Team Inc (TISI) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Team IR conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Phil Hawk. Mr. Hawk, you may begin.

Thank you, and good morning and welcome to the Team 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 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 first fiscal quarter ending August 31, 2008. 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 and I will follow Ted with a few follow-up remarks and observations. 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 of 1995. We have made reasonable efforts to ensure that the information, assumptions, and beliefs upon which this forward-looking information is based are current, reasonable, and complete; however, a variety of factors could cause actual results to differ materially from those anticipated in any forward-looking information. A description of those factors is set fourth in the last paragraph of our press release and in the Company's SEC filings. Accordingly, there could be no assurance that the forward-looking information discussed today will occur or that our objectives will be achieved. We assume no obligation to publicly update or revise any forward-looking statements made today or any other forward-looking statements made by the Company, whether as a result of new information, future events or otherwise.

Now, with that out of the way now to the financial results. Revenues for the first quarter were $123.3 million compared to $103.5 million in the first quarter last year, an increase of 19%. The revenue includes $5.9 million of incremental revenues attributable to the LRS acquisition that was effective January 1, last year and thus not reflected in last years first quarter so that the organic growth rate in the quarter was 14%. Net income was $5 million in the current quarter versus $3.5 million in last years first quarter, an increase of 41%. Earnings per diluted share was $0.25 versus $0.18 in last years quarter. For a little more depth around our industrial services business, as a reminder, our industrial services includes an array of specialized services related to the maintenance and installation of pressurized piping systems and process systems as well as specialized inspection services. The industrial service segment is organized into two divisions. TMS, which includes leak repair, hot tapping, fugitive emissions monitoring, field machining, technical bolting, and field valve repair services, and then TCM which is comprised of field heat treating and inspection.

TMS revenues in the quarter were $58.1 million versus $43.7 million in the first quarter last year, an increase of 33%. Of that amount 20% would be the organic growth rate as a result of the inclusion of LRS in the current quarter. TCM revenues in the quarter were $65.3 million compared to $59.8 million last year, an increase of 9%. Operating income for the industrial services business which excludes Corporate costs not directly attributable to field operations was $14.8 million in the first quarter versus $11.5 million in last years first quarter, so operating income as a percent of revenue for the field was about 12% in the current quarter compared to 11% in last years quarter.

For the first quarter, our Corporate costs were about $5.1 million up $1.4 million over last year. About half of which increase is associated with non-cash compensation expense for FAS 123 R expense. We expect total non-cash comp expense for the year to be about $5 million as a result of the high Black Scholes valuation, a previously granted stock options. With that, for fiscal 2009, we will suspend the use of stock options in favor of restricted stock units to provide long term equity incentives to our managers in order to better manage and reduce the future impact of non-cash comp expense.

Now with respect to our balance sheet and cash flows, capital expenditures for the quarter was $4.3 million. Depreciation and amortization was $2.9 million and non-cash comp expense was $1 million so that our total EBITDA for the quarter was $13.6 million. On a trailing 12 month basis, EBITDA is $63.7 million and at the end of the first quarter, our net debt was $95.6 million and total debt was $104 million up slightly from year-end.

Now just a word about liquidity and credit capacity. In the midst of the current financial crisis, we're pleased with the position that we're in. We have $43 million of unused capacity under our domestic facility, and have just opened an additional revolving facility in Canada for $8 million to support the working capital needs of our growing Canadian business. It's also important to note that our credit facilities are long term in nature, with all of the facilities maturing in 2012, so in the midst of the current economic times, we feel very good about our position with plenty of liquidity and capacity. So with that Phil I'm turn it back to you.

Thanks, Ted. Now, I'd like to add a few additional comments and observations. Let me begin with the tip of the hat and special thanks to my Team colleagues for their special efforts and ingenuity during our two recent major hurricanes, Gustav and Ike. Despite the lack of power from our local utilities following both storms I'm proud to report that all Team branches were open and we were serving our customers shortly after each storm. We were at full strength within a few days following each storm. Our Team utilized our own generators to power our branches and in several circumstances, we provided small generators and room air conditioners to our colleagues without power in their homes so that their families could be more comfortable while we were helping out our customers with their plant restart needs. Sometimes we see the best in people during the worst of circumstances. I certainly feel that way about my colleagues and how they responded to the challenges caused by these storms. I couldn't be prouder of our Team.

Now let me turn to our first quarter results. The short summary is that we achieved record first quarter performance and are on track for another record year. 19% revenue growth and more than 40% growth in net income is a great start for the year. Beginning with revenue, we have discussed in many previous calls that Team is a growth Company. We expect our strategy of providing our customers with outstanding service, with our broad service line offering, across our more than 100 branch service network will continue to lead to sustained revenue and market share growth as we capitalize both on our large network advantages and our customers continuing procurement consolidation trends. Teams performance reflects continued progress with this strategy.

Let's look at the components of Teams 19% revenue growth this quarter a little more closely. As Ted indicated, a portion of the growth was due to our purchase of Leak Repair Specam or LRS, our European industrial services Company which was purchased last January. I will talk about our progress with our recent acquisitions in more detail in a moment. The remaining reported organic revenue growth was then about $14 million or 14%. This is a strong start to the year particularly in light of the comparison to very strong performance in last years first quarter. You may recall that organic revenue growth for the first quarter last year was 42%, the highest of any quarter last year due to an extended turnaround season in that period. All in all we're off to a good start, and our outlook for the remainder of the year remains strong. There are a number of factors supporting this conclusion. Basic demand for our maintenance services is a function of the population of operating facilities. We have seen and expect no significant change in plant operating activities.

Second our overall market demand continues to benefit from several ongoing industry expansion projects, particularly related to refining, pipeline, and Canadian oil sands development. It is our belief that we will continue to benefit from these supplemental expansion projects throughout all of this fiscal year and well into the next as well. Hurricanes Gustav and Ike caused short-term disruptions to our activities in the geographic areas affected, but in our view they will not have a significant impact on Teams overall activities or performance. First of all, a large number of our branches were completely unaffected by the storms. Second, for those affected, our experience has been that short-term business losses are usually offset by additional business later related to the restart and related repairs and the affected customer plants. Overall, hurricanes tend to be about net neutral to a slight positive for Team, and we continue to build our technician and service resources to support our growth.

Our total field personnel in our North America network at the end of the first quarter was approximately 500 employees above the same time last year, up 18%. Compared to the beginning of the quarter, total North American field personnel increased by 30 employees. I'll remind all of you that we accomplished this increase in a quarter where our revenues declined about $20 million or 14% from the seasonally stronger prior fourth quarter. As we ramp up in the seasonally stronger second quarter, we expect to see our net staff additions in the current quarter back in the 100 plus range again.

Let me now add a word or two about our businesses which joined Team last year, the former Aitec and Leak Repair Specam groups. Both businesses are doing very well. We are pleased with both our progress and continuing prospects. The Canadian inspection business, formerly known as Aitec joined Team in June 2007 and is now fully integrated into our Team family. All branches are now fully operational with Team's IT, financial, payroll, and benefits systems and programs. We are pleased in all respects with both the operational and financial progress this group has made over the first 15 months with Team, and we're equally excited about our future prospects together. LRS has also made good progress. First, we continue to be delighted with the quality of the organization and their committment to the Team values of safety, service excellence, business and personal integrity, respect, and pride. Our new colleagues have joined us, are an outstanding Team.

Second, their financial performance both in the first quarter and since the acquisition in January has been attractive, and in line with our overall expectations. And third, we're also making good progress on integration activities and expect to install Team's financial systems within LRS during the current quarter. I am very pleased with both our progress and prospects with each of these newer businesses for Team.

As indicated in the earnings release we have affirmed our previously issued guidance for our full fiscal year Ending May 31, 2009. We continue to expect overall revenues to be in the 530 million to $545 million range and for earnings to be in the $1.45 to $1.60 per fully diluted share range. As a reminder, the first fiscal quarter has historically represented a little over 20% of full year revenues and a much smaller percentage of full year earnings. While we are pleased with our start to the year and very optimistic about our outlook, we still have a long way to go this year. As always, we will continue to review our guidance and make adjustments as appropriate at least on a quarterly basis.

On a different subject, I'm also proud to note that Team was recently named to this years Fortune Magazine list of the 100 fastest growing companies in America. This is the second year in a row that Team has received this recognition. According to the Fortune listing, our three year compound average annual growth rates in revenue, profits and total return to shareholders were 31%, 63%, and 47% respectively. We take great pride in the consistent and sustained performance of our Company over many years.

Let me end with a couple of comments about the extraordinary equity and credit markets that we all have been experiencing. I will ask and answer several related questions that may be on your mind. First, will market and bank credit issues impact Team's ability to conduct its business? The answer is no. We are fortunate that our business generates sufficient cash flow to cover our capital investment requirements and organic growth capital requirements. We have no need to seek additional capital. Furthermore as Ted indicated, we have approximately $50 million in existing capacity on our current multi-bank credit agreements which have a term through 2012.

Will tight equity and credit markets reduce demand for Team services in the market? We have seen no evidence of any slowdown and frankly do not expect any. There are several positive factors to consider. First, our customers typically are among the best capitalized companies in the market, in general we do not expect our customers to experience any major cash or credit issues. Second, the demand for our services are fairly stable and do not follow the business cycle. We are a necessary evil that is required as long as plants are operating. And finally, when will Teams stock value return to pre-crisis levels? Of course, no one can predict with any certainty what will happen with stock prices either generally or specifically.

Here is what we believe. Over the long term, Teams actual performance will be the primary driver of the Company's value. The best way we can positively influence teams overall value is to maximize our companies short and long term performance. That is our overriding focus and objective. As a Management team, we are very confident that we will continue to build our great Company. Our consistent track record of performance over the past decade supports this confidence. In this time period, our revenue growth has averaged 30% per year and our organic revenue growth has averaged about 20% per year. We've not had a single negative revenue growth year in the past decade. In this time period, our compound earnings growth rate has averaged more than 50% per year. The consistency of our growth is further evidenced by the fact that Team has experienced a year to year decline in earnings in only one year in the past decade.

In each of the last three fiscal years we've achieved new record performance levels in all of the following measures--Revenue, earnings, and Company valuation. Simply put, Teams success is not based on a new or unproven idea or concept that may not last. We see no reason why Team will not set new performance records again this year. We continue to be extremely well positioned strategically and our activity levels early in our second quarter continue to be consistent with our positive outlook for continued attractive growth.

To wrap up we are off to a good start this year but it's certainly not time to rest on our laurels. We'll stay very focused on the key fundamentals for success in our business. These are continuing to provide outstanding service to our customers at every opportunity, reearning and reaffirming their confidence in Team, continuing to build and expand our organization by recognizing the critical role every one of my colleagues plays in our success and by remaining the employer of choice in our industry, and continuing to sweat the details on each and every job and customer relationship. Our success is the sum of more than 130,000 individual jobs completed annually and the great work of more than 100 service branches.

That concludes my introductory comments. Let's now open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Rich Wesolowski from Sidoti & Company.

Thanks a lot. Good morning.

Good morning Rich.

Phil, can you talk about whether the recent economic financial events have prompted you to reconsider the strategy of adding headcount in anticipation of new business instead of in response to new business?

No. It hasn't changed our view at all on that Rich. As I mentioned, we don't see, again, obviously we're watching it very very closely, we don't see as I mentioned in my remarks, we don't see any change in the basic demand for our services because again, in our view, it's driven principally by the presence of the population of operating plants. We see frankly, even with a severe downturn we don't see scenarios where we're going to see large scale plant closures or changes. So our view is basic demand is out there and our opportunity to gain share continues to be as robust as ever and we plan to continue that strategy.

Okay, just secondly we spoke about wage inflation, other material cost inflation on the last call. Have you begun to revisit pricing on contracts to recoup some of those costs and if so do you think we'll see the effect in TMS margins in FY '09?

Well, in fact, it's an ongoing issue, and challenge, and yes, we are continuing to address it and I would say the difficulty with looking at a single quarters data is that it's a single quarter and it includes the impact of lots of mix and puts and takes and changes, et cetera, but I'm frankly, pleased with the progress we're making. We saw, if you recall Ted's summary kind of at a field branch margin level which is really how we really focus on it. We saw on average a point increase in the quarter versus a year ago. That includes a lot of ups and a few downs, again because of the timing of projects here and there but we're seeing a lot of good focus on that. You saw a big decline in the gross margin in TMS. I think that may be what you're referring to, what we reported in the release. We don't really look at and manage our business kind of exactly that way but those are GAAP kind of reports that we are required to put in there. The primary driver of that frankly, is big projects particularly in Canada where we have a lot of pass through expenses per diem and living expenses so that just the inherent margins on the reported revenues of that are going to be lower than I'd say kind of a standalone business that doesn't have some of that activity so in terms of kind of the basic margin and where we're, how we see things I think we're pretty pleased with our quarter and think we're continuing to make progress there.

Perfect. Thanks a lot.

Sure Rich.

Our next question comes from Arnie Ursaner from CJS Securities.

Good morning and thank you for a terrific rundown. Can you remind us of your CapEx expectations for the year and update us on the status of the training facility?

Sure, Arnie. We expect total CapEx for this year without the facility to be in order of magnitude of 15 million $20 million and then the facility will add another $25 million or so to that.

Okay.

And then the status is we expect to break ground on the facility within the next month or so.

Okay. Two more quick questions if I can. On Aitec now that it's fully integrated you had argued originally that it was lower margin and you had hoped to bring it more in line with Corporate averages. I know it's fully integrated but can you give us a sense whether you accomplished that goal?

Yes.

Okay. My third question relates to the competitive environment. I know while you're the market leader you only have 15, 16% of the market and obviously you're very disciplined on price. Are you seeing any change or reaction given the craziness of the world from competitors that are struggling to keep or win some business? Are they trying to put any pressure on price and is your customer more interested in the quality of work and the national account relationship than pounding the low cost provider who may not do the quality of work you do? What are you seeing there?

I think I'll make a couple of, first of all, the overall summary, no, we see no changes. A couple of kind of elaborations on that. First of all in terms of the, if you will, the financial crisis, I think it kind of, while we've had kind of weak markets for awhile, I think stock markets certainly in our space I think it's much more recent and so to say that we would have seen some reaction if there was going to be any I'm not sure it might be premature, although more broadly let me just talk a little bit about price and kind of the importance of price and other factors.

Price or cost to our customers is never unimportant. We have sophisticated customers that care and they want full value for all services they procure including those from Team or Team's competitors. The point that we've made historically though is that rate, the labor rate or cost rate, because again this is principally time and materials work that is charged is only but a small component of either total cost or frankly, the total value to the customer. Again, we are a very high value component in their overall economics because our services really directly affect plant uptime. So I think just what we would expect to see is we would expect to see no change in the basic view that our customers have about how they kind of evaluate the whole value equation. They're looking for the best value for their business and that's going to put more emphasis on performance and capability than purely a rate, and we think that it's not likely for that to change. In terms of any actions by competitors in response to conditions, I can't say that we've really observed anything out of the ordinary.

I'll just try to follow-up on one more if I can regarding the current quarter and I know clearly you don't give quarterly guidance but obviously, you lost a week or two of production in Texas and normally Q2 is a very busy period for you anyways with turnaround activity. Is there any sense of quantification of what the two hurricanes may have cost you? Did you see any movement out of any of the turnaround? I guess I'm trying to get a better feel for the likelihood that you can make up whatever shortfall you had in September in the balance of the quarter? Why are you confident that you can?

Well, you are correct in that if you look anecdotally, we can find a handful of individual projects or turnarounds who's schedule has changed or moved out if you will because of the hurricane or related issues. Having said that, as I mentioned in my remarks we're very busy. If I look, I don't have revenues but I have activity levels or hours for our first month of the quarter versus a year ago and we're doing fine. So our activity levels are high and we're busy and we expect to have a good quarter.

Congratulations. Great quarter. Thank you.

Thanks Arnie.

Our next question comes from [Jack Adkins] from Stephens, Inc.

Good morning guys and congratulations on a nice quarter.

Good morning, Jack.

Just a couple quick questions here. First, if you could maybe give us some color on how the Fall turnaround season is shaping up for you guys. I know you've said you had a couple of projects that maybe have been pushed back a little bit. How is that shaping up for you so far?

As I said, I think the simple answer is we're busy. We expect a good quarter. I mean, we don't see any major, certainly no material changes in our prior outlook and we continue to be optimistic and positive.

Okay, and then last thing here, I notice that the TZM segment margins were up nicely year-over-year. I wonder if you could talk a bit about what's driving that and what you're doing to get some traction on margins there?

Again, broadly, we're trying to kind of track our kind of price increases or contract arrangements with our cost increases and kind of maintain our margins. We're trying to improve our execution and kind of utilization of our resources across our network. That's kind of where we kind of creep up those margins and individual branches. I mentioned earlier we've gotten nice progress, continuing progress from our Aitec and Canadian Inspection Services. They have really come on. They were a little below average. Our average a year ago, they are not anymore, so that's a big plus.

I just want to caution though of us declaring victory based on a single quarters results. All results both this quarter and the year ago comps do compare, do reflect the projects that fall on those areas so there's just some natural lumpiness and while we tend to focus maybe on the negative lumpiness, I would just caution with declaring victory that we've had this, whatever it worked out to be a 3 or 4 point increase I think on the TCM side to think that it necessarily is that level of magnitude because I think you just have puts and takes that come along. But overall, we're positive with our margin improvement and continue to focus on it.

Thanks a lot.

Thank you. Our next question comes from Holden Lewis from BB&T. Please go ahead.

Good morning, thank you.

Good morning Holden.

Can you just comment about the Corporate piece a little bit because obviously when you're growing your revenues your goal is to leverage that Corporate piece and I think this time it was up about 30 basis points versus last years level. I mean, are we expecting this year that we'll be able to leverage the Corporate at all or are we thinking that this is a year where we're not going to be able to do that. Can you just give some color on trends there?

Sure. The main ingredient of the change in Corporate cost, Holden is the continuing increase in non-cash compensation expense. As I indicated in my remarks, those costs for the current year are expected to be about $5 million as opposed to I think it was $3.9 million a year ago. In the quarter non-cash comp expense which is all embedded in Corporate cost was about $700,000 higher than the same period last year, or again about half of the increase in total Corp. costs for the quarter. The reason those comp costs are so high is because of frankly, our success. Our higher stock values have resulted in higher Black Scholes valuations. You might remember that we had consistently told investors that we would, we couldn't impact Black Scholes, but we were committed to a burn rate relative to the number of options that we would issue. We've actually changed that relative to the current year. Because of that high Black Scholes valuation, frankly, again, it's a non-cash cost. It's debit expense and credit equity so from a financial standpoint it has no effect but it has a significant P&L effect and so we have changed our philosophy for the current year, suspended the use of stock options for our fiscal 2009 long term incentive awards and we'll be using restricted stock units instead in order to reduce the impact of non-cash comp going forward.

Okay. But the stuff that's in there is going to continue to be volatile and have an impact on that number, right?

Well, the stuff that's in there will have, it's going to be about $5 million for the year. Once the number, once options are granted, for instance last years grant of options sets the amount of the expense that's then reflected over a four year period of time.

And did you say that that $5 million this year is versus 3.9 million last year?

Correct.

So you have a $1.1 million change and you recognized about 0.3 of that so you're going to sort of run that across evenly across the year?

That's correct.

Okay. Now if I take out that incremental 0.3, then you're still looking at really sort of 3.6 number versus 3.6 last year so not a lot of leverage on the Corporate. Any color on that? Should we have gotten some? Is there something else in there that would limit that?

Not really. I mean, it's really a timing issue. We've had certainly some headcount increases over the course of the last year but really not significantly over the course of a year.

Okay. And then looking at sort of the margin improvement, you talk about generally that if you're growing at 20%, it's going to be very difficult to leverage the business model because you have to keep investing to support that growth. This quarter obviously grew so much faster, you're not hedged at the same rate and you still kind of had I think a 9.5% type incremental margin. Should we expect even more than that given the slower growth, the slower head additions and is that number something of a disappointment or how should we look at that?

Well, again, you have part of that being the non-cash cost which is kind of to me is kind of unrelated to the kind of operational activities on this. We're talking about I think to my way of thinking, Holden, you're kind of trying to extract more information out of the data than exists. It is a one quarter. We have, you kind of have issues with regard to kind of mix of projects here and there so no, I'm not particularly disappointed or thrilled one way or the other. I think on balance, I'm thrilled with the continuing organic growth, the strategic position we have. I think what I look at when I look at individual branches and look at that and I see the progress we're making kind of in a large number of branches of the continuing organic growth, the strategic position we have. I think what I look at when I look at individual branches and look at that and I see the progress we're making kind of in a large number of branches of kind of tightening up our operations and getting the margins that we're striving for, I mean, I'm pretty optimistic about it, but in terms of kind of looking at the leverage for particular quarter, I'm not quite sure what to draw from that.

Let me just follow-up on that just a second. Again, it's important to remember that the first quarter is our seasonally weak quarter coming off of our seasonally strongest quarter in the fourth quarter of last year, so that it's, we have no expectations of getting terrific leverage in a quarter when revenues sequentially are dropping $20 million compared to the fourth quarter. We are I guess the way we look at it is we are kind of at expectations and we think we're off to a great start for the year.

Okay. And then just lastly, when you sort of look at your revenue guidance, this quarter was an unusually difficult comparison in both your businesses but particularly I guess on the TCM side. Given sort of your outlook in terms of demand and that sort of thing, maybe the hurricanes goosed things a little bit, just the comp, does the comp alone suggest that rates of growth at the top line should improve as you get into Q2 through Q4, just as the comp gets easier or is that a reasonable expectation?

Well, I guess the premise I would make is that we've had one quarter, right? It was a good quarter but we had one quarter and it's the seasonally weakest or one of the weakest quarters of the year. We'll feel -- we continue to look at our guidance but I think historically, we haven't been real excited about trying to extrapolate from that one quarter, which is kind of what you're proposing or maybe suggesting we might be thinking about here. I think if we sustain our progress, yes. The math works as you said, is that we sustain this high level of progress again in the second quarter at these kind of 20% growth rates, we'll be delighted to revisit our estimates and probably would take them up, but I'm pretty proud of our estimate right now to be honest and our guidance for the year and the environment that we're in, I think it's a pretty strong forecast.

Right. I'm just trying to get at you've grown in the 11 of the last 12 quarters you've grown at a 20% plus type rate so this stands out as being somewhat different and I'm just trying to get a sense, is it somewhat different because of the comp or is there, even though the demand looks good because anything North of 10 is pretty good in this market. Is there reason to think that those, that the market is different than it was when you were growing them 20% over the last three years? I mean has there been--?

No. We don't think the market is any different. I would just also observe that we didn't forecast 20%. We didn't give long term forecasts of 20% organic growth either. That's very very strong performance. We hope to do it again but we're, remember our model and our guidance are based on slightly more conservative kind of estimates than that.

Okay. All right,thanks guys.

Yes.

Our next question comes from Byron Pope from Tudor, Pickering and Holt.

Good morning guys.

Good morning, Byron.

I wanted to get your thoughts on acquisitions in this type of environment. If I think back to 2004 when you guys did Cooper Heat and Thermal Solutions those were both kind of unique acquisitions but I guess my question is how comfortable would you be taking the net debt-to-capital higher if the right type of acquisition came around in this market environment? And again, I realize you guys have tons of organic growth opportunities but just curious as to how you'd think about net debt-to-cap if the right acquisition came along in this uncertain environment?

I have to say, Ted can give more details, I think just generally we're pretty confident about our cash flows and so we're not so much worried about more or less debt from where we are but having said that, these are unprecedented credit market environments that we're in so I think for us to just kind of blindly say well it doesn't matter would be incorrect. We would certainly want to assess that very carefully. Now, the more important point is why would we want to do an acquisition and the answer is, is not because something is dirt cheap. The reason we would do an acquisition today is exactly the same reason we would have done it last year, and that is because in our view it would be an attractive accelerator to the development of our business, and that's the only reason we would be interested in that. So in terms of our expectations about acquisitions, I think there's no difference in our view of that. We've never viewed kind of I'm going to say financial arbitrage as the primary or frankly, any objective in terms of kind of our M&A activity.

And then just on the organic growth side, Phil, as you look across your eight service lines and as we look 12 to 24 months out, which of those service lines do you think we'll see perhaps disproportionate growth if you will or where are you most excited about kind of the organic growth opportunities by service line?

That's the beauty of our Company is that I'm excited across-the-board. I think when we look back 24 months from now, just the law of averages will be that some will grow faster than others but in terms of what's driving our growth is our I think, we talked about the broad network advantages we have of our North American wide network but now increasingly, we hope our increasing presence in Europe as well as just the breadth of our service lines. If I had to predict which ones would grow fastest, I would say those that have the newer services that have the lower shares I think mathematically have the opportunity for the greatest percentage growth rates but I think the absolute growth in all of our service lines should be good.

And then my last question. Ted, just wondering if you have handy there the geographic mix for the August quarter and the US versus Canada versus Europe, if you have them handy?

Yes. In the US it's $79 million of revenue, Canada $33 million, Europe is at $6.3 million in total and then other countries, principally the Caribbean $5 million.

Thanks guys. Appreciate it.

Sure, Byron.

Our next question comes from Richard Nelson from Jesup & Lamont. Please go ahead.

Good morning Richard.

Good morning, gents. Actually all my questions have been answered but I sense from you that you're not seeing evidence of customers changing their spending habits at this point such as delays in accounts receivable collections or anything like that?

That is correct.

Okay. Thank you. Again, very good quarter. Very nice. Thank you.

Our next question comes from Rich Wesolowski from Sidoti & Company. Please go ahead.

Thanks. I appreciate the differences between your business and a downstream E&C firm but you do share the same customer base. I look at those stocks. They've been unmercifully hammered in recent weeks. Are you worried about that small slice, that 10 to 15% of your business derived from refinery growth CapEx as we look past the next say four quarters?

Yes. In this respect is if I were a major integrated oil company right now, would I be starting kind of new projects, very big projects that involve large outlays of capital? The answer may be more conservative today than it was five years ago or even one year ago. So will there be as many new projects going under the books being launched in the future, I think that could be -- the answer to that could be, no. There could be fewer or the extreme, no. No new projects.

Now, having said that though, we have so much that's already under way and recall these projects that we talk about expansions to refineries or the development in the Canadian tar sand type projects or new pipelines we're talking about projects that have economic lives of 30 plus years. So what does one do once one has kind of invested a substantial amount of capital to launch and start under construction of these projects? Does your 30 year view of the world, has it changed because of the last two weeks or the last two month? I think not. And I think the prudent and rational approach is you complete all of the projects you've started, to do otherwise would be unsure no benefit yet the incursion of most of the cost on that. So we see no rational reason why you would not complete all of the projects under way. That's why we are bullish about the next year and a half because that's about the time frame of the stuff that's already under way. We have heard no indications of pullback of projects that are planned but not yet started but could that happen? Of course, and I think it depends on how severe our whole environment or how long and how severe. But as I said I think for our space and I think our customers spaces, it's a pretty good place to be right now relative to a lot of parts of the world.

Great. Thanks again.

Sure.

(OPERATOR INSTRUCTIONS) At this time we have another question from Arnie Ursaner from CJS Securities.

A couple of quick follow-ups. What was project work as a percent of revenue in Q1?

Arnie, I don't know how to measure that because of the -- we just don't, it's just very very difficult to know the definition of a project on that, so we really don't keep track of that. I think as we look at big projects or turnarounds or expansions, I will just say kind of this is a little bit of a visceral feel. I don't feel like it was much different than it was last years first quarter. It seemed about the same.

And I don't know the answer at all. Do you have any real meaningful exposure to state or local government spending where there's issues? I don't think you do.

No, we don't. We do minor amount of municipal work.

Very little.

But no we don't.

The final question I have is typically when you have repair work from things like hurricanes is the margin similar to your core business or is it generally higher margin work?

It's similar because it's kind of basically done on a current rate schedule that we have with our customers. You might have a little more kind of because of the emergency nature or around the clock kind of approach you might have a little bit of premium to it but not much.

And you didn't speak at all about either growth of new national accounts or the growth rate of existing national accounts. Can you just freshen that up please for us?

I think for the quarter it's just a small time frame to measure. I think we will continue to add accounts. I think there isn't any kind of noteworthy improvement in kind of our penetration of national accounts in the quarter.

Thank you very much.

Our next question comes from Holden Lewis from BB&T. Please go ahead.

Thanks. Just following-up on that last question, do you have a sense of the growth of national accounts versus the non-national business? Has that maintained a pretty robust rate compared to the rest of the business or how should we look at that?

I think for the quarter it's just lumpy because of the timing of projects, I think the stats are we were kind of marginally, well it depends on what you count, our national account group but there's really, it was kind of flat for the national accounts for the quarter but like again, it's, because of timing of individual projects, I really put none of the information to it. We have lost no national accounts. We have not served fewer national accounts than before. It's just the timing of projects.

Okay. Fair enough, and do you have the cash flow data, specifically just the operating cash flow? Do you have a sense for where you were on that?

Holden, I don't have that in front of me.

Okay, and then just to clarify, did you say that the Aitec acquisition or maybe you're not even really looking at it the same way but that was at the Corporate margin at this point?

Yes. We said last year kind of in ramp up that it was running a little below, behind kind of the averages kind of at the branch level.

Yes.

And I would say today it's at the averages. It's right in there. It's performing well.

Okay, but you're referring to the branch level as opposed to the total?

Well, I'm comparing apples-to-apples so I'm comparing branches to branches so.

Well, typically you've kind of said that you thought you'd get a couple hundred basis points per year and that would suggest that in sort of year three you'd be at the, you'd sort of be at your Corporate average which means you'd be about a year ahead of pace; is that right?

Yes.

How did we achieve that? How did we sort of get there sooner than anticipated?

I think you're again, trying to extract a lot more information from one quarters data than I would.

Okay.

But say we had a good quarter.

Okay.

And whether it's a point behind next quarter or not would still be good progress but I think they have performed well and I congratulate them.

Okay. And then that flattish growth on national accounts, but your visibility suggests that that's going to be growing though going forward?

Yes.

In terms of project activity, okay. All right, thanks guys.

Yes.

(OPERATOR INSTRUCTIONS) At this time we have a question from [Corbin Barnes] from Houston Capital.

Good morning guys.

Good morning.

You guys have hit all around this so I apologize if it's a little redundant but I wanted to look at just kind of your big refinery customers and in terms of strong refinery profitability like we were proactive and aggressive with our maintenance spend, and if you look at your traditional refinery customers where you've been in there for a long time are you guys seeing evidence of above average spending for the last few years, reversion back to normal levels? How do you guys think about that?

We're not seeing any changes really, Corbin. I would just kind of preface that or as a caveat say that the variability in spending in our services for a individual facility kind of year to year or certainly if you get even shorter time period quarter to quarter is extremely high, because it's reflect, it reflects the timing of individual major repairs or turnarounds and outages so for us to kind of look at a facility where let's say we have 100 share, and say well, is the revenue up or down this year versus last year, I mean, obviously we have those facts but to have any meaning to that, of knowing whether that's because of practices, changes in practices and all that it's virtually impossible for us to tell. I would just say anecdotally in our discussions with customers I don't think we're seeing changes in basic operating practices.

Okay, thanks a lot.

At this time I show no more questions.

Great. Then I'll take the floor back, and let me just close by thanking you for -- thanking all of you for your participation in this call and your continuing interest in Team. We look forward to visiting with you at our next conference call in early January. In the meantime, have a good day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.