Team Inc (TISI) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen. My name is Ian, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Team IR conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions).

It is now my pleasure to turn the floor over to your host, Mr. Phil Hawk. Sir, you may begin your conference.

Thank you, Ian. Good morning and Happy New Year. It is my pleasure to welcome you to the Team, Inc. Web conference call to discuss recent Company performance. My name is Phil Hawk; I'm the Chairman and CEO of Team. Joining me again today is Mr. Ted Owen, the Company's Senior Vice President and Chief Financial Officer. The purpose of today's conference call is to discuss our recently released financial results for the Company's second fiscal quarter ending November 30, 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. Ted, let me turn it over to you.

Thanks, Phil. First, as usual, I want to remind everyone that any forward-looking information we discuss today is being provided in accordance with the provisions of the Private Securities Litigation Reform Act. Such information is subject to certain assumptions and beliefs based on information known to us currently and is subject to factors that could result in actual results differing materially from those anticipated in any of the forward-looking statements. So, please be sure to read the last paragraph of our press release for a complete description of those factors.

Now for a discussion of the financial results. First, as we previously announced, we sold the Climax business on November 30th of this past year. Accordingly, all of the historical results of Climax have been restated as discontinued operations in the press release tables and in our quarterly financials, which will be filed with the SEC on Monday. So, the numbers I will review reflect the current presentation of continuing operations.

With that, revenues for the quarter were $67 million compared to 48.4 million in the second quarter last year; that's an increase of 39%. Income from continuing operations was $3.8 million in the current quarter versus 1.4 million in last year's second quarter. Earnings per diluted share were $0.41 versus $0.16 in last year's quarter.

As a result of the Climax sale, all of our operations are now in a single business segment, Industrial Services. These services include an array of specialized services related to the construction and maintenance of pressurized piping and process systems as well as specialized NDT inspection services. The Industrial Services segment is organized into two groups -- TMS, which includes leak repair, hot tapping and fugitive emissions monitoring as well as field machining, technical bolting, and field valve repair services; and the second group is TCM. TCM is comprised of field heat treating and NDE inspection.

TMS revenues for the quarter were $28.7 million compared to $21.9 million last year, an increase of 31%. TCM revenues were 38.3 million, up 11.9 million from the same quarter last year, or 45%. This is the first quarter where the TCM comparison is completely an organic growth story; 45% is all organic for the quarter.

Operating income for Industrial Services was 9.4 million in the current year versus 4.7 million last year. Operating margin as percent of revenue was 14% in the current quarter compared to 10% in last year's quarter. Corporate SG&A costs were 2.4 million in the quarter, which is up from $1.9 million in last year's quarter.

Now, a word about the Climax transaction. As I said, we completed the sale on November 30th for a total consideration of about $14.5 million in cash. Our costs associated with the transaction were approximately $900,000, and we recognized a pretax gain of about $1.5 million for financial statement purposes. For federal income tax purposes however, the gain is actually $4.9 million higher than the gain reported on the financials because the stock sale provided the purchaser with a step-up in basis of the underlying assets of Climax. This treatment results in a significantly higher tax gain to the Company than is reflected in the financial statements since the Company's tax basis calculation is limited to the amount of the historic tax basis of Climax in its underlying assets. This caused the tax provision associated with the book gain to be an effective rate of nearly 100%, which effectively eliminates the book gain.

Now, a word about the operating results associated with the discontinued Climax operation. Because of the repayment of approximately $14 million of debt from the sale proceeds, we were required to allocate interest to the discontinued operation. You will recall that we previously reported segment results at the operating income line, which did not reflect an allocation of interest expense. Amounts presented for prior-year periods have been similarly recast to include interest allocations to discontinued operations.

Now with respect to our balance sheet and cash flows, at November 30th, our outstanding debt on our credit facility was $53 million, down about $10 million from year end, principally due to the reduction of debt from the Climax proceeds. For the 6-month period of time, we used $2.6 million of cash flow in operating activities due to an increase in trade accounts receivable from year end of about $9.3 million. Accounts receivable collections, by the way, continues to be a primary focus of management.

Capital expenditures for the year-to-date was approximately 3.4 million, and depreciation and amortization was about 3 million. EBITDA from continuing operations was $8.6 million for the quarter and about $20 million on a trailing 12-month basis.

At November 30th, our debt to EBITDA was less than 3 to 1, and our available capacity under the credit facility is about $20 million. 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 reviewed with you. Overall, I was pleased with our significant progress in several areas. Let me begin with our progress in the Industrial Services business segment. As a context for the discussion, I want to step back and review our recent business acquisitions in this segment. As most of you are aware, a little over a year ago, Team purchased the business of Cooperheat-MQS, a leading provider of inspection and heat treating services. This purchase in conjunction with the purchase of Thermal Solutions, another field heat treating service company a few months earlier, provided Team with a leading market position in two additional complementary service lines.

Following the integration of these businesses into our Team service network, we expected significant economic and strategic benefits from the purchases. These expectations were based on the following beliefs. First, we believed that the new service lines were indeed complementary and a good fit with Team's mechanical services, requiring similar operational capabilities with strong emphasis on safe, efficient, responsive service performance and benefiting from your Team's operating and financial systems.

Second, we believed the new services would significantly expand our business base and provide the foundation for continued attractive organic revenue growth. The two acquired businesses approximately doubled Team's total Industrial Services business revenues. We were also confident that we could continue attractive organic revenue growth from this larger base by continuing to capitalize on clear customer procurement trends to concentrate their purchases of specialty industrial services with fewer, larger, more professional, multi-service, multi-location service providers in what remains a highly fragmented industry. By cross selling our full range of services to all our current customers in both Team's mechanical services and the new inspection and heat treat services and by recapturing a portion of the substantial business losses that Cooperheat-MQS had experienced during its period of financial distress prior to the Team purchase. Finally, we were confident that we could convert this attractive revenue expansion and ongoing revenue growth into even more attractive profit growth.

First, based on Team's prior experience in the inspection business and our knowledge of historical profit performance related to field heat treating, we were confident that the profit potential of our newer service lines was at least as attractive as Team's other historical services. Second, we believed that our financial system with detailed job margin and labor utilization information would be a very helpful tool and would provide branch managers with a framework to identify performance improvement opportunities in our newer service lines and realize this profit improvement potential.

During the most recent quarter, we began to see the exciting potential for our business being reflected in our financial results. Let me focus on a few highlights from my perspective. First, our revenue growth for all of our industrial service business has been extremely encouraging. As Ted indicated, the quarterly growth rate itself is extremely attractive -- over 39% -- and it is broad based. The newer services delivered through the TCM division grew 45%, and the historical mechanical services delivered through TMS division grew 31%. Nearly all service lines and all geographic regions except one contributed to this growth.

I believe there are several reasons for this growth. First and foremost, our strategy is working. We have no doubt that we continue to gain market share. Customers continue to consolidate their procurement of industrial services. There are numerous examples of new business for Team as a result of introductions by TCM personnel for the benefit of TMS services and vice versa. The even stronger growth rate in TCM also reflects in our opinion the return of former Cooperheat-MQS customers, who are now more confident in the financial stability and technical support standing behind the field service organization.

Yet, despite this growth and the strong market share growth we've enjoyed for several years, Team's composite market share is still below 15%. We have many years of future market share growth ahead of us as long as we continue to earn it. There's also no doubt that the total market demand for our services within this time period has been very robust. We continue to believe the long-term demand growth for our services is near zero, driven principally by the lack of growth in new facilities with pressurized piping systems. Nevertheless, we believe that very strong customer profit margins in several key segments are supporting increased or accelerated maintenance and project work. As a very imprecise assessment of this effect, we estimate that the overall demand may be 10 to 20% higher in the current quarter than for the corresponding prior year quarter.

Ironically, despite our overall estimate of overall market demand growth in the quarter, we believe the impact of Hurricanes Katrina and Rita was a net negative in the quarter. There is simply no opportunity to work in the affected plants for much of the quarter due to flooding or lack of infrastructure. That being said, there will be considerable maintenance and repair activity at these facilities over the next several quarters that will likely exceed the service opportunities lost in the prior quarter.

Second, this topline revenue growth is making it to the profit line. The overall profit margin for the quarter, as Ted indicated, was 14% versus 10% a year ago. While not all the way to our target levels, this quarter's margin performance was within a point or so of pre-acquisition levels for Team. As would be expected, the most significant improvements were realized in the TCM division, which has been working through various integration activities.

While pleased with this margin improvement and its significant impact on overall profits and profit growth, we are certainly not declaring victory or suggesting that there is not more work to do. We have a continuing focus on several high-leverage business performance improvement initiatives, including continued attention and focus on job margin management across the organization, high-level attention and oversight of a small number of low-performing branch locations and refinement of our invoicing and collection processes to improve our overall accounts receivable performance. Our rapid growth has significantly increased our total accounts receivable and the corresponding improvement potential from enhanced performance in this area.

Let me make one final comment about our historical performance in the Industrial Services segment. Despite these distractions of integration activities and coping with significant business growth, I'm very proud of the service performance we have provided our customers. Calendar year 2006 was the safest year statistically in Team's history, and I believe our focus on outstanding service across all of our branches is stronger than ever. We are privileged to have the most talented employees in the industry solving customer problems and representing Team effectively every day. It is this great service and responsiveness delivered daily by each of our employees that affirms and renews our customers' trust and confidence in our Company. I want to thank all of our employees for their critical contributions to our current and future success.

Now let me speak briefly about the recent sale of the Climax Portable Machine Tool Company. Ted shared the financials associated with the transaction. I want to share our thoughts on the underlying reasoning of the deal. Climax has been a successful company throughout a 7-year ownership by Team with attractive growth, particularly over the past few years and equally attractive future prospects. Nevertheless, because of the rapid growth and expansion of the Industrial Services business segment, Climax is becoming less and less strategically significant to Team overall. It would have been considerably less than 10% of Team's total business in the current fiscal year.

As a result, we concluded a sale of Climax under the right circumstances could be attractive for several reasons. We could receive attractive value for a non-strategic business asset. We could streamline and simplify Team's overall business focus to a single business segment, creating more transparency and clarity for Team's business model and overall performance. And it would be an opportunity to substantially strengthen Team's balance sheet by reducing current debt and creating flexibility for other growth initiatives. Frankly, our recent acquisitions and significant organic growth had stretched our near-term capacity. An attractive transaction would eliminate any further concerns in this area.

For these reasons, we explored a potential sale with a wide range of companies. Horizon Partners with the support of the current Climax management team made an attractive offer that we were pleased to accept. We wish nothing but the best to Climax and Horizon Partners, and we expect to see continued strong performance from that company going forward.

Kind of looking to the outlook for the remainder of the year, as we indicated in the earnings release, we continue to affirm our earnings guidance for the full fiscal year of $1.15 to $1.30 per share. The business outlook continues to be strong across both the TMS and TCM divisions for the remainder of the year. I expect continued strong broad-based revenue growth, although probably at rates somewhat below the extraordinarily high levels experienced in the first half of the year. The Climax sale does not materially impact our second-half earnings expectations.

Before opening it up for questions, let me summarize our key discussion points. We are pleased with our performance and progress. The results posted in the quarter begin to reflect the performance potential of our broader Industrial Service business base. We are pleased with the Climax transaction and feel that we have streamlined our business focus and strengthened our balance sheet with this attractive transaction. And finally, we expect continued strong performance going forward. While we have continuing improvement opportunities that we are addressing, we are pleased with the positive momentum of the business.

With that, let's now open it up for questions. Ian, can I turn it back to you?

(Operator Instructions). Mike Carney, Aperion Group.

A couple questions. First, can you talk about the revenue growth in the quarter, where it was driven domestically versus internationally -- Canada and Caribbean specifically?

Sure. We had very attractive growth as I mentioned kind of geographically everywhere. It was slightly higher internationally as you'll see when the Q is released, driven principally by very, very strong activity in Canada related to a lot of the Canadian tar sands projects. But it was order of magnitude a few points higher internationally. But again, strong as I said except for one region and one division; it was really strong everywhere.

You mentioned the operating margins at both segments. Can you give us those operating margins?

We don't break those out. As we said, we expect them to be comparable in the long run and that had been a significant issue a year ago. It's slightly higher in the TMS area, but they are coming very, very close together.

Okay. Then, is it still your goal to get both of those segments to 20 to 25% on all new business?

As I mentioned kind of previously, our long-term aspiration is to -- and belief is that at the branch level that our goal is to achieve a 20% operating profit margin in all of our branches, as at currently a little over one-third of our branches kind of hit that level. We have many branches below that, and that's kind of hence where we average about 14. So we continue to believe that's a worthy aspiration that we are continuing to work toward.

I'm not here to forecast that that will be next quarter, next year because it won't be. But we certainly believe that continues to be just by virtue of our own experience with our higher performing branches that that's a reasonable focus and goal for our business.

Then in terms of overall pricing, have you -- you've increased prices to a very small extent I believe in the last year or so. Is that increasing because the energy customers are doing so well?

I don't think the fact that the energy -- any of our customers are very profitable or not kind of really changes their attitude toward or kind of desirability to give us price increases. I think we are in a competitive market, and we need to kind of remain competitive in our pricing irrespective of the health of our customers. I would say though is that the very large dramatic energy cost increases, which are significant to us given the size of our fleet, plus continuing increases in medical expenses are certainly the basis for discussions and negotiated increases in rates to kind of absorb those cost increases. Rather than talk about pricing strategy, what we talk about is margin strategy and maintaining our margins and focus on that and then use that basis to negotiate or drive price increases or negotiate price increases with customers selectively as necessary based on kind of changes in our environment.

So when we see the higher gross margins and obviously -- and they have been higher -- then obviously there's more price increases I guess then.

I think we are and we will be continuing to seek price increase, appropriate price increases where we can and where appropriate. I think the gross margin increases also reflect the volume -- the leverage of increased volume.

Then finally, I just want to make sure it's clear that you think that overall in the quarter that the hurricanes had a slightly negative effect on revenue.

Correct. Yes.

Then so going forward into this quarter, into the third and fourth quarters then clearly revenue growth is going to be aided by the repairs.

Yes.

In terms -- and certainly in that region it will.

Okay, thank you.

You understand that we had a lot of positives happening in the quarter elsewhere though. And as I cautioned, I wouldn't encourage everyone to think that we're going to do a 39% growth every quarter. There are a lot of positive market things happened as well in the quarter.

James Gentile, Sidoti & Company.

I guess looking out into the remaining seasonality over the next two quarters, usually the February quarter is a little bit plagued; it's usually your seasonally weakest. I was wondering if perhaps the incremental hurricane business that you're expecting will kind of alleviate the seasonality in Q3 relative to other years -- prior years.

Just a couple of comments James. First is kind of a perspective I have is that our weakest quarter just for clarification is the first fiscal quarter of the kind of lack of turnaround activity in the summer. But you are correct, second and fourth quarters tend to be stronger than the third quarter. The primary reason being is that the third quarter includes December. As the holiday period, it historically has been a if you would almost a down 2-week periods in there. So we just have more workdays effectively as a result of the holidays.

Sure, as the business is strong and we've obviously enjoyed it in this quarter as well is we have very strong (technical difficulty) demand; that will help. It does not eliminate the holidays. So we will still I think it is reasonable and certainly our expectation that third quarter will be weaker than our second and fourth quarters, and it has been historically.

Even with the statements made publicly in the past with regard to the seasonality of the acquired Cooperheat business, it tends to be more seasonal, even more seasonal than your existing mechanical services business?

That is true and it's driven by the relative mix of turnaround versus I'm going to say day-to-day maintenance activities that are just naturally the consequence of the mix of business for the specific service lines that they are more turnaround intensive in terms of a greater percentage of total industry volume or service volume. It's really the turnaround activity or outage activity versus kind of day-to-day maintenance.

There have been some pretty bullish comments with regard to your larger customers, BP, ConocoPhillips, etc., with regard to downstream investments and infrastructure. These numbers are in the multibillions over the next couple of years and much higher than an already very strong spending environment in '04 and '05. Where do you see Team in that matrix when I hear some of your larger customers comment on the downstream investment?

Well of course, we -- if there's going to be investment, expansion, modification upgrades you name it of any of the domestic North American facilities, that is going to be good for Team for sure because we will be involved with some of -- some if not many of our services with those kinds of activities.

I will say, though, just relative to the total installed base, that's not a super big deal. So we are not really -- we don't really focus and dwell on that as -- well, that's really going to be the ticket for Team next year. Just the demand for our services, just to maintain the installed base I think has been and will continue to be the overwhelmingly dominant driver of demand.

Arnie Ursaner, CJS Securities.

A couple of questions if I can. You mentioned the pieces -- one of the things that was driving your growth is your clients are looking to focus their procurement on fewer providers of equipment. Can you give us some either examples or some cross-selling opportunities and perhaps give us the percent of your revenues perhaps coming from the top 10 of your customers at this point? Is there any identifiable way you can show us that this is in fact occurring for you?

Well I think the most significant evidence of that is the emergence of multi-service, multi-plan or multi-location agreements. And I would say 5 years ago or 6 years ago, those were nonexistent again because of the nature of the services themselves. Today, I don't have precise numbers but more than 25% of our total volume would come from -- would be coming from agreements -- from multi-service, multi-location agreements. So that's kind of one metric to that that we see.

I have several anecdotes but I don't -- they are not really meaningful in terms of providing metrics, where one of our divisions has by virtue very strong, long-term relationships with a customer was able to introduce our other division into that account to again expand our presence across more service lines. It's kind of a natural thing and you see how leveraging it is because what we're basically taking advantage of or benefiting from is in many cases what could be a 20 or 30-year work relationship that exists between one of our groups and that customer. That's a far easier way to be introduced to a customer when you are kind of being a basis when it is being built or leveled -- I guess layered onto a 20-year attractive and effective work relationship than if you are sitting in the purchasing manager's office or trying to kind of introduce yourself for the first time.

So both of our divisions have in our estimation about 33,000 plants they serve. It's just not the same -- many of the plants are the same, but it's not the same 3,000 plants. So we are benefiting nicely, and I think there's a whole lot more to come on that. Where one is entrenched and the other is absent, we're helping one another. And that's exciting. That's kind of what we call cross selling or that's exciting leverage really for our business.

Even if you look at all of our service lines, we have probably market share approaching 40%. If you look at field heat treating and in on-stream leak repair would be probably the two largest market shares in individual service lines. Yet, our composite share is only about 15%. So again, the potential for if you will filling in the blanks and selling even just to existing customers the full realm of our capability is incredibly fertile field in our view.

I want to kind follow-up a little bit on that if I could. Your organic growth rate this quarter is just off the charts positive. I want to be clear, was there any major turnaround or other sort of non-recurring work that occurred this quarter?

No. That's the interesting thing, part about this is because I obviously asking the same questions. It's every single service line, every region up. So it's very broad based.

You have in the past spoken about double-digit revenue growth and have delivered double-digit revenue growth. One of the questions was, when you became a larger organization, would you be able to continue that? Yet, what seems to be happening if anything is that you are accelerating your organic growth. Sitting here today with 15% market share and an incremental 1% alone would lead to double-digit organic revenue growth.

Right, that's correct.

What is your view sitting here today of what you think the next 2 to 3-year organic revenue growth might be, given the two dynamics you just referred to?

You know, I don't want to -- here's a little bit of my view on that is that I think that that 10 to 15% range, which is where we have been historically over -- consistently but historically over that 5 year period -- last 5 years yields a very, very attractive outcome in terms of profit growth for the Company. Will we do better than that? It's possible. But, I wouldn't encourage guidance that way.

I believe it's the consequence of being a great service company and the result of that not if you will something that we can just set as a target and hit it. I think by being a great service company, capitalizing on the trends that are so favorable to us I think it will be what it will be. But as you point out, I think we've got a lot of wind at our back and a lot of things that historically have worked for us and will continue to work for us.

One or two more follow-ups if I could.

It won't be 40% -- it won't be 40% a year. I will tell you that.

You don't want to see that as our model I assume.

Well I just -- I think that's unrealistic. A lot of things fell into place this quarter. But we're positive about our business; there's no question about it.

You've done a great job integrating the acquisition. At the time of it, you had talked about 4 million of identifiable cost savings and I know you also had run some incremental costs to be absolutely certain you could maintain the service levels that are critical to your business. Can you update us on what you have realized in cost savings and what you still have in front of you? Are you still incurring some duplicate expenses to ensure service levels?

There are no -- first of all, the 4 million we saved happened. Those were just kind of I guess abandoned costs from the Cooperheat-MQS environment. However, with our rapid growth and all of that, we've also kind of expanded SG&A both in corporate support areas as well as in the field operations kind of supporting our expanded business. I think for the most part, that's been very prudent and it's necessary to support our business. We continue to fine-tune. We are only a year into this or a little over a year, so I would expect continuing fine-tuning of our approaches and processes both at the field level and in our corporate support. But I don't see those as being kind of major -- we're doing it to be more effective, more than if you will to capture some huge cost opportunity.

Final question from me. You've talked about approaching prior operating margin levels as under the existing Company. Sitting here today with the opportunity you have with the combined entity, is there anything structurally that you think would prevent you from exceeding prior peak operating margins on a consolidated basis (multiple speakers)?

No, not at all. In fact, I think Mike or James' earlier question about what do we aspire to longer-term? We think a very realistic expectation is a 20% kind of performance at the branch level. As you know, as we have discussed, we are there at about a third of our branches. We think as we continue to kind of fine-tune our focus and approach and improve our effectiveness that we will continue as we have historically, we're going to continue to creep toward that goal. So I think our historical levels might have been in the 15% range, but we see no reason -- we don't see that as a limit at all. When we get to 20, then we can talk about how much further we can go. But that would be a nice healthy goal for right now.

[James Bennett], Private Investor.

Great results. Someone already answered my question on the new construction. Second question relative to labor, I guess you hear a lot about labor availability or lack of it that is, particularly with the hurricanes and the rebuild effort on the Gulf Coast region. Can you comment a little about the availability of crafts and skilled labor that you need now and then how you see that going forward as you continue to grow? Thanks.

Thanks, James. That's a good question and a critical issue. A little bit of -- where we are benefiting from and have over the last 5 or 6 years is a phenomenon, where we are growing rapidly in a no-growth industry. So, when we are growing, somebody else is shrinking. So the effect of that is that a significant portion of our new kind of personnel requirements pool are coming from competition. When I joined Team in 1999, we had about 500 employees. We now have about 2,500 employees, admittedly about 1,000 of that 2,000 person gain came via the acquisition. So that means we hired about 1,000 employees in that timeframe. So, to train all of those on a Greenfield basis would have been an extraordinary task. We had the benefit again of being in a no-growth market so that helped us.

But as we look forward and we look at the aging of our workforce, it's an imminent issue but it is a critical issue for our industry and really more broadly for I think all of the trades. And that's something we are exploring is just how we might I guess participate directly in the training of the next generation of service personnel and technicians. And we've thought about and are exploring kind of ideas about on not only in-house training but perhaps training that we would kind of market as part of our activities to again broaden the pool of kind of eligible employees on it.

So it's not a near-term issue. We do supplement our direct employees with contractors you know in some of our biggest projects. But it's certainly an issue as we look longer-term, one that we are quite aware of and are focused on.

James Gentile, Sidoti & Company.

Just with regard to some subcontracting business, I was wondering if you can perhaps give us a little bit more insight into how your relationships with some of the maintenance or some of the larger refinery subcontractors are trending. I have seen some interesting data out of those fellows as well. Is it 100% of your revenue or--?

Oh, no. It's a small portion of our total revenue; although, it is a growing trend. I think you're speaking now to what I would call -- my terminology would be a general maintenance contractor -- a Kellogg, Brown & Root or Bechtel or that kind of -- as they take over the -- we subcontracted them into kind of two circumstances. During turnaround activities, it's not rare that owner would like us to -- they would like to kind of coordinate all of those activities through a single contractor, and we would be a subcontractor to the primary maintenance turnaround contractor. So that's happening and then that's kind of always been that case. That's obviously happening more for us because we have more turnaround work now with our mix of business.

Secondly, for general maintenance activity, there are some customers that have outsourced that to some of these folks. In that instance and it's really kind of on a plant-by-plant basis, we will at the request of the plant how they prefer to deal with it, either kind of bill through the general contractor or bill directly the owner directly.

I will say though on those general maintenance -- where really in both instances while our billing may go through another contractor, there's in nearly all instances active involvement of the owner in the selection of us or the service provider so that we continue to need to have a strong relationship with both the owner and the contractor.

Right. Is that perhaps a reason why your receivables have been a little bit longer -- your receivable days have been a little bit longer?

I think that is one of probably 20 pieces.

It's not a significant reason, James.

It's just there's -- we are larger, we have kind of a broader number of transactions, we have changing processes on the part of our customers as they get more aggressive and their whole supply chain management and so on and so on and so on. That is not an excuse. We need to address it, and we need to do a better job of it. And we've got a lot of focus on the question on the whole issue. I will tell you, there's not a silver bullet that if we do this one thing, we will capture all that opportunity. But we are certainly aware of the upside for us there.

(Operator Instructions). Kerry Rigdon, Southwest Securities.

I just wanted to follow-up and you might have addressed this already in the call but in the past, there's been discussions talking about the margins on some of the branches and that there were measures being put in place to make some changes in some of those branches to bring them up to speed. Where would you say you are in that process? Are you completed? Do you feel comfortable that you've made the necessary changes in those particular branches to put them on a good course? Or is there still work to do there?

There are no planned organization changes at this point you know in terms of -- specifically related to that issue, we did make a few realignments earlier. I think we saw the benefit, the progress we're making in the second quarter. We are significantly improved in some of those lower performing branches. We are not all the way there yet. But, that would be unrealistic to think we would be in just 3 months' time. But we are very pleased with our progress there. I think just generally in a service business, it's kind of sweating the details every day, building the good habits, building the processes that kind of keep ourselves fine-tuned all the time. That's what we're working toward, and we'll continue to do so. But I think our results speak to the fact that we've made a lot of progress.

Arnie Ursaner, CJS Securities.

A couple of quick follow-ups if I could. You mentioned before that you saw some maintenance work that had been deferred or impacted by the hurricane. Can you attempt to quantify what sort of potential percentage increase in revenue we might see from the hurricane activity over the next few quarters?

No. I would be hesitant to try to estimate it because it's -- again, while it's a -- what we're talking about is a relatively focused area from the Gulf Coast from Alabama to Beaumont that really was affected. Everything else was really unaffected.

Are we talking 1% or 3, 4% growth? I'm just trying to get a rough sense of magnitude.

I don't have a -- I'll have to think about that one. I don't just have a frame of reference to think about it. I think about -- I know at several big facilities that have been big customers of ours, there will be significant turnaround and repair activities as a result of the storms. And they are coming up. So I don't know that I can think about total demand. They will --

But it's all on the margin though. The third quarter for those locations will be stronger because of that work. But on balance relative to 50 branches and our revenue volumes, it's just really not going to be a noticeable effect just like in the second quarter the fact that those locations were off because of the hurricane, you know, just in the aggregate didn't have a significant effect.

I know you've mentioned you've won some business back from the -- on the acquisition you made. Can you give us any sense of headcount additions in the quarter? And also, I know there are different ways you can measure it, but could you give us a comment on utilization rates?

I don't have statistics with me on headcount additions. I'm not trying to hide those. What I would say though is our revenues per build hour, our revenues per man hour are hanging steady. So the fact that we're dramatically growing revenue means we are working a lot more hours in terms of our Company. Now with the big, big turnarounds, we're supplementing our permanent force with contractors. So that's a portion of that.

Our utilization rates are very satisfactory. We are running kind of north of 92%. We've measured a couple of ways. But if you take the available hours that are available to be worked for our technician force, we are running north of 92% I think for the quarter, which we think is very, very good. It varies a little bit by division and based on the nature of the work and projects. But, I'm satisfied and pleased with the utilization levels in our business really in both divisions.

Going back to the receivables issue, my understanding is when you had put in the new systems with the acquisition that basically employees wouldn't get paid unless the receivables were collected. I guess I'm a little surprised why we're not seeing more improvement on the receivables side if in fact that is the plan in place?

No, that is not -- that was maybe a miscommunication on our part or a misunderstanding. But no, we do have -- our bonus plan is affected by or has a component related to the collection of receivables. So in terms of -- the incentive compensation plan is affected by that. But in terms of our broad payroll to employees, no, it's not affected by our collections activity. Like I said, I look forward to kind of discussing our progress in that area in the future. I'll just say that we recognize we have progress to make.

(Operator Instructions). Gentlemen, at this time, it appears we have no further questions.

Thank you, Ian. Let me just close then, and I want to just close by thanking all of you for your participation in the call and your continuing interest in Team. We look forward to our next quarterly conference call in early April. In the meantime, have a good day.

Thank you. This does conclude today's Team IR conference call. You may now disconnect your lines and have a great day.