Team Inc (TISI) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is India, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Team, Inc. first-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

It is now my pleasure to turn the floor over to your host, Mr. Phil Hawk. Sir, the floor is yours.

Thank you, India. Good morning and welcome to the Team, Inc. Web conference call to discuss recent Company performance. Again, my name is Phil Hawk, and I am the Chairman and CEO of Team. Joining me again today is Mr. Ted Owen, the Company's Senior Vice President and Chief Financial Officer. As with other calls, 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, 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 and our Annual Report. Ted will begin with a review of the financial results. I will follow Ted with a few remarks and observations about our performance and prospects. Following our remarks, we will take questions from our listeners. With that introduction, Ted, let me turn it over to you.

Thank you, Phil. First, I want to remind everyone as usual 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 anticipated in any forward-looking statements. 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 $57.9 million compared to $33.2 million in the first quarter last year. About $11 million of the $25 million increase is due to the pro forma effect of the Cooperheat acquisition, which as you will recall, was only included in last year's first quarter for about 2 weeks. The remainder of that growth, about $14 million, is organic growth.

Operating income was $4.8 million in the current quarter versus $2.1 million in last year's first quarter. Net income was $549,000 in the quarter or $0.06 a share versus 269,000 last year at $0.03 a share.

Now looking at the results by segment, first as a reminder, Industrial Services includes an array of specialized services related to the construction and maintenance of pressurized piping and process systems, as well as specialized NDE inspection services. As a result of the recent acquisitions, we have reorganized the Industrial Services business into two groups -- first, TMS, which includes leak repair, hot tapping, fugitive emissions monitoring, field machining, technical bolting, and field valve repair services; and secondly, TCM, which is comprised of field heat treating and NDE inspection and includes the former operations of Thermal Solutions, Cooperheat MQS, as well as Team's legacy inspection business, X-Ray Inspection.

Revenues from Industrial Services in the quarter were $54.2 million compared to $29.8 million last year. The 54.2 million in current quarter revenue consists of 24.4 million from TMS and 29.8 million from TCM. TMS revenues grew by 27% over the same quarter a year ago. TCM revenues grew by $19 million, which includes as I mentioned $11 million associated with the acquisition effect and $8 million of organic growth. This is a pro forma organic growth rate over last year's quarter of 38% for TCM.

The aggregate gross margin percentage for Industrial Services is 33% for the quarter, which is down 2 points from last year's quarter. And Phil will elaborate more on the composition of these margins in a moment in his comments.

With respect to the Equipment Sales and Rental segment, the Climax business continued to perform well in the first quarter. Revenues were 3.7 million, up 11% from last year's first quarter. The segment earned 288,000 in the quarter, up about 85% from last year.

With respect to corporate cost, our total corporate SG&A costs were $2.8 million in the first quarter, which includes $900,000 of costs associated with the completion of audit activities pertaining to Sarbanes-Oxley Section 404 compliance (technical difficulty) for fiscals 2005. The amount that we expended is consistent with our previously-announced expectations.

Now with respect to the balance sheet and cash flows. At August 31st, the debt outstanding on our credit facility was $64 million, up slightly from year end. As we disclosed in our press release, we've finalized an amendment to our credit agreement last week to increase our financial flexibility by raising our debt-to-EBITDA covenants as of August 31 and prospectively.

For the quarter, we used $2.1 million of cash flow in operating activities. Now, that includes $2 million for the pre-payment of our property and casualty insurance renewal for the year -- that simply a timing matter -- and that turns around over the course of the next two quarters.

Excluding that item however, we did not achieve the cash flows that we would have expected in the quarter due to delays in collections of significant customer accounts. We fully expect these Accounts Receivable issues to be successfully resolved over the course of the next couple of quarters.

Capital expenditures for the quarter was approximately $2 million, and depreciation and amortization was about $1.7 million, so EBITDA for the quarter was $3.7 million.

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

Thanks, Ted. I'd like to add several observations and comments to the financial results that Ted has just reviewed with you. Our overall results for the quarter were in line with our expectations. This is seasonally the weakest quarter of the year due to the reduced turnaround activities in the summer months, so we were expecting only modest profits. Nevertheless, we demonstrated good progress in a number of areas.

First, our total net income and earnings per share from the prior first-year quarter results just doubled from the prior first-year quarter results despite absorbing approximately 900,000 in additional SOX-related expenses. The net impact of the SOX expenses was approximately $0.06 per share.

The operating profit growth of both business segments is very promising. Our Industrial Services segment operating profit increased approximately 135%. Our Equipment Sales and Rental business segment reported profit growth of over 80%. After corporate expenses but before interest and taxes, total operating profit for the Company increased over 185%.

The key drivers of this profit improvement were two-fold. First, we continued to achieve broad-based, attractive revenue growth in both business segments. I will discuss this in more detail in my business segment summaries. Second, we did a pretty good job managing our job level profit margins. In particular, we saw nice improvement in our TMS division job margins, which had slipped significantly in last year's fourth quarter.

Looking forward for the remainder of the year, we remain optimistic. Without question, the two hurricanes have disrupted our operations along the Gulf Coast during the first month of the second quarter. While it is still too early to be absolutely sure, we expect that there will be some offsetting increases in demand for our services as these damage facilities in the region come back online. Therefore, at this point, we are projecting the hurricanes as a net neutral impact on our full-year results.

While there has been some modest shifting of turnaround activity in other parts of the country due to the hurricanes, we continue to see strong activity levels for the remainder of the year. These strong expected activity levels support our continued earnings outlook of $1.15 to $1.30 per share for fiscal year 2006.

I will now discuss each of our business segments in a little more detail, beginning with Industrial Services. As a reminder to Ted's comments earlier, our Industrial Services business segment is organized into two divisions, and I will speak to each separately.

Let's start with the TMS Division. The division performance met expectations for the first quarter and is well-positioned for the remainder of the year. I am very pleased with the broad-based organic growth achieved. Overall revenue was 27% higher than the prior-year first quarter. Nearly all service lines and all branches contributed to this attractive growth rate. The legacy service lines, which include the on-stream services of leak repair, hot tapping, and fugitive emissions monitoring grew 16%. The turnaround related services of field machining, bolting, and field valve repair increased more than 60% above the prior-year levels.

As you may recall, the turnaround activity in last year's first quarter was extremely depressed. Therefore, we don't expect to sustain this level of growth over the prior year and subsequent quarters. Nevertheless, I am pleased that we continued to build and broaden our business in these service lines. We remain confident in our double-digit revenue growth projection for the year.

I'm also pleased with our improved job level margins achieved by the division. As you may recall, we experienced a significant dip in profit margins in last year's fourth quarter. In this year's first quarter, TMS profit margins rebounded to near historical levels, an increase of about 3 to 4 percentage points from the fourth-quarter level. Gross margin in the quarter was 38%, up from 35% in the fourth quarter and flat with the prior-year, first-quarter results.

Let me add a few comments about the profit measures we use in reporting our results. Over the past few quarters, we have been reporting the gross margin performance of each of the Industrial Services' segments or sub-segments. The objective was and is to provide additional visibility on the profit margins of each division. I want to point out that this is not a precise measure of job profit margins. In simple terms, gross margin represents job profit margins minus indirect operating costs that are not charged directly to jobs. These would include the cost of employee benefits, vehicle expenses, general service location supplies, training, etc.

Because many of the indirect costs tend to be fixed and not vary with seasonal demand fluctuations, indirect costs as a percentage of revenue will vary somewhat with demand levels. In a seasonally weaker quarter like the first quarter, indirect costs will be higher and gross margins will be a little lower for the same job profit margins than in higher demand quarters.

For example, for the TMS Division, first-quarter revenues were about 10% less than last year's fourth-quarter revenues. Field indirect costs as a percentage of revenues were about 1.5 to 2 percentage points higher as a result. Therefore, job profit margin and gross margin changes can vary with one another due to seasonal volume changes. In this case, for TMS for the first quarter, job profit margins' improvements were actually greater than the gross margin improvement due to the indirect costs as a percentage of revenue discussed earlier. While variations in indirect costs and field SG&A costs as a percentage of sales will occur due to this demand seasonality, we continue to focus on balancing these overall cost levels with our overall activity levels.

Now shifting to the TCM division. Again, I am very pleased with the very significant revenue growth achieved. Of the $19 million increase in revenue versus the prior-year period, a significant portion of that growth represents the full-quarter effect of the Cooperheat MQS acquisition, which as Ted indicated, took place in mid-August last year. However, Team also experienced substantial organic growth as our new TCM division continues to re-establish and extend its leadership market position and re-acquire business lost during the bankruptcy and transition periods.

As with the TMS Division, we are pleased with the broad-base nature of the growth within the TCM division. TCM gross margins were flat with last year's first quarter and down significantly from last year's fourth quarter. Actually, direct job margins for the first quarter were flat to slightly up from last year's fourth quarter. For the same reasons described earlier, indirect costs as a percentage of sales were up about 7 to 8 percentage points versus the fourth quarter due to the seasonally lower volume. We remain satisfied with the job level profit margins we are achieving, and we would still expect to achieve our gross margin objectives for the full year.

Despite our attractive revenue and job margin performance, our overall profits from the TCM division were a little below our expectations for the quarter. Our overall indirect costs and field SG&A cost levels remain higher than our targets for our current activity levels. We have identified the branches where these costs are out of balance and have taken steps to bring them back in line with our model. Our overall profitability continues to improve, but we still have some work to do in fine-tuning our performance in several locations.

Now, shifting to the outlook for the remainder of the year. We remain optimistic for the entire business segment and both divisions. There is considerable turnaround activity planned for the remainder of the year. And also, while the specifics are not completely clear, we do expect some additional service demand related to the repair and startup of the hurricane-damaged facilities along the Gulf Coast. We hope this increased service demand will offset the initial disruptions to our operations caused by the storms.

Now let's turn to the Equipment Sales and Rental business segment encompassing Climax Portable Machine Tool Company. Climax had another good quarter and is positioned for another record year. Revenues increased about 10%, and operating profits were up more than 80% versus the prior-year quarter. Climax revenues grew in all regions during the quarter but achieved the highest growth rates outside of the U.S. The profit margin growth reflects improved manufacturing margins for the business.

Climax continues to develop additional attractive market opportunities. And just overall, I'm very pleased with its outlook for the remainder of the year.

To wrap up, we've had a pretty good start to the first quarter -- to the year when the first quarter was strong, broad-based revenue growth and encouraging progress on job profit margins. Of course, we still have plenty of improvement potential. A few near-term priorities include bringing our support and SG&A costs into better balance with our activity levels in our handful of lower performing branches; significantly reducing our investment in Accounts Receivable; and fine-tuning our business processes to better integrate our SOX internal control responsibilities into our day-to-day business practices.

As I mentioned at the beginning of my remarks with the expected stronger demand levels in the current and remaining quarters for the year, we expect significant improvements in earnings that are consistent with our earnings forecast.

With those remarks, let's now open it up for questions. India?

(OPERATOR INSTRUCTIONS). James Gentile, Sidoti & Co.

I was wondering if you can perhaps -- given the fact that we reported $0.06 in the quarter and you reiterated your $1.15 to $1.30 guidance and your third fiscal quarter is generally seasonally weak again, could you give us an idea of the seasonality over the next three quarters -- if it has changed at all year over year given the integration of the Cooperheat?

No, I think the change is -- there's not a big change relative to our expectations. The strongest quarters will be the second and fourth quarters -- strong turnaround quarter, but it will be depressed slightly due to the holiday season, the couple of week period around the Christmas holidays. But those would be the -- but we believe all three of those quarters will be significantly stronger than the first quarter.

And then you mentioned that there is quite a bit of turnaround activity occurring in the industry for the balance of the year -- some delays occurred because of the weather, what have you. I was wondering if you can perhaps attach a dollar value of this turnaround activity for the remainder of the year as it relates to the jobs that Team will be performing as part of those projects.

I really don't have an estimate of that, James. I have not thought about it in those terms. One thing I would say is, I wouldn't characterize the activity level as being extraordinary. I think it's just that there is always a lot of turnaround activity related to our industries, and we have visibility on a significant number of those projects that we will be participating in.

In terms of the delays, I think there was some (technical difficulty) about this so you are aware of it. Because of those refineries that are off-line, several refiners postponed or altered the schedule of their planned turnarounds, pushing them later in the year. There were a couple in the West Coast that pushed, and (technical difficulty) Arrow (ph) has pushed their refinery turnarounds back a couple of months. So those are -- it's not an increase or decrease in turnarounds activity, but it is a slightly different timing on a handful of projects.

And then finally one last question, you mentioned that there were several branches within TCM that are demonstrating some profit variances versus your model. Now, you clearly have some visibility into the kind of costs that needs to be removed from these branches. I was wondering if you could give us insight into location, dollar value and timing.

Well, I'll do it more broadly. We've got kind of a target list of lower performing branches that in total -- and this is principally TCM but across both (technical difficulty) -- 18% of our revenue. So it's not a huge chunk of our business, but it's not nothing by any means. If those branches, we bring those branches in the first quarter -- if they had earned a 10% operating profit margin, which is a little below our targets long term but would be good seasonally for the quarter, we would have improved our earnings by $0.13 a share.

I do not like to say we are close until we have done it. But there are a lot of good things happening. But obviously, we still have a few areas where we are just not performing where we need to perform. We've made changes to address issues. And again, we are optimistic to see impact and benefit from those -- I guess in the second quarter and beyond. Rome was not built in a day. And we won't (technical difficulty) all our problems in a day. But we are aware of them and focused on them.

Arnold Ursaner, CJS Securities.

One of the things I know you've been doing to be absolutely certain you have delivered the customer service you want is, for a while, you have been running some excess of -- or almost duplicate expenses at the SG&A level. Can you give us a feel for how that may have impacted the quarter and where we are in the process?

I think in the sense that the key driver of our business has always been and continues to be revenue growth, our immediate kind of trust on focus is not to cut but to grow. So maybe that's kind of a little of what you are alluding to. I didn't have a perception that we were running duplicate costs in a lot of areas. What we have in a few of our kind of problem branches is that frankly we just -- the expected kind of rebound of the business has not kind of matched what we thought it would be. And we are now kind of evaluating just our whole remaining areas relative to what are likely to the near-term levels.

We have reduced SG&A expenses in about five branch locations in the first quarter reflecting that. I think as equally important is, we are really -- we have changed our kind of management approach. And some of our managers, they are supervising some of those branches to get a little more experience and demonstrated capability to help us kind of fine-tune those operations.

Second question if I could, obviously, there appears to be a great deal of demand for your services. Can you comment on how you think about the concept of either capacity or your ability to supply the market services when in fact there is pretty substantial demand?

Sure. I think in a very simplistic sense, we sell man hours. So one of the things we -- if you think about capacity utilization or absolute capacity, we are looking at our kind of a profile of our technicians and our utilization of that activity level. We supplement our kind of full-time employees with contract employees particularly for the turnaround activities. We have particularly here in the second quarter, we have substantial number of those individuals on board kind of supplementing our capacity.

For a lot of our -- we are a service business, and we need to provide the service when and where the customer needs it. So we have a real kind of focus on doing that. So when demand exceeds -- I'm going to say that kind of common, or I am going to say standard capacity -- we respond to that via over time or even in some instances, putting manager, field managers and SG&A-type positions on the tools if you will to expand our peak capacity to meet critical needs in the short run.

But longer term, it is an issue. We continue to need to attract and train qualified technicians. But we don't see a lack of capacity to be an issue for us as we respond to what we hope is continuing growth and demand.

But what you are implying I think by that is that to the extent you have to use overtime or perhaps less efficient people, they may actually be a negative or detriment to margin when you have usually strong demand.

Yes, slightly, although what offsets that is that you are leveraging the fixed cost of our infrastructure so fully that it is hard to see that -- to be honest -- that we get the benefit of the operating leverage in those times.

I will tell you that one of the issues in our lower performing branches frankly is lack of full utilization of our technicians. So we see that in higher indirect costs, and we are addressing that.

Two more quick questions, the issue related to the DSOs in collections, what caused it? And how do you prevent it going forward?

Well, what caused it if you will, our DSOs are higher than certainly our objectives is really a combination of things. First of all, I think the environment -- our customers are adjusting with all of the supply chain management activities -- are just much tougher in their payment kind of processes than they have been historically. So they are demanding more of us in terms of -- they are being pickier if you will just about in terms of approval of payments. So that puts the kind of burden on us to be absolutely timely and absolutely complete in all of our invoicing practices in terms of all the documentation and follow-up on that with our customers.

And frankly, we didn't -- throughout most of last year, didn't put enough attention on that as we were kind of focused on integration and a few other things and growth, frankly. So we slipped several days on that measure and hence the higher investment.

I will ensure you that it has a very, very high priority across our Company today. It had throughout the first quarter. Frankly, we did not see a lot of progress in the first quarter, but I think it's kind of a lag effect as we kind of get fully geared up in terms of all of our kind of precision of our measures and follow-up. And we expect to see good progress on that, not only in the second quarter but really for the remainder of the year.

I do think though in terms of just an environment of customers kind of being slower payors are working that part of the equation more aggressively that that's a little bit of a fact of life in our business.

Final question for me, you mentioned that particularly in TCM, it had not met your gross margin goals. Embedded in your range of guidance, can you give us your gross margin goals for the TMS and TCM segment?

I think we had those in our -- it's on our website and our earnings conference call. I believe it is 32% for TCM, 37% I believe for TMS if I am not mistaken.

Hold on here; I think I have it.

So your gross margin in Q1 for TMS exceeded it?

Actually, (technical difficulty) to just finally clarify that, again this is on our website for anybody to look at on our terms of our most recent investor presentation. The TMS Division GP is 38 to 39% for the year; TCM is 32%.

Kerry Rigdon, Southwest Securities.

Just a quick comment or a quick question rather and just kind of elaborating on a question that was asked earlier. There were discussions, and this goes back to the storms in the Gulf. There were discussions about relaxing the maintenance schedules for a lot of the refineries due to the impact of the storms. Could you just comment on that? Is that still an issue? Or has that pretty much been dropped?

Well, I think what you are referring to as I mentioned, discussed briefly with James -- in James Gentile's call -- is that because so many -- so much capacity was suddenly taken off line due to the storms, that planned outages in other parts of the country, there were consideration to delaying those planned outages so that they wouldn't further exacerbate any possible supply shortage. And we did see some I guess postponement or extension of schedule on a couple of refinery turnarounds on the West Coast, a couple on the mid continent. But several others have proceeded fairly much on schedule. So it was certainly not all of them that have been postponed.

We have heard some rumors, although not yet confirmed, that a couple of the down refineries, the refineries that are currently idle, that there may -- may actually pull forward some of their turnaround activity and do it kind of right on the front end of startup since the plants are down already. But that has yet to be confirmed.

(OPERATOR INSTRUCTIONS). Byron Pope, Pickering Energy Partners.

A question about the TCM division, specifically about Cooperheat. You've had that acquisition in the fold for a little over a year now. I was wondering if you could quantify for us kind of the base level of revenues of that business at the time you bought it and kind of margins relative to kind of where you are today. And then where they are today relative to where they were kind of pre that business being in bankruptcy -- trying to quantify kind of the upside potential for Cooperheat.

Well, fair question here. Just to remind you and everyone is, when we purchased Cooperheat MQS, we merged it into a kind of a new entity that included not only Cooperheat MQS but also the Thermal Solutions kind of heat treating business and also Team's existing inspection business, which formerly XRI inspection but really Team inspection coming, which is a Gulf Coast inspection group. So there's really not an apples-and-apples comparison to just Cooperheat versus TCM today.

I will say this, a couple of comments that may speak to your point or question. We are extremely pleased with the market's response to the new TCM division, particularly as it relates to demand and revenue growth and we think market share growth. Cooperheat MQS, due to the bankruptcy, due to the uncertainty around the business had negative revenue momentum kind of prior to our acquisition of that business; there was no question. It was losing business because of uncertainty related to its future. What we see is the exact opposite of that today is the new TCM division, which encompasses Cooperheat as well as those other businesses I mentioned, is clearly benefiting from its stronger I believe outstanding services performed but also the stronger financial base that it enjoys.

When we acquired Cooperheat MQS, we mentioned that we expected the profitability of this business kind of once we are kind of fully integrated and balanced to be on par with that of the Team mechanical services in terms of kind of operating profit. And that's roughly where we are as we have talked in our presentations, where we are roughly in TMS Division last year was 14, 15% with a longer term goal as we keep improving our business of 20%. We still expect that level of performance out of TCM. We see nothing that we have observed in our year of ownership of Cooperheat or the year of operating as TCM discourages us or leads us to a different conclusion.

We are not there yet obviously. We have -- principally because of -- we don't have consistently strong performance in all locations. It's the lower performing branches that probably is the biggest contributor to kind of less than target performance that we are achieving.

I would also comment that our estimated earnings for the year is not predicated on TCM getting all the way to TMS performance levels by year end. We expected it to gradually come together. Although again, we are aggressively focused on how we can do that as soon as possible. So I do not know if that addresses your question.

Jerry Heffernan, Lord Abbett.

Trying to go to a little bit further into the TCM discussion, if you would. Can you give us an idea of how many branches there are total? And then how many branches you would say we are concentrating our efforts on to address the lower-than-accepted profitability?

We have in terms of how we -- there's some satellites as well. But if you look at P&Ls that we maintain for our branches, we have 70 branches in our system, of which about 34 or 35 is in TMS, 35 or 36 in TCM. The underperforming branches, our watch list, are 10 of those 36 branches, and they represent about 15% of our revenue in TCM.

On the accounts -- change in topics here -- the Accounts Receivable aspect. I just want to make sure I understand this right. Basically, it comes down to over the last quarter or two, your invoicing practices, your ability to get invoices correct and to the customer timely have not been up to par, shall we say. And then consequently, so that needs to be addressed. And then, consequently once that is addressed, you will feel comfortable than starting to go to the customer and saying -- hey, by the way, you received that invoice last whenever and when can we expect payment?

Yes, let me put a little more color on that. It is not 180 from where you are but a little more color and flavor on that. One is, I think our -- I guess the discipline in terms of all of our billing activity is probably -- it's not just the last couple of quarters. I think it is really all of last year, we were not really up to snuff completely. And frankly, historically, what happened is nearly all customers would say -- that's close enough. We will go ahead and pay you and not be peaky on even small omissions in terms of invoice information.

And so our practices were frankly to expect it to be fine, and we would follow up after, if and only if, it had been delinquent for some time. So that was kind of our follow-up collection procedure. What we are seeing -- again, one is, because of a lot of the distractions, I think our execution was a little worse. It was a little worse in TMS and probably a little bit more worse in TCM as they are getting used to our new kind of invoicing systems and all of that. Although frankly, our days outstanding are comparable in each area. So this is not just a new TCM issue.

But what we have are customers that are far more aggressive about insisting on really precisely correct invoices and documentation. When I say correct, consistent with what they dictate must be there. It is not the same for every customer. So what we have is more customers just holding us up. And frankly, until we respond and pursue it, it's just a stall. So what we've had to do is get much more aggressive about our systematic follow-up to invoicing. We have to kind of -- the skill improvement in our own shop is just getting far more specific about and documenting what is required for each customer on each invoice so that when we send them an invoice, it is precisely correct and fully in compliance with their requirements so that we don't have delays -- and then following up to make sure that there are no other issues in our mind.

This is not a credit issue. We know our customers are large, asset-intensive companies. It is a process issue. Particularly as we are -- we have the highest leverage we have had because of the acquisitions, it puts a squeeze on us. It generally wouldn't be that big a deal one way or the other; although, anytime we can reduce investment, that's obviously good for us and investors and so forth. So that's a little bit of flavor around the issue. We are, like I say, we have very specific metrics now that are going out weekly to all our managers about the status of all kind of past due receivables so that we get a lot of visibility, a lot of follow-up. And frankly, on larger invoices, we are changing processes to confirm kind of the correctness and information and customer satisfaction ahead of due dates.

Are you being asked to give different information on invoices to different customers? That seems like that could be --

Sure.

Yes.

-- quite the bird's nest developing there. Or is it just a matter of -- we have to come up with one very detailed, very accurate invoice that everybody can accept.

(multiple speakers) It varies by customer.

Just to elaborate a little to that point. Most of our customers as you know are major refiners, power plants. All of whom are focusing to one degree or another on the whole area of supply chain management. Their maintenance systems most are installing very complex accounts -- from their standpoint, Accounts Payable systems type (multiple speakers) --

Enterprise-wide kind of financial systems.

Exactly on SAP or other environments. And each have very -- and that creates just a degree of complexity associated with work order packages, if you will, the processes of getting paid in those systems.

And so it isn't that we are -- it's not that we are submitting inaccurate or sloppy invoicing, it's just the processes have become much more complex from an understanding and signatures and the right pieces of paper, the right information. And that is the area that we are focused on kind of getting ahead of that curve, if you will.

Are your systems adequate to provide personalized invoices, which is kind of something what we need here?

Yes. We really are not system dependent on that. We depend on each branch location to be up-to-date in terms of what we need to do. But I don't know that's a computer system per se, but in terms of providing supporting processes or documenting I'm going to say the invoice requirements of each customer, that's probably a fruitful area that we will be spending more time on. For example, (technical difficulty) --

Right, well, my concern really comes back to then your own SOX process requirements in that to the extent that you start having different invoicing items for different customers that it creates an extra burden on you on maintaining a watchful eye over how everything is getting done and how everything is being accounted for.

I think it is an extra burden. By the way though, this is not unusual to us. We have different engineering standards, by the way, for different customers. So when we design clamps for example, leak repair (technical difficulty) have to apply (technical difficulty). Obviously, science is the same for all customers. But there are some different requirements and preferences with regard to our design approach.

But the science is the same; the scientists are different.

Exactly (multiple speakers). So we reflect that. We just need to do the same in terms of invoicing. In terms of SOX requirements, I don't see any impact either way that -- what SOX requires us to do is have a business processes that have the appropriate levels of review and approval, and that would be the case regardless of the specifics of an invoice.

Gentlemen, I am not showing any further questions from the phone lines at this time.

All right. Thank you, India. With that, let me just wrap up today's meeting. I want to thank everyone for their participation in this call and your continuing interest in Team. And we look forward to our next conference call reporting the second-quarter results in early January. Until then, have a good day.

Thank you. This does conclude today's Team, Inc. conference call. You may now disconnect your lines.