Mistras Group Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 3, 2023

There are 7 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Meester's Group Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dennis Bertolotti, CEO, please go ahead.

Speaker 1

Okay. Thank you, Britney, and good morning, everyone. Thank you for joining us today. During the Q2 of 2023, MISTRAS progressed further towards our strategic efforts to streamline the organization and fine tune our strategy to unlock the inherent value of our business. Although we continue to generate revenue growth In many of our key markets, the impact of decreased activity with 1 of our defense contracts offset these gains at a consolidated level.

Speaker 1

Consequently, total revenue was down marginally adjusted for the effect of FX exchange. There were several bright spots related to revenue growth drivers in the Q2 of 2023, including certain key markets which achieved record revenue performance. In particular, our West Penn acquisition, a key shop facility, which specializes in aerospace projects, reported a record revenue quarter. Additionally, Onstream achieved its 2nd best quarter revenue in its history, which performs in line inspection testing of pipelines. The on stream growth was driven by a record quarter for its U.

Speaker 1

S. Segment, which has achieved revenue growth by over 75% for the first half of twenty twenty three are expected to be in the prior year period. Within Data Solutions, our PCMS New Century business also experienced growth in the quarter, driven by continued customer adoption of its predictive analytics. Have strong cash flow and a significant reduction in days sales outstanding, contributing to a further reduction in our outstanding debt. Selling, general and administrative expenses also declined sequentially, reflecting our ongoing cost controls and our objective to improve operating leverage.

Speaker 1

In the second half of this year, we will seek additional cost savings opportunities expanding upon what we have already implemented during the first half of twenty twenty three. As we continue to improve operating efficiency, will contribute to improved bottom line results. I will provide more details on these initiatives later. We also anticipate that the second half revenue will be stable with modest growth over the comparable prior year period, are participating in the Q1 of 2019, but with an expanded improvement in adjusted EBITDA due to a favorable sales mix shift and continuing reductions in overhead, particularly SG and A spending.

Speaker 2

Are in the range of

Speaker 1

$1,000,000 Our cash flow remains strong and I'm very pleased with the investments that we have made in 2023 are related to our higher growth businesses via increased capital expenditures, which will further our expansion in key growth markets. First, just a few comments on performance in our end markets during Q2. In our growth areas, we achieved outstanding performance in in the Q2, which we expect will continue through 2023. As I previously said, Westport are in the same store.

Speaker 3

West Penn, which reported its

Speaker 1

all time highest quarterly revenue, had growth fueled by adding complementary offerings to our capabilities to help alleviate some of our customers' supply chain constraints by taking on additional steps in the standard process of finishing the components for our customers. This growth is a byproduct of investments in the business, such as prior announcement of the opening of a new facility customer finance CNC machines to expand machining capabilities increase the throughput of our participants are in the process of getting a sense of urgency. We also anticipate that our fence related revenue will improve from the first half of the year as our customer ramps back up are working with this work later in the year. Longer term, we are focused on finding new ways to participate in servicing the overall backlog currently experiencing this industry. Because of these actions, we expect to see continued growth in the aggregate aerospace and defense sector.

Speaker 1

Are

Speaker 2

in the

Speaker 1

range of $1,000,000 As mentioned, Onstream achieved the 2nd best quarter in their history and their 2nd highest all time revenue quarter driven by record results

Speaker 2

are in their U. S. Portion of

Speaker 1

the business. That business is up over 75% from the first half of twenty twenty three compared to Last year, we're well positioned in the midstream ILI market sector and provide optimism about our future growth. And last but certainly not least, our portfolio of data solutions offerings centered around Our PCMS New Century and Onstream business lines continues to expand as evidenced by their year over year growth of 22% And comprising now over 10% of our total revenue, we are working to sustain this level of growth and performance. Each of these initiatives are in growth markets and are expanding faster than our other end markets. Are ready to continue to foster investments in these capabilities to expand our solutions and penetrate new markets.

Speaker 1

In the second half of the year to see even more progress across the various initiatives implemented, which should enable us to achieve greater margins and a significant improvement in bottom line. I would now like to turn the call over to Ed to give you more information on our financial position and further detail on our cost savings initiatives.

Speaker 4

Thank you, Dennis, and good morning, everyone. Before I start, just a quick rewind here. We omitted the Safe are in the prepared remarks made during this conference call will include forward looking statements. Our actual results could materially differ from those projected. Some of those factors that could cause the results are discussed in our most recent Form 10 ks and other reports filed with the SEC.

Speaker 4

The conversation and discussion in this conference call will also include certain measures, which were not prepared in accordance with U. S. GAAP. A reconciliation of such measures To the most directly comparable U. S.

Speaker 4

GAAP measures can be found in the tables contained in yesterday's press release and in our related current report on Form 8 ks. These reports are available at our website as well as at the Investors section at the SEC website. With that, It was truly another meaningful progress quarter for MISTRAS. Our legacy end markets are very stable and our key growth markets are expanding per plan as Dennis elaborated. We are making steady progress preparing MISTRAS will be conducting a number of key strategic initiatives to improve productivity and efficiency and better leverage better leveraging our inherent strengths to capitalize on the sectors of our market, which are growing the fastest, are in a position to service customers' unmet needs.

Speaker 4

As announced in February 2023, we have been exploring ways to improve profitability and adjusted EBITDA We have completed the initial phase of this project, which we refer to as Project Phoenix, wherein initial opportunities were identified. We are now undertaking the next phase We have already taken certain actions in 2023, which are expected to yield annualized cost savings of approximately $6,200,000 of which approximately $5,100,000 are expected to be realized during 2023. Most of these cost savings are related to our North American operations and are related to a reduction in overhead functions are classified within the SG and A line. Approximately $4,500,000 of the $5,100,000 of savings anticipated to be achieved in 2023 were budgeted for and hence were included in our original adjusted EBITDA guidance for 2023. 2nd quarter SG and A was down sequentially from the Q1 of 2023 by $1,300,000 or 3.1 percent As a result of the ongoing budgeted cost control initiatives.

Speaker 4

For the Q2 of 2023, recorded $1,200,000 of reorganization costs related to our ongoing efficiency and productivity initiatives, primarily related to the overhead cost savings initiatives. For the Q2, these charges included professional fees and certain restructuring charges associated with changes made within our organizational structure. For the 6 months ended June 30, 2023, we recorded total reorganization costs of $3,300,000 Again, actions taken in the first half of this year are are expected to contribute $5,100,000 to adjusted EBITDA over the course of the full year 2023, of which $4,500,000 was expected and budgeted for are in our original outlook for the year. Interest expense was up for the 2nd quarter, although down sequentially. The year over year increase in benchmark rates, despite our continued commitment to reducing outstanding debt, led to the quarterly and year to date increases over the respective prior year periods.

Speaker 4

With benchmark rates now expected to remain higher for a longer duration, we now believe full year interest expense will be in the range of $15,000,000 to $16,000,000 Our net cash provided by operating activities was $18,300,000 for the 1st 6 months of 2023 compared to $7,800,000 in the prior year, An increase of nearly 135 percent year over year. Free cash flow was $7,700,000 for the 1st 6 months of 2023 compared to $700,000 in the prior year, again a significant improvement. Our improved cash flow performance was primarily attributable

Speaker 2

will be able to improve day sales outstanding during the year.

Speaker 4

Capital expenditures increased by $3,500,000 versus the 1st 6 months of 2022 Our gross debt was $183,700,000 as of June 30, 2023, compared to $191,300,000 as of December 31, 2022. Gross debt decreased are expected to be $5,600,000 during the quarter ended June 30, 2023 from $189,300,000 as of March 31, 2023 issued $187,700,000 as of June 30, 2023. Our net debt was $165,700,000 There was in fact a significant improvement in working capital during the quarter, as I said, especially due to the day sales outstanding improvement, wherein we reduced to about 60 days outstanding through aggressive proactive actions, keeping that cash flow as strong as we can make it. This contributed to free cash flow of $8,000,000 for the quarter, which did in turn lead to further debt are in the range of $100,000,000 as of June 30. We continue to prioritize debt reduction As our primary use of free cash flow and we continue to expect to reduce our debt leverage ratio to below 3 times by the end of 2023.

Speaker 4

Once that level is achieved, we intend to evaluate our capital allocation strategy and investigate other uses of cash flow as a means to accelerate growth and build shareholder value. Capital expenditures were $5,900,000 for the quarter, up $2,100,000 compared to the year ago quarter are up $3,500,000 for the year, again reflecting our ongoing investments in our growth initiatives. As noted in yesterday's press release, We are updating our guidance ranges to reflect current market conditions and our focus on profitable growth and cost savings. Revenue for the full year 2023 is now expected to be between $700,000,000 $720,000,000 Due primarily to reductions in legacy oil and gas revenue, particularly downstream, adjusted EBITDA is now expected to be between 68 are subject to 71,000,000. And as I stated earlier, we have already taken certain actions in 2023, which are expected to yield annual cost savings of are currently $6,200,000 of which $5,100,000 is expected to be realized in 2023 and it had been budgeted for and hence was included in our original guidance for the year.

Speaker 4

Operating cash flow will be adversely impacted by certain cash expenses required to achieve the cost savings. The company's free cash flow guidance is being adjusted to between $23,000,000 to $25,000,000 due to the reduction in the adjusted EBITDA in addition to the higher anticipated capital expenditures of being over $20,000,000 for the year now. Free cash flow guidance excludes the aforementioned impact Despite the reduction in our EBITDA outlook, The midpoint of revised guidance represents a nearly 20% increase versus the prior year on an anticipated revenue increase of 3.5%, displaying our continued focus on cost controls and illustrating the effectiveness of our operating leverage. Identified certain oil and gas subcategory revenues for each quarterly period in 2022. Specifically, we looked at certain integrated providers further analyze them in the current year and their classifications within oil and gas subcategories will reclassify between up, mid and downstream, respectively for comparability year over year.

Speaker 4

So we adjusted all the quarters within 2022 in order to conform with the classification being presented in the current year. The Straus is committed to creating value for our shareholders by improving productivity and efficiency in achieving return for our services commensurate with the value that we provide, unlocking and aggressively investing in our growth initiatives The results of these actions are expected to lead to second half performance That is appreciably improved in the first half without the benefit of meaningful consolidated revenue growth. I will now turn the call back over to Dennis for his wrap up move on to take your questions.

Speaker 1

All right. Thanks, Ed. Our oil and gas business is stable, up nearly 5% year over year for both the 2nd quarter and the first half due to strength in both Onstream and the data solution offerings. Commercial Aerospace revenue is nearly fully recovered to pre COVID levels and we expect Aerospace and Defense to benefit from growth in our commercial aerospace shop business, where we saw record revenues as previously discussed at West Penn this quarter on the strength of an expansion of services with our customers to help alleviate their constraints in the supply chain. This has reflected in the 44% increase in shop revenues for the quarter.

Speaker 1

Aerospace and Defense remains a focus area where we believe there is significant growth opportunities. Data Solutions recorded revenue growth of almost 12% in the quarter and has now experienced 22% growth for the year to date. Data Solutions now represents a full 10.1 percent of our total consolidated revenue for the first half of twenty twenty three as compared to 8.4 percent of our total consolidated revenue for the same period in 2022. Data Solutions revenue is being generated in virtually all of our vertical industry segments, including leveraging our core legacy in oil and gas. As Ed elaborated, we are making steady progress, are preparing MISTRAS to improve productivity and efficiency and better leverage in our inherent strengths to capitalize on the sectors of our markets.

Speaker 1

Our expectation is that this should create positive momentum to increase our margins headed into next year, which will also benefit from continuing cost controls, all contributing towards building shareholder value. As a result of our cost savings initiatives and the growth in our high margin business, I am optimistic that MISTRAS is positioned to capitalize on the growing demand for our offerings, are accelerating our transition into more profitable growth. But before taking your questions, I'd like to emphasize that our current focus on Project Phoenix is designed to calibrate our overhead costs are with our expected short term revenue level. This in turn will allow us to continue investing in our strong technician base, are providing them with improved tools and technology to better serve our customers in their respective industries. I acknowledge that this process we are going through forces some difficult decisions, but it is well worth the effort and the company will become much stronger and more resilient going forward as a result of it.

Speaker 1

Moreover, We are keenly focused on growth areas and finding new ways to expand revenue in our current portfolio of businesses. I also want to sincerely thank all of our employees who have kept their focus on the safe operation of our work. Are in a significant reduction of our vehicle incidents this year. This shows we know how to stay focused Lastly, I'm looking forward to our imminent project managers meeting later this month, can catch up with many of our dedicated project leads and share with them as well as learn from them how we are moving the industry forward. To every Mistressed employee out there, please stay focused on safety as we move forward and thank you for your dedication.

Speaker 2

Participants. All

Operator

right. Thank you. We will now conduct the question and answer session.

Speaker 2

Are ready to

Operator

take questions. Our first question comes from the line of Mitchell Pinera from

Speaker 3

So I got on just a touch late, but I think I got what I needed. I was curious, participants You called out downstream as having sort of like a negative impact in the quarter. I looked at the numbers and it was basically flat. Were you expecting a lot more? And what are the issues with downstream?

Speaker 3

Anything new? Or is this just the typical lumpy unpredictable type of business?

Speaker 1

No, you're exactly right, Mitch. The numbers were flat, a little bit up as we stated, but we were expecting more out of the quarter. Sometimes like in this year, things got pulled into the Q1 faster than we expected and you didn't see them in the second. Other times, the customers are just coming off of Spend or the heat and the other things are keeping up record levels of productivity and throughput at their facilities. So it's still a very difficult business.

Speaker 1

I'm with customers all the time at refineries and not as much as I want, but I'm out there and talking to them and they too have a hard time understanding what it's going to be and what it's going to look like for different reasons. They try to plan Turn around activities at a certain time without knowing what their neighbors are doing and then they find out that there's too much lumped in, so they end up having to move it and change it because of labor restrictions and all the trades, things like that make them move things around more than they anticipated they would. And Sometimes they're still just coming off their spend and trying to reap what they can off it. So you're right on that.

Speaker 2

Just to clarify, Sorry, just to clarify, the comment

Speaker 4

we made was relative to the outlook. You're right, downstream was actually up modestly for the quarter and up nicely for 6 months. We just expected it to do a little more as Dennis said. So the context we gave is the reason for the outlook being adjusted revenue for the year is a little lower than For the full year, but it is up for the year at this point, both for the quarter and the first half.

Speaker 3

Got it. Thank you, Dennis. I think are you looking is this being Conservative on the downstream side Based on like sort of specific conversations with customers.

Speaker 1

You're talking about the second half projections?

Speaker 3

Yes. Yes. So

Speaker 1

I don't know what's conservative or aggressive anymore when they're not even sure what We're at that. So we're certainly not going to lean into it too hard if our customers have the same questions we do. But Can you always win more? Can you go longer? Can they have a discovery that they didn't anticipate?

Speaker 1

Certainly, but at the same point, it could play the other way too, right?

Speaker 2

Participants are in the line.

Speaker 3

And just last thing on this is, since pre COVID, I've sort of been waiting for like participants are seeing some of the delayed or pent up demand for new equipment services, bigger projects, are you seeing that flow through? Or is there still a backlog that You think these companies have yet to get around to?

Speaker 1

So, Mitch, if I break that into the Aerospace side, So in the aerospace sector, it's there, it's dragging a little bit on our international side of it, domestically U. S. And Canada for North America. The backlogs there and that's all these things we're trying to do to help basically push things through by taking on the same processes and do more of them in one facility as opposed to many.

Speaker 4

In the

Speaker 1

field side, specifically, the It really didn't change that much in COVID for mid and up because those facilities are bigger, harder or just don't have the are in the same store. Density of population and people like at a refinery. So on the upstream, certainly there are smaller camps and stuff, but you still had to get the work done, so they are doing what they could. The refinery is mostly where you're probably referring that to. And participants It's a mix.

Speaker 1

Sometimes there's customers who are trying to play catch up on things. Are certainly CUI programs, there's corrosion under insulation and things like that that are fighting customers and they're spending money now, but It's very heavily watched and the spend is very scrutinized. So there isn't a lot of people with a lot of excess money to catch up on are ready for a budget of things that happened in the past.

Speaker 3

Okay. And then participants On to Project Phoenix, I know it's still early, but and I was maybe you can give an example or 2 of The sort of type of cost savings that you're doing here in 2023, I know you said it's part of it's in G and A, it's overhead reduction. But If you can give me some examples of like sort of things you're doing and then maybe participants What we should expect out of Project Phoenix from a percentage in EBITDA margin have changed. I mean, how significant do you think this can be knowing this is still early stages? Thank you.

Speaker 4

Sure. Yes, good question, Mitch. Again, all the actions we've taken thus far, you're seeing them in the run rate. We still have some work to do participants to complete our study, we've done the study now. We're more or less validating actions going forward.

Speaker 4

And we'll have a lot more to share this time end of But essentially, it's really just looking at how we operate the business, how we service the customer. Much of The impact now has been headcount. It's been combining roles, reducing roles, combining some facilities here and there. It's really just getting this back office footprint, just tightened up more efficient. We're looking at systems and workflow and automation to really leverage things together and how we support the business.

Speaker 4

It's really a combination of that. It's just really making sure that we're really focusing differently. And we're looking at overheads, whether they're up in the cost are down in the SG and A line agnostically, but still some work to do, but it's going to come from really a combination of things. It's Just lowering this cost to serve the customer is really what we're going after to just enhance that. We do it typically all the time.

Speaker 4

This is a much just deeper dive, more holistic look How we're doing it is really the difference here. Again, we'll have a lot more to say, I think, 90 days from now because we're kind of in the final steps of really validating are going a little bit further, but all actions taken thus far, you're seeing them in the run rates that I kind of mentioned during the call, the $6,000,000 of what we have right now. We're not done. We're going to go for more, but we're not quite at that stage yet where we've completed the final actions here. Again, that'll be in front of us

Speaker 3

And then just last question on the What happened in the Power Generation and Transmission business in the quarter? What was participants It's been a weaker, it was down a lot last year. I'm just curious what's going on in that business that

Speaker 1

Yes, Mitch, it's fairly straightforward. We had a long projects for a new construction that is just basically starting to see its end of life. Are still there in a very modest compared to previous. And when you're looking at the comps for the 1st two quarters of 2022 to are in the range of 20 3, we weren't really carrying down that much yet. So the tough comps for us now in that one project, we're out there aggressively looking for more and you'll find we're looking to find other projects we're looking at things like may not be power, but LNG and all these other things that are going on for getting energy from one part of the world to the other.

Speaker 1

We're getting some looks at that and there'll be offsets. So it's just this is just timing of one coming off that's been there and been a nice one for Many, many years and we'll find Blaze to replace it.

Speaker 3

All right. Thank you for the questions.

Speaker 1

You got it. Thanks, sir.

Operator

Our next question comes from the line of Chris

Speaker 5

I just wanted to talk ask more about Project Phoenix and you mentioned there is some headcount declines. Can you give us an idea about the percentage of that decline?

Speaker 4

Sure, Krish. I mean, it's fairly minor. We've not disclosed the actual number of heads are in that number, but that is the significant piece of what we've done thus far. Again, some facility consolidations, Some reductions in professional fees as well. There's a number of things that we've gone after.

Speaker 4

So again, we're at the point now of still Looking forward, there's still more we're going to do. We are looking at actionizing or putting into action some of the study we've done. Participants We may not disclose the number of hedge just yet in that number. It was not a significant number. Again, dollars 6,000,000 is the run rate of savings we've achieved at this point, are in the 2020 will be into the 2023 results.

Speaker 4

Again, we're looking to we don't want to harm the business. Obviously, we want to support The footprint we have and be able to just more efficiently support it from the back office is really what we're looking to do.

Speaker 5

Okay. So as far as gross profit is concerned, would Project Phoenix have any Would that be would it have any effect on gross profit?

Speaker 4

You'd have a modest impact to the indirect overheads up in Yes, there'll be some savings there. Much more of it will fall into the SG and A line versus COGS line, but yes, you'll have some benefit up there in the cost of goods sold, a very modest uplift in margins attributable to it, but primarily more in SG and A.

Speaker 5

Okay. Sounds good. And then for capital expenditures, How should we be looking at them going for the rest of the year and into 2024?

Speaker 4

Great question, Chris. We're just up over $10,000,000 now through mid year. We had said we would keep it under $20,000,000 for the full year. We're now saying that we'll probably break through that number $21,000,000 $22,000,000 and it's all good incremental expense. It's the things Dennis talked about on the call, are investing particularly in our Aerospace Shop Labs, where there's new specialized equipment going on.

Speaker 4

It's expansion capital. It's It's new work for the customer we're taking on, new steps to help accelerate OEM parts through the supply chain for final assembly in the aerospace side. There is a nice backlog there of work that has to get done. We're happy to do it. So, yes, I think our CapEx will stay up at that level.

Speaker 4

That's sort of where it was back pre pandemic. You had it in that low $20,000,000 range. So don't be surprised if we want to bring it up to $25,000,000 next year, By leaning into some of this additional investment in our shop labs where there's real good business at a good margin to go after and it's all incremental for the customer. So yes, we'll be, I think, elevating that number just a little bit for good reasons because there's good immediate payback on it with real work that the customer is clamoring for us to help them with here and now. So that's where that CapEx is coming from.

Speaker 4

It's not delayed things that we didn't do the last couple of years. It's brand new expansive work that we're looking to do for customers.

Speaker 5

Okay, great. Thanks for the answers.

Speaker 4

Thank you.

Operator

All right. Our next question comes from the line of Brian Russo with Sidoti. Your line is now open.

Speaker 6

Hi, good morning.

Speaker 1

Good morning, Brian.

Speaker 6

Thanks for all the Detail on Project Phoenix. And I'm just curious, bigger picture, What are you doing on the top line side to avoid all these unabsorbed costs And project driven nature of the refinery or downstream end market participants In oil and gas.

Speaker 1

Yes. So good question, Brian. I mean, typically, are in the range of the year. The peaks of our spring and fall are absorbed by more people coming into the system, but certainly by a much greater amount of are

Speaker 2

in the same store.

Speaker 1

So, a lot of it isn't that I have all this excess sitting around waiting for work. In fact, what we do is every week on Fridays, we have a domestic and international call. We talked to the management and where is our surpluses and where do we have resources in the PIP equipment, people, skill sets that we can move from one to the other. So we're always moving people around to try to balance that off. And the trick is really we watch our unbillable and try to keep it down to are 2% on the unbillable and additional 1% to 2% at most for training.

Speaker 1

And what we try to do is just move folks and skills within that to keep up with it. But we don't we try not to keep a very heavy load of people waiting for spring and fall are in the off season because it really upset you on your cost. That being said, I will say though this last 12 months, participants are just trying to get access to folks and getting people to work. And the biggest problem is bringing in apprentice and getting customers are interested to move the numbers on The Apprentice to the numbers we need and there are now more and more understanding of that, not just because of us, because many other vendors are say we need to bring in fresh new people into the market and we're competing with food, retail, used cars and everything else. And people aren't going to work in an industrial setting if you can get a similar somewhere else as a starting wage.

Speaker 1

So by doing that, participants we've been working to build it up, but we certainly do miss more of the peaks now than we had in the past just because The spikes in trying to get labor out into the market as you needed is more difficult than we've usually seen over the years.

Speaker 4

If I could just add to that, Brian, I think your question is more in the context, I think, of what's Project Phoenix doing to help this area. And I would say it's what Dennis is saying. It's really helped leveling things out. As an example, we're looking at utilization and What more data can our CRM give us? Like we're looking top to bottom.

Speaker 4

Phoenix is more than an EBITDA enabler, not just a cost out thing. So we are looking at better ways to even the load out and better utilize our resources, our footprint to go after more diversifying work and kind

Speaker 3

of level the load

Speaker 1

out there amongst the existing resources

Speaker 4

we have. Are trying to find work and kind of level the load out there amongst the existing resources we have as well as going after different niches and whatnot. So it is looking at those things and it will help, I think address what you're getting out there, some of the lumpiness of the business. It is what it is. It's inherent to the business.

Speaker 4

It is cyclical. So let's just be smarter about how we kind of stage and set up our resources and then target what we're going after in the ebbs and flows. That is a big part of what Project Genius is looking at as well. My head's wife is taking us some time to kind of think it through and really look bigger picture.

Speaker 6

Okay. And then on the 15 are in the range of $1,000,000 reduction in revenue at the midpoint. Is that primarily due to the Power generation project that's winding down or is that the result of legacy downstream Work that's being completed or is it just a shift from that defense contract That is slow to resume. I'm just trying to get a sense if the $15,000,000 is lost forever And you're rebasing your revenue midpoint to work off of going forward or Can you recoup some of the $15,000,000 going forward and into 2024?

Speaker 1

All right, Brian. I'll take the first half and let Ed Comment if you wishes, but there is it's not a structural change as far as we don't think it's lost forever. It's certainly the project that's So that will follow-up, but that's just normal project activity and we'll find replacements for it. Like I said, the timing wasn't perfect and we didn't get it as it came up, We'll find replacements for that. The legacy part of the refining is really where more of the concentration of the changes came from.

Speaker 1

We expected more out of even though we grew this year, like we said earlier in oil and gas, especially downstream, We didn't grow to the extent that we had original forecast for and discussions about. So we believe that's just Normal changes that we'll be able to get back into these upcoming years.

Speaker 4

Just to reiterate, Brian, exactly. The PowerGen contract drop off sunsetting, that was budgeted for planned expected. That's not affecting the outlook whatsoever. That defense delayed defense startup, yes, that's slower than we thought. That's definitely affecting the full year outlook.

Speaker 4

But as Dennis said, it's this legacy downstream is the bigger piece that's not hitting the full year expectation. That's essentially the real root reason why we brought the revenue outlook down.

Speaker 6

Okay, got it. And then just to clarify, you mentioned the strong performance of Onstream. And I'm just looking at the oil and gas sub revenue subcategories. Onstream is all it's in the upstream, right, because That's really the only sub oil and gas category that experienced revenue growth in this June quarter versus the year ago quarter.

Speaker 1

Truthfully, Brian, you would think so, but it depends on the size of the pipes that we're inspecting for the customers. Sometimes they're midstream, sometimes it's upstream. So there's other work inside our pipeline and other are looking at, but probably the bulk of the time, it's a midstream play for Onstream. So some of the things that you're seeing in the upstream is just some of the core legacies from other previous acquisitions such as nature and such that is also doing well. But Onstream is in both sectors, so it doesn't always drive 1 or the other.

Speaker 1

It's just a function of what's happening

Speaker 2

with the rest of it.

Speaker 6

Okay, great. And I know you guys don't disclose backlog, right, because just of the nature of the business. But I mean, any sense of is there like a pipeline of work out there that you're pursuing To help mitigate when older legacy projects roll off, I mean, where just trying to get a sense of The market opportunities for growth above that 7 10,000,000 midpoint.

Speaker 1

So in defense, there is a huge amount of and other military folks and many contractors trying to bring in new talent from welders and 3 d and machinists and NDT and all that. There is a huge backlog there as needed. There is a huge backlog in aerospace. So we see aerospace is continuing to grow in the future. Are in the oil and gas sector, like I said earlier, there's LNG projects out there that there's a lot of that building up multiple trains locations trying to ship what we have in excess overseas to places where they don't have that.

Speaker 1

So there's a lot of are looking to be built up. There are still construction projects and other things that we're looking to get into. So you would see it maybe not in any one sector, but our growth in data, our growth in Onstream, West Penn Aerospace, those other sectors, no issues seeing them continue to grow. And we believe in the oil and gas, there is still obviously contracts to be won and lost at individual sites, but there's a lot of longer term capital projects that are out there as well. We see continued growth in what we would call our upstream for like the nature folks, looking at Sometimes customers are taking longer because of their own things they're working on.

Speaker 1

We've had one we've been waiting on for 2 quarters already. Participants are it's just for whatever reason, they haven't announced anything. So there's a lot of that kind of things going on where they're working out their own issues before they make these major changes. Maybe it's watching their own cost changes, I don't know, but there is a lot out there moving. It just seems to slow up a little bit this year.

Speaker 2

Participants are ready to go.

Speaker 6

Okay, great. Well, thank you very much.

Speaker 1

All right. Thanks, Brian.

Operator

All right. Thank you so much. All right. I'm showing no further questions at this time. I would now like to turn the conference back to Dennis for closing remarks.

Speaker 1

Okay. Thank you, Britney. I'd like to thank everyone for joining the call today And also for your continued interest in MISTRAS. I look forward to providing you with an update on our business and progress achieved towards our ongoing initiatives on our next call.

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Earnings Conference Call
Mistras Group Q2 2023
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