $4.8 million for the quarter, up over 100% from the prior year quarter. Operating profit as a percentage of revenue was about 9%, about one percentage point below prior year levels. The primary driver of the strong profit growth, as we talked earlier, is the nearly 150% growth in the revenue in the segment.

Both the TCM and TMS units contributed significantly to the overall revenue growth. As indicated previously, TCM component revenues were 26.4 million, up more than eight-fold. Again, primarily due to the acquisitions. Although I would also note that we are very pleased with the ability of this unit, TCM, to fully maintain its business space during our transition period. In fact, we believe we're beginning to see the positive effects of our business development initiatives in this unit and expect to see improving market share as we go forward.

For the quarter, we were particularly active with major projects on the West Coast, Gulf Coast, and Central regions. All in all, we have a very encouraging outlook for the Team Cooperheat-MQS business going forward.

Team Mechanical Services also had an extremely busy quarter. Revenue growth in total was an extraordinary 40%. This growth reflected continued 10%-plus or around that 10%-plus growth range for the non-turnaround services, comprising leak repair, hot tapping and fugitive monitoring, supplemented by very large turnaround related revenues.

Geographically, TMS was particularly active in the Southeast, Gulf, and Central regions, as well as in Canada and Latin America. Because of this extraordinary volume during the quarter, the year to date revenues for the Team Mechanical Services unit are now 16% ahead of last year, back in the double-digit growth range.

We have been anticipating a strong second half of the year, as many customers caught up with their deferred turnaround activities. Well, it happened in the third quarter.

Overall operating income as a percentage of revenue declined about one percentage point to 9%. The primary driver of this decline is the impact of the lower profit Team Cooperheat-MQS business component to overall segment profitability.

Total gross margin for the Industrial Services segment was 33%, a decline of about 5 percentage points. The TCM business component, which is more than half the total business today, earned only a 30% gross margin for the quarter, driving the bulk of the decline.

As we mentioned previously, in February we implemented Team's J. D. Edwards financial system in all domestic branches. We expect to see significant improvement in the TCM margins in the coming months as our managers take advantage of the improved profit analysis and business visibility that our new system provides. While it is not completely appropriate to compare third quarter to second quarter results, due to the impact of the holidays and other seasonal factors, I would note that the TCM gross margin, while still well below where it needs to be, was about two percentage points higher than in the second quarter.

Profit performance for Team Mechanical Services was about in line with expectations. At the gross margin level, TMS gross margins were two percentage points below the prior year at 37%.

Nearly all of this shortfall can be attributed to a major international project that had a significantly higher proportion of low margin pass-through expenses associated with it. Notwithstanding that we have an explanation for this quarter's results, we continue to maintain considerable focus on job margins and overall unit gross margins.

Looking at SG&A -- segment SG&A -- overall expenses increased significantly due to the acquisitions, but decreased as a percentage of revenue, to 24%. In the future we expect to see a declining expense level in this area as we move beyond the initial integration activities.

In our last fiscal year, the Industrial Services segment operating income, as a percentage of revenue, was about 15%. We continue to see no reason why our expanded Industrial Services business, comprised of both the TMS and TCM components, will not reach that performance level. We are not counting on getting all the way to that level in the coming year, but we expect considerable progress in that time frame.

To summarize my comments on the Industrial Services segment, we are very pleased with our activity levels and their outlook going forward. We believe we are making progress on improving our profit margins, but still have a way to go there. My priorities are to continue a strong focus on job margin performance, particularly related to TCM activities, and to continue to monitor and manage our support costs and ensure that they are in line with our business levels.

Now let's shift to the equipment sales and rental segment, which is Climax Portable Machine Tool Company. This unit had another good quarter. Revenues for the quarter and year to date were up 10% and 22% respectively. This growth came from a combination of standard equipment and custom machinery sales. Sales grew in all major geographic areas, including North America, Asia, and Europe. We are pleased with this continued growth. The Company's strategy to expand its focus on the ship building and power industries continues to be productive.

From a profit perspective, the unit earned $752,000 and $1.1 million for the quarter and year to date, respectively. The 16% operating profit margin for the quarter and 10% year to date operating profit margin for the year to date are in line with our fiscal year '06 profit targets for the business. As Ted indicated, the quarterly results were slightly below the prior year quarter, due to a shipment of a very high margin project in the prior year, but year-to-date results are nearly twice prior year levels.

While pleased with these overall results, we continue to focus on opportunities to improve our manufacturing margins. Our outlook for the remainder of the year for the segment is attractive.

Shifting gears now just before we wrap up, on an Investor Relations kind of issue or matter, we are pleased to note that a new sell side analyst firm, CJS Securities, has recently begun coverage of our Company. We now have three firms writing on our Company. In addition to CJS, Sidoti & Company and first Dallas securities are also maintaining coverage of Team. We appreciate the continued interest of all of these firms in our Company.

Let me wrap up with a couple of comments on our outlook. We are optimistic about our business and expect continued improvement throughout the remainder of the fiscal year. We expect continued revenue growth in both business segments and across many service lines. We expect improved margins, particularly in Team Cooperheat-MQS.

I want to point out that the leverage of improvement in this area is very significant. A single one percentage point improvement in our operating income margin will yield about a -- just for the Team Cooperheat-MQS segment component -- will yield about a $0.07 per share improvement in overall Company profitability. Based on the progress we have made and the expectations of continued improvement, we remain comfortable with our previous fiscal year '06 earnings guidance of $1.25 to $1.40 per share.

Before opening up for questions just a few final comments. To summarize, we are pleased with our strategic position. The expanded combination of eight specialty service lines, the industry's largest service network, the industry's largest market share in this highly fragmented market, and continuing and growing customer preferences to combine service requirements with few -- fewer service providers positions Team very attractively. Nothing we have seen or experienced since the acquisitions have diminished our assessment of this opportunity.

While we are not where we want to be ultimately, profitwise, we are clearly making progress. This third quarter was a nice step forward. We expect similar progress in the quarters ahead. Now the key for Team is execution. As a great service company, we need to maintain our focus on providing outstanding customer service in every opportunity, safely, effectively, and efficiently.

With that, now let's open it up for our questions. Sarah, would you manage that for us?

Thank you. The floor is now open for questions. [OPERATOR INSTRUCTIONS.] Our first question is coming from Arnold Ursaner with CJS Securities.

Good morning, gentlemen. This is actually Dan Moore filling in for Arnold Ursaner. How are you?

Good morning, Dan. How are you?

Very well. Focusing on the integration of Thermal and Cooper, is there anything you've figured out that gives you more comfort or makes you believe that the margin goals, particularly in the TCM segment that you've kind of laid out, are attainable?

A couple of things on that, Dan. I guess, first and foremost we have been in the inspection business for five years with our acquisition of the XRI inspection company back then, and that company is now -- has been for the last five years -- on our financial systems, and their margins are at or above the targets we have for the combined business. So we think we've done it, you know, where we've been able to use our systems.

With regard to heat treating, which is a new business for us in the past year, we have a lot of historical information on the performance of these businesses, both Thermal and the Cooperheat business prior to the financial distress, as well as a board member with 30 years experience in the heat treating business, all of this information again supports our strong belief that the profitability of our new businesses should be at or above the historical profitability of our Team mechanical services. So we're quite comfortable that it has been done before. We have done it before, in some of these areas, and it's just a matter of getting our tools in place and executing.

Very helpful. Are there any duplicate expenses that you've found that due to the integration would go away that -- once that integration is complete, beyond kind of what you've obviously laid out previously?

We expect there to be some scale opportunities in our corporate support activities as well as some of our business segment support activities. I will say that it hasn't been a priority for us to get those scales because we're focusing primarily on getting up and running, but that is a -- as both Ted and I mentioned, a clear area of focus that we're looking for all of those opportunities to balance our resources appropriately, and we think as a percentage of revenue, those resource levels, if you say -- look at corporate expenses, will be lower as a result of the acquisition.

Okay. And finally, just to clarify, I know that Sarbanes-Oxley obviously will continue. The integration expense beyond Q4: do you expect anything material beyond the next quarter or will that start to trail off? Did I hear you right there?

You did hear us correctly. There shouldn't be anything material after this year on the integration side.

Very helpful. Thank you.

Thank you. Our next question is coming from Andrea Worth with Robert W. Baird.

Good morning. Wondering if you could talk a little bit about the integration. You mentioned that you had finished implementation of the J. D. Edwards system in February. Just wondering what the first blush of the labor utilization rates look like, and kind of what are they telling you about the service centers you have and maybe what kind of changes you need to make?

Again, I don't -- recall we have a single month under the J. D. Edwards in February and we now have a single -- a second month, March, so we are two months into this. I think the -- so I hate to declare victory or key insights on such a short time period, Andrea.

I guess anecdotally I think what we clearly have seen from this is that there's just a lot more visibility for all our managers on what their utilization levels are. They actually were -- this is a very busy time for us, so our activity levels were, on average, quite high in both months, where we had the system, but I -- I guess I kind of can see I think in a few areas where we've cleaned up a little bit of our unbilled time, and think it's just a matter of increased awareness. I don't want to make a study of it or kind of declare victory by any means, but it just has been our experience with our other units when we have implemented the system is that the -- it's just a very useful tool for our managers to see precisely what their kind of aggregate utilization is and then boring down into individual technical utilization, as conditions merit.

Okay. Great. Thanks.

Just looking at -- on the industrial services segment, particularly the TMS side, you mentioned that there was one large international project in there. Can you give us an idea maybe of the magnitude of that project and maybe what sales growth would have been in TMS, ex that project?

Yes, I think that project was --

3 million? 2.5 million?

2.5 to 3 million.

Okay. So you still had pretty substantial growth ex that project. Great. And maybe you can give me an idea of what's going on, the dynamics of the industry and turnarounds. You know, the first half of the year was pretty weak. There was low activity levels, a lot of delays. What essentially changed to kind of spark the activity? I mean, utilization rates are still pretty high, crack spreads are still pretty high. I guess, what kind of pushed the refiners to actually go through with the turnarounds?

I would say a physical necessity. Is that -- when we talked about the deferrals in the quarter -- fourth quarter -- or, excuse me, the fourth calendar quarter, but our first quarter, talked about -- again -- the desire of the refiners to maintain running -- high operating levels with the tremendous cracks, but there's just a physical limitation to how long you can do that. Because these units are continuing to deteriorate as a result of their operation. The catalysts are being consumed. So you can -- there's just a physical limit to how far you can wait, and I think that's what we're seeing. It's still an attractive environment, as you point out, but you just have to turn-around. So that's what we're -- we saw an usually high amount of turnaround activity. We think in our third quarter, the first calendar quarter of the year, we see a lot more coming in this quarter and we kind of expect -- at this point, we're kind of back to more of a normal routine.

I also believe from our standpoint that particularly for TCM, that it -- its participation, if you think about the heavy turn-around periods -- and this is a calendar basis, now -- are seasonally the spring and the fall. Less so in the summer and the winter. We believe last fall TCM did not participate as heavily in the turnaround activity, although even if it was somewhat depressed, as it normally has because of the uncertainty about its -- the financial future of Cooperheat-MQS, prior to Team's purchase of that business. And we think that part of our strength has been in the spring quarter, is that we're, if you will, getting back our fair share of that business. The business that historically has been served by the predecessor companies. And as I mentioned in my remarks I'm pretty positive about the traction we're making on our business development activities and I see at least anecdotal evidence that we're in a share gain mode now in our new business and we're quite optimistic about that.

Okay, great. And then I just -- can you maybe give me an idea of kind of where we are as far as maybe peak level goes? I mean, would you -- I don't know how you would quantify it, maybe by the number of turn-arounds you did this quarter or what, but was it sort of a peak level we're at right now and things kind of go down sequentially? Or, just kind of give us an idea of where we're at.

That's a hard one to answer. I don't know quite how to -- I don't have a metric, a handy metric for you. I would say historically that our third quarter is lower. Our third physical quarter would be lower than our second quarter because of the effect of the holidays, you know, particularly in the December time frame, and what we saw was kind of even revenue growth on the TCM standpoint and we saw the dramatic increase in revenue growth, the 40% growth, in TMS.

So I guess that's not very typical for the third quarter, what you saw in TMS?

They're strong. They're very strong.

Yes, I think it's catch-up. Yes, I think they're stronger than -- just -- fundamental demand is stronger than it is normally, is what we believe. As Ted mentioned, March is also a very -- was a very strong month. In terms of running rate, probably a little stronger. We got stronger every month during the quarter, from December through February, March was stronger still. April, I don't know that we think is going to be stronger than March, but it will be -- but it's in the same -- in that same neighborhood.

And then particularly because of the decline in -- as we get to the end of turnaround season, we're somewhat projecting some softening of demand levels by the end of the quarter.

By the end of the fourth quarter?

Yes. But seasonal.

Seasonal. Okay.

So we -- we're -- we haven't -- we don't have guidance out there for the quarter, for all the reasons we've talked about historically, but we're positive about the quarter. I'll say that.

Great. Thank you.

Thank you. Our next question is coming from Chris Terry with First Dallas Securities.

Good morning, guys.

Good morning, Chris. How are you?

I'm doing good. Thank you. A couple of housekeeping items here first. What was your cash balance? At the end of the quarter?

At the end of the quarter? Frankly, Chris, I don't have that in front of me. The reason we don't manage that that way, because we use an auto borrow arrangement, as you will recall, that we just sweep available funds against our revolver.

I think our debt levels were about 60 million, though, weren't they?

Okay. What about -- can you kind of touch on the shape of your receivables? And I guess, more specifically maybe, what your DSOs were and how that compared to year ago level and last quarter levels?

Sure. At the end of the third quarter our overall DSO level is about 75 days. That's up about five or six days from the end of the second quarter. There's two things associated with that. First of all is just simply the significant growth in our business, the peak of this business cycle, as Phil indicated, has been stronger than we would have anticipated, and quite frankly we haven't been as diligent as we need to be in reducing that DSO. We are focused on that, frankly, right now. So our -- we lost a little bit of focus on that during the quarter.

What's a more normalized rate we should be looking at?

I think about 70 days. In our industry, the -- kind of the cash flow cycle is generally a long one because of the nature of industrial services, the work tickets, the approvals that are required at plant levels and the sign-offs in plants before processing of invoices and just kind of the packaging of information in order to get into the payable cycle at our customers, if you will.

I'll just make a -- add to that, Chris, is that I think Ted is right. For planning purposes that's a good target, as we think about, but I can assure that from you an operations standpoint we're not satisfied at that level.

Right.

It's a -- this is a huge investment we have in AR. We understand that. And it's our single largest investment, frankly, and it -- we are going to have and will continue to spend a lot of time on that and we have aspirations to do a lot better than 70 days, but we're clearly not there yet.

Thank you very much. Can you break out the operating margin between TMI and Cooperheat? I think you've done that in the past and it's very helpful.

Not at the operating income level.

Okay.

The shared SG&A resources, so that's where we -- it's not a perfect metric, but that's where we can split out the gross margin to try to give you some indication of what that will be. But, again, where we -- I think the key needle to watch is our operating income for the segment as a percentage of revenue. That number -- that, again, our goal is to get that back to 15% for the total segment.

In getting that back to the 15% level, do you think -- I guess my question is, how fast will those margins improve once you're operating at full efficiency within Cooperheat-MQS? Do you think it will be maybe quarter change, or will it -- a gradual process?

I think it's more to the latter. That is, it will be a gradual improvement. We believe that the things that are going to drive that improvement are going to be improved billing precisions, that we're going to -- we probably, without the clarity of our new system, when we were working on multiple systems, there were probably expenses, undoubtedly expenses in jobs that we weren't properly capturing and rebilling to customers. We think there were probably some utilization issues that we didn't see that caused some deterioration, and I think probably the least significant of them, but it's certainly a contributor, is I suspect that there's some business that we're doing where we have terms and conditions that are frankly unattractive that need to be either renegotiated or changed in some way, to kind of restore their profitability. All of those things can happen with our system.

Again, I think we've talked in the past, this is a -- this is not a business of just a handful of jobs where I can kind of, by edict or direction, at the tops, direct to Company to improve its margins here or there. We'll do it when our combined business is probably something like in the order of magnitude of 70 to 80,000 individual jobs. So what we need is the tools out there so 100 managers make good decisions every day on these businesses and that's what we think we're going to have.

Like I said, it's somewhat anecdotal, we think there's some improvements, you know, the third quarter over second, and we expect continued improvement. We're confident enough of the improvement rates that we're still standing by our estimates for next year. So obviously we're expecting several more points of improvement prior to that time period.

On the guidance for next year, should we be looking at -- you're going to reach the guidance by a combination of double-digit organic growth as well as continued up-ticks in margins? Is that the best way to look at it?

Right.

Okay. So I guess, to be blunt, you guys have turned the corner on regaining margin back within the Cooperheat business?

We think so.

Okay.

Again, my only caution just is -- for declaring victory is that we're two months into our system, in terms of kind of really seeing the visibility. But certainly every indication is positive on that direction.

Okay. All right. Thank you, guys, very much.

Thank you, Chris.

Thank you. Our next question is coming from Tom Brashear with Southwest Securities.

Good morning, Phil. Good morning, Ted.

Hey, Tom, how are you?

It's a pleasure to work with you guys. The British Petroleum challenge that they experienced around March 22nd at the Texas City plant got me to wondering -- British Petroleum, are they a customer of Team at the Texas City plant?

Yes, they are.

And did Team have any employees hurt in that accident?

No, we didn't. We had employees on site that day, I think approximately 50 employees, but fortunately we were not working in that or near that unit and so we had no injuries whatsoever.

Excellent. Congratulations there.

What provisions does Team have, perhaps insurance-wise, to protect you if any cause of an accident or something like that were directed towards Team or your personnel?

We have --

Let me answer your question and then come back to the importance of safety. We have a general liability policy and then on top of that an umbrella policy which I think provides about $25 million in aggregate insurance coverage in the event that we would be contributory to an event or an incident.

Okay.

I will just -- I think the tragedy at the Texas City refinery just reinforces something that we believe so strongly, is that we must -- absolutely must do everything we do with the highest attention to safety first. And we preach that to our employees, we are very, very, rigorous in our attention to safety in everything we do, and sometimes when we sound like nags to our organization, you know, a tragedy like just what occurred, is a reminder how important it is. And -- so it's a potentially dangerous world we're in when you're working with pressurized systems and all that, but we're taking the maximum steps that we know how to ensure that our employees are safe and that they go home every night exactly the way they came.

And to that point also, we're proud of our track record in that regard. In the 30 years that we've been in this business we have never had a fatality involving a Team employee. We're fortunate in that regard.

Fantastic, and always certainly appreciate your focus on safety for your employees and your care for them. Look forward to seeing you soon.

Thanks, Tom.

Thank you.

[OPERATOR INSTRUCTIONS.] Our next question is coming from Kerry Rigdon with Southwest Securities.

Good morning, gentlemen. Congratulations a nice quarter. Question is really more of an industry. I know in the past the industry has been described as not one of really recognizing a lot of top-line revenue expansion but one more of being able to garner additional market share and, you know, over the last year, obviously Team has changed with -- and grown considerably through the acquisitions, and now we're seeing some other changes with some of your other competitors, whether they're exiting the business or going through some structural changes themselves.

Can you comment briefly -- and I apologize if you covered this in the call -- can you comment briefly on just simply what you see in terms of the market share, how that is going, with the size and scope of Team increasing, and then with these other changes kind of impacting the industry?

Well, sure, Kerry. I guess our belief continues to be that kind of on a long-term time basis, that the primary demand for the services that we provide to our customers is flat. That that whole demand level is basically driven by the population of process plants and power plants out there, pipelines, et cetera, and that while there's some increases here or there, by and large there's not much in the way of increase so it's a flat or no-growth market.

Now, when we talk to -- speak to an individual quarter, that's not necessarily the case, because you can have timing shifts of things, so as we might say that the maybe year to date for the quarter -- year to date demand levels for the industries are pretty normal, they clearly were abnormally good, or high, in our third quarter. So -- but in terms of our planning premise, we kind of continue to believe it's kind of a no-growth market.

Consequently, our revenue growth, then, over time, as you know, we've been growing nicely over time, we believe is all market share growth. So we continue to believe that all the trends that are driving that market share growth -- and the principal trend is that our larger customers are increasingly preferring to deal with fewer service providers on a more comprehensive basis. For a lot of reasons, related to safety, operational efficiency, economics, simplicity of operation. And those shifts in preference are really favorable to the bigger multiservice, multilocation service providers like Team. And there are only a handful of us out there and so we have been a big beneficiary of that.

We also think being a great service company and really focusing on staying at a high level of service excellence also serves us very well in terms of creating preference for Team, vis-a-vis some of our competitors.

In terms of kind of how the market is evolving or changing, I don't have a lot to say. I think maybe what you're referring to is one of our larger competitors is a unit of Flowserve Corporation and we do have -- all we know is what's been in the press, but we have understanding that they're in the process -- they're viewing it as a nonstrategic business for their total flow sort of going forward and that they will explore sale opportunities to that business. But to this point we haven't seen any information and don't have any -- really anything to comment on.

Terrific. Again, thanks, guys, for a terrific quarter.

Thank you, Kerry.

Gentlemen, there are no further questions at this time.

All right. Well, thank you, Sarah, and thank you to all of those of you participating in the conference call this morning and we appreciate your continuing interest in Team. We'll look forward to being with you again at next quarter's conference call, which will actually be our full-year-end conference call. I believe that's probably going to be sometime in late July or early August, I believe.

In the meantime, have a good day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.