Q3 2019 Earnings Call

Combining ladies and gentlemen, thank you for spending by well come to the third quarter in 2019 <unk> earnings Conference call.

This time, all participants on to listen only mound half of the speakers presentation don't be a question and answer session.

That's a question during this session you will need to press the star down to one key on your touched on telephone.

Advice about today's called Francis being recorded.

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Oh, and I like to <unk>, just a don's nice to suppress enough finance. Please go ahead.

Like you Libya welcome everyone to teams third quarter fiscal year 2019 conference call.

With me on today's call.

The company's Chief Executive Officer in our Chief Financial Officer, Susan Ball.

This call's also be web cast and can be accessed through the audio like under the Investor Relations section of our website that T.V. dot com.

Information recorded on this call speaks only has up today, but number six 2150.

For please be advised that any time sensitive information.

Ought to be accurate.

Eight of any replay whistling or transcript reading.

[noise] there will be a replay of today skull and it will be available via web cast by going to the company's website to me Dot Com and edition of Telephonic replied will be available until November 14th.

The information on how to access. These replay features was provided in yesterday's news release.

Before we continue I'd like to remind you that this call contains forward looking statements made pursuant to the safe Harbor provisions of the private security Some litigation Reform Act of 1995.

Pleading statements of expectations.

Your dance for future financial performance.

Forward looking statements involving different risks and uncertainties and we cost investors or the number of factors could cause actual results. So different materially from those contained in any forward looking statements.

These factors and other risks and uncertainties are described in detail.

Please annual report on so it's okay.

In the country's other documents and reports filed are furnished with the Securities and Exchange Commission. The company assumes no obligation to publicly update revise any forward looking statements except as required by law.

Reno will begin by providing an update on bar business, Susan would empty tell our results before we take your questions ever Hills high like once you progress and marketing outline Oh.

Oh, no I <unk>.

Thank you Don and good morning, everyone. We appreciate you joining us today.

Consolidated third quarter revenues of $290 million were flat from a year ago. Despite shutdown of underperforming businesses and 2018, the recent whether impacts on the Gulf Coast region and unfavorable foreign exchange normalizing for these items revenues would be 3% above the prior year quarter.

In addition, the current quarter activity was negatively impacted by regional market pressures along the Gulf Coast.

And pockets of market share loss.

Some of which for anticipated as we apply more consistent pricing discipline.

We remain committed and continue making improvements and free cash flow.

Gross margin and S.G.N.A.

Third quarter, adjusted even I was $20.6 million or 7.1% margin, representing the highest level for Q3 sons 2016, and almost tripling the $7.2 million with adjusted EBITDA Prior your quarter.

Despite flat year over year quarterly revenues are Q3 gross margin grew to $83 million.

$12.9 million or 18% from last year.

Third quarter gross margin of 28.6% improved 450 basis points compared to the prior your quarter and represents the second consecutive quarter with the highest quarterly gross margin percentage that's 2017.

Third quarter, S.G.N.A. was $84.6 million, a decrease the $3.1 million or 3.6% from the prior year period.

We have successfully reduce your indeed, s. genie expenses by $22 million or 8% when compared to their prior year and remain focused on delivering additional last June 8th improvements as we execute on our one team program.

For the first nine months of 2019 free cash flow was $9.8 million an improvement of approximately $24 million over the same period last year.

We are taking actions such as centralizing are counting processes, making greater use of shared services, increasing back office automation and collaborating closely with our clients.

We expect to generate more than $30 million, a free cash flow and 2019, doubling the $15 million generated last year.

We paid down more than $18 million of death in the current quarter, reducing our data for the lowest level since early 2017.

As committed earlier, we will continue to pay down debt with any free cash flow.

I will now provide a high level segment overview.

<unk> services segment deliver third quarter, 2019 revenues of $136 million, and adjusted EBITDA $21.3 million or 15%, 0.7% margin.

Generating positive year over year revenue gross margin and even while reducing S.G.N.A.

This strong performance was led by double digit growth in our hot topics and machining bolting in isolation service lines and further diversifying our business mix between processing pipeline sectors.

The quest integrity segment achieved third quarter 2019 revenues of $28 million, a 16% increase when compared to last year.

Adjusted even in the third quarter was $8 million worth 28.5% margin.

Driven by increased demand for our proprietary inspection tool enabled services and integrated condition assessment solutions.

Quest expanded margin. Despite the previously now strategic growth investments in recruiting training and tools.

The inspection in heat treating saying that reported revenues of $126 million and adjusted EBITDA of $11 million or 8.7% margin.

Gross margin was flat year over year, despite at 21 million dollar revenue decline.

Demonstrating the favorable profitability impact of pricing and selective business mix rationalization.

Taught line performance was softer than expected as a result of several factors.

Digital competitive pressures along the Gulf Coast <unk>.

Pockets of market share loss, resulting from pricing discipline.

Ongoing Canadian and market challenges and revenue attributed to the underperforming businesses that were shut down last year.

Yeah, I H.T. girls strategy languages are vast nested footprint.

Integrated critical asset solutions, and advanced technology applications, including tank inspection and robotics, plus further diversification into sectors, such as aerospace LNG and mid stream.

This growth strategy is in line with our playbook as clients continue to look for more creative services with an integrated service partner.

Looking at our business from a geographic standpoint, we experienced third quarter <unk> in all our divisions, except for the Gulf Coast.

The M.S. Canadian segment doubled its revenue and the overall Canadian business also improved as compared to the prior year.

We are cautiously optimistic this signals the first signs of a potential western Canadian recovery.

Internationally, we experienced growth in M.S.N. quest integrity segments and are excited about our future growth potential in this division.

In addition, one of our aerospace operations receive federal Aviation administration certification in the Midwest supporting teams efforts to further highgrade revenue and diversify beyond our core energy industry sectors.

I will now provide highlights on our safety performance and technology.

Safety is our number one core value, we improved our t. or I are you every year by more than 40% and reduce recordable injuries by 50%.

Recently, one of our H.T. districts reached 2 million man hours without a recordable incident.

With one of our major clients. This district also achieve 3 million man hours in 10 years without a recordable incident, an outstanding performance.

We are committed to achieving world class safety performance across our operations I remain proud of our peoples dedication to safety and quality.

Moving on to technology.

First quest integrity continues its rapid growth and is on track for yet another record revenue year.

<unk> was awarded a five year contract for inspection of hot water and steam pipe pipelines in a major European city.

Additionally, we signed a seven year and a five year heater optimization services agreement with two major operators in the middle East.

Offshore deep water riser and flow line and inspections are expanding beyond the Gulf of Mexico into West Africa, and Latin America with major U.S. integrated operators.

Second or heat treating in west coast operations work on an emergency pipeline thought.

This critical line moves products from the <unk>, receiving port to the processing plant and storage areas of the refinery within days, we had 92 machines delivered to the site with 32 technicians.

As a result of our investment in technology and the Mobiles Smart He command center to technicians controlled all 92 machines, enabling the remaining field text to work on the pipeline and enhance productivity.

By successfully completing the pipeline fall on the main feet of the crude unit teams saved the client upwards of $1 million, a day and enabled safe operations to continue.

And lastly, during the quarter team digital implemented our mobile digital services on six projects with for clients, all major integrated or Super majors.

We have nine additional projects scheduled through November as we finish we finish out the fall turnaround season.

We are pleased at 2019 will represent the largest project volume since commercialization.

Over 450 technicians have been trained on the platform and team digital has managed more than 75000 successful inspections.

We continue to achieve 20% to 30% productivity gains from increased time on tools reduced standby time and automated reporting be our team digital platform.

I will now turn it over to Susan for a detailed financial review and then I'll share more about our one team progress in outlook, Susan Thank U.M. or you know and good morning, everyone. A third order not lost $7.1 million 16.5 million dollar improvement over the order of 2018.

Holiday revenues for $290 million, which one wow with the third order in 2018 revenues. However, the par you're quarter were up from about class integrity <unk> <unk> <unk>.

Increasing revenues likewise, and mechanical <unk> my decline revenue in our inspection and heat treating segment.

Additionally, foreign currency exchange negatively impact revenues by $2 million.

Your weather even impacted revenues.

Negatively by another $1.5 million and academia underperforming operations in the fourth quarter in 2018 contribute to an additional $5.6 million decline in the corner.

Validated gross margin improved significantly, 28.6%, <unk>, which was an increase the forerunner <unk> point when compared to the 24.1% gross margin caved in the prior year quarter.

Third quarter 2019, <unk> back in high is gross margin.

2016 <unk>.

<unk> favorable fall through due to the steady progress on the one gene program, which includes they continued structure and focused on the workforce planning and overall utilization process improvement.

M.S. press margin increased 55% on 14% revenue increase.

Ask integrity gross margin increased 21% on 16% <unk>.

H.E. grants margin per segment remained Wow I'm, 14% revenue decrease.

Validated adjusted D.V.D. $20.6 million in the third quarter in 2019, nearly tripled from the $7.2 million achieved in a third quarter 2018.

The D.V.D.A. is the percentage of revenue increase 468 point.

7.1%.

2.5% and the third quarter of 2008, yeah.

Now turning to our segment performance.

Mechanical services segment deliver third ordered 2019, rather needs $136 million.

14% from $190 million 40018.

The D.V. wouldn't $21.3 million or 15.7% margin I strongly in front of 252000 <unk> last year.

The investments in technology manufacturing engineering workforce management piling up I am or you know earlier mechanical services segment has continued to make improvement you're over here.

Month compared to basis revenues increased $1.2 million and adjust the D.V.D.A. increase by 80% or $25.8 million, that's 648 point improvement.

The plastic integrity segment reported third or 2019 revenues of $28.1 million.

16% I'm $24 million in the prior year or.

Just the D.V. eight and a third order was $8 million or 27% higher than the prior to your border.

Last continues to aggressively growl and is on track for another record wrapping here on a nine month compared a basis less revenue increase $12.7 million and adjust the D.V.D.A. increase <unk>, 38% or $5.8 million, a 362 bases point improvement.

The inspection and heat treating segment reported third quarter at 2019, rather than $126 million.

I'm, 14% when compared to the same period last year, there order adjusted E.V.A. was $11 million damn for $14 million, a month or or 2018.

He top line have negatively impacted by the regional pressures and then Oh, How's region, and Canada as long for closure on the underperforming <unk>.

Late last year.

<unk> in in addition, as part platelet strategies were responsible improbable revenue growth.

We'd like to support got a certain projects that did not meet our internal March some thresholds.

On a nine month compared a basis I.P. revenues decrease $75.5 million and adjust the D.V.D.A. decrease by 30% for $13.3 million 156, eight point decline.

A significant revenue decrease the fall through T.E.D.A. was 80 per cent, representing a very disciplined project to watch them in cost control measures that we've put in place.

Now living Q.S.G.

We do continue to improve R.S.N.X. spinster cost management action as well as ongoing implementation of our one team program.

The last you may cost for the third order 2000 in 19 $84.6 million as compared to $87.8 million and the third quarter at 2000 neat.

Decrease the $3.2 million or 3.6%.

Sequentially, the $84.6 million without from 81.6 million incurred in the second quarter of 2019, mostly due to elevate it costs related to a conclusion of certain legal elements during the quarter and an increase in professional fees and some work on labor and technology costs.

As we transition or one team program to our international operations.

There was a slight increase in the one team professional huh.

We can't Marino, we'll discuss this transition later in his prepared remarks.

Are effective income tax rate for the nine months ended in September 13th 2019, approximate it 11% company had domestic federal tax not operating wants carried forward in time approximately 130 million.

Which are available to us that our future domestic taxable income for the nine month period, ending September 30th team generated $33 million them operating cash flow, representing an improvement of $27.7 million over the same nine months in 2018.

Capital expenditure, whereas $23.2 million in the first nine months in 2019 with $8.8 million and in the third quarter 2019, we estimate that are full year capitols fans will be approximately $30 million.

Free cash flow through and nine months in 2019 was $9.8 million, representing it 24 million dollar improvement when compared to 2018.

We ended the third quarter of 2019 would end point $3 million of cash and have it available borrowing capacity under the credit facility of approximately $59 million with total liquidity Approx approximating $69 million at September 32019, we remained committed to paint.

And get any pre cassoulet, a generation, we get paid down $18.2 million during the third corner or senior secured leverage ratio at the end of the border would that two times cash interest expense and the third quarter 2019 was approximately $8 million. That's previously announced we completed <unk>.

Engine, an amendment ever seen your credit facility in late August .

The amendment extends maturity date in July 2000, I'm 21, and one's a critical step as we weren't to deliver the company. Additionally, due to successful implementation of our one team program, which continued benefits and the cost reduction in <unk>. We are also able to reduce our borrowing requirements overall.

All this amendment plays a very important part of our ongoing financial strategy and will enable us to to obtain a more cost effective like the whole capital trucks Sir.

For the balance of the year, we will continue to focus on achieving incremental costs reduction.

I don't seem return.

Getting are working capital structure strict continued reductions in receivables an inventory we expect to build on that momentum center sat through the first time onto the here and finishing here strong with free cash flows estimated at approximately $30 million.

That completes the financial review I will now trying to call back over to M. Reno. Thank you Susan before we take your questions I want to review the progress of our one team program and provide a market outlook.

The two one team cost improvement pillars generated savings of $6.2 million and the third quarter and a total of $17.8 million year to date.

We expect to deliver our target at 20 to 22 million dollar range for the full year and remain on track to achieve annual Runrate cost efficiency is the $35 million to $45 million by the end of 2020.

Are focused on the revenue enhancement pillar enables us to create operating library, deemphasized lower value contracts and deliver sustained margin improvement.

We continue to work closely with our clients to secure more favorable terms and conditions as each contract comes up for renewal as mentioned earlier, we remain committed to improving margins and building a sustainable and profitable business, which at times requires us to <unk> work that does not meet our internal hurtle rates and provides into.

Efficient margins.

We are collaborating with both our new and longstanding clients to optimize their schedules and total cost of ownership to realize official season cost savings.

Complimentary to the revenue enhancement pillar, our workforce management function continues to optimize our workforce maximize utilization and maintain visibility and cost controls, we optimized our workforce, including casuals by 11% year over year as and markets fluctuated <unk>.

Generating similar revenues to Q3, 2018 by increasing utilization and leveraging technology.

As an example, we expanded revenues 44% on a recent U.S. project. This project was originally scheduled for 28 days the client had multiple startup delays and ultimately lasted five months with their scheduling challenges and significant scope increase due to discovery activity required us.

To mobilize personnel across multiple divisions in order to meet their needs.

Our centralized workforce management function working closely with our operation successfully delivered safe and high quality services on their expanded scope.

We also transition the one team program internationally to position us for profitable grow and scale Bowl operations that will support any future opportunities.

The changes also position team internationally did deliver both discrete specialized services and differentiated integrated solutions. We are using the successful North American program Blueprint does a template.

Implementation activities for the one team international area have already started and we'll continue through 2020.

Now shifting to the market outlook.

According to the data Q3, 2019 utilization levels remain high at 93% similar to the prior year. However, the month of October had an average of 86.3% compared to 89.1% in 2018.

Return to a slightly lower utilization should translate into stronger demand for services in the near to medium term.

As previously stated our end markets continue shifting towards more on stream maintenance and remedial repair work as clients work to maintain high utilization and operational flexibility to maximize margins.

Team is well positioned to leave this changing environment with our unmatched vertical depp integrated global breath of specialized service and product capacity and advanced technology.

Meanwhile, inflationary pressures continue on labor materials logistics and other costs to serve.

Wages materials and logistics increased between 4% to 5% over the prior year.

In order to offset some of these costs to serve headwinds we made strategic investments in manufacturing an engineering to be more competitive.

As previously stated our workforce management tools have been fully deployed and we are benefiting from better utilization.

Before taking your questions I will update our current outlook.

First we remain steadfast on our priorities free cash flow Det pay down.

Expanding margins and top wind growth in that order.

Second, although I H.T. experience softer than expected performance team continues to move in the right direction or M.S. divisions delivered year over year, even have margin improvements. In addition, Q3 2019 marked the first quarter of year over year EBITDDA improvement for the Canadian Division.

Meanwhile, Quest integrity continued its rapid expansion and delivered it's highest historical Q3, you bid on margins.

Third we are focused on managing what is an hour control and executing on our playbooks.

We continue to manage technician utilization underperforming contracts and rightsizing in rationalizing underperforming operations.

Despite the small starts to the first quarter of 2019, and a revenue decline of more than $60 million a year to date compared to last year, adjusted EBITDA expanded by approximately $10 million or 20% and 150 basis points over the same period.

These improvements can be directly attributed to our one team program and disciplined execution.

Fourth on a full year basis, we expect to deliver between 130 to 150 basis points improvement in 2019 for adjusted EBITDA margin over the prior years.

And finally, we remained committed to generating more than $30 million, a free cash flow and 2019, doubling the $15 million generated last year.

In closing I am pleased with the progress we made during the quarter and over the 16 months of executing on our one team program.

Want to thank our clients around the world for their partnership and our shareholders for their support.

I also think our people for their unwavering commitment to our company's culture of providing excellent service quality to each one of our valued clients.

Teams client service focus culture, together with our integrated operational structure set the strong foundation for us to deliver Grove and margin expansion into 2020 and be on at this point will be happy to take your questions.

Hi, child, no sorry might have to ask the question you'll need to press the star down to one key on your touched on telephone.

It would tell you a question.

<unk>.

<unk> consideration off time, we I think you please limit yourself to one question and one follow up question.

<unk>.

And our first question coming from the line of Sean Eastman with keeping capital markets Carolina.

Hi, Jane Thanks for taking my questions I I just started on the overall kind of top line trajectory here highlighted some weather and regional competitive pressure in three too, but sounds like near term demand trends look good and Canada's rebounding. So I'm I'm, just wondering where we're at relative.

To the sorta two to three per cent market growth dynamic you guys highlighted on the to to call.

A good morning, Sean.

So I want to start just by talking through this on a segment by segment basis, which I think would provide a little bit more color than a general overall overall number there are a mechanical services segment continues its its growth.

And we are seeing that growth level or slightly higher driven by on stream repairs as our clients try and maximize their margin in on generally with higher utilization levels. So M.S. is growing beyond the the 2% to 3% and I feel confident that you know, we're we're getting our.

Fair share of a of growth beyond that we have set ourselves up fairly well not only in the oil and gas refining side, but I believe you know as I stated in my prepared remarks on <unk> pipeline as well as a process where those are some some faster growing markets for us So I think mechanical.

Services is is that a quest integrity or they continue to you know play in a very nice part of the market. If you will but we continue opening up new doors, a internationally as well as domestic with new clients and that includes as as I said earlier, not only Gulf of Mexico, but.

West Africa, as well as Latin America when it comes to our integrated you know inspection condition assessment services on the inspections side, it's a bit different I would say that we've broken it up into two buckets. The the conventional inspection work is being you know the market there.

Changes slightly around performance a risk based inspection techniques and our clients are putting a lot more focus right now on there a supply chain and procurement costs. So when I look at our nested business, we still see a lot of opportunity to leverage that but I would say that that part of the.

Market is going to continue to be under some headwinds for the next couple of quarters.

Outside of that however, pipeline aerospace and and some other markets that we play in including interact internationally. You know we expect to see that continue to grow so realistically I think the the 2% to 3% makes sense at a top you know kind of a a total level.

But with with the changing market dynamics, and and and some of the uncertainty out there you know, we're having to get a lot more detailed if you will in our workforce planning our sales pipelines and using our market segmentation playbooks <unk> to really start dissecting the market below just the top level.

Okay. That's really helpful. And then I guess, tying it and tying in sort of that that mix element, which is probably positive you know some more work some more work being done on the S.G.N.A.

You know probably positive overall growth you know how are we looking relative to that 10% to 12% margin target you have out there for 2020.

So for 2020, you know the first thing all say is we're obviously right in the middle of of budgeting season, and we're spending quite a bit of time with our clients to assess what what they're going to do in terms of inspection a risk versus performance going into next year. We're.

Valuating are expansion or what we're calling new venture markets, where we feel we can expand beyond the market.

So again I'll answer the question by segment mechanical services, we expect the the growth into <unk> 2020 to continue for the same reasons as this year.

Quest integrity, we expect that growth to be in line with a with the growth. We've seen in 2019, we do expect low single digit overall market growth going into 2020.

Our our targets in terms of S.G.N.A. reduction and and one team.

Are are on track and as we wind down some of our professional fees and other things. Obviously, that's going to have positive improvements are gross margin continues to trend.

Closer to 30%. So you know between the 28 and a half the 2020, 9% we expand that expect that to continue so as I stated I think this year you know right now we're tightening up our range to be 130 to 150 basis points improvement over 28 team and then we're still on track to.

You know to see another hundred and 80 to 200 basis point improvement going into next year. So before I confirmed the 10 to 12 were you know we've got to see where where 2019 ends and finish our budget cycle.

Got it and last quick one for me you know is really glad to see the that free cash flow number four in 19 remaining intact you know despite a kind of a later than expected three q. here.

Maybe you can talk through a little bit on how're, you were able to achieve that and.

Maybe just a directional commentary on how that you've been data free cash flow conversion shed trend.

In the next couple of years.

Okay I'll, let you had.

So again, we've had a very focused effort on our working capital management with Inventorying accounts receivable.

<unk>, we we didn't see improvements were inventories and.

Utilize effectively through our Mr extend divisions, and we've decrease that approximately two to 3 million and then additionally on the accounts receivable that obviously and and again, we always direct to like on a half your mate because the timing of when revenue generated.

<unk> can increase significantly when you look into the clothes on the corner. So so again significant increase in revenue towards the end of September .

And in January it was done telling off is that no higher increase the beginning in the corner. So <unk> focused on that you do you see fluctuations cornered.

Better to look at on half your basis, but with the rather needs generated and you know in the second order. The collection ongoing current collections I bet, it's rather needs and then it gets really neat continued is on I mean historic receivables <unk>, that's effectively help and assistance.

With that you know and strong free cash flow generation.

<unk> three when you listen to queue for again will continue on the focus effort working capital management and then yeah, you know the team and out of our interest sprite convert them all as in August and anywhere to say you won't have that <unk>. We also.

<unk> filed with mention that not operating losses from attacks perspective, a file sorry about claimed and and do you anticipate will receive refund there and then again the focus with the continue to reduction professional costs is really oh.

Overall, managing that free cash flow did trend when you look to adjust the D.V.D.A.

You that free cash flow.

Again, it's it's gonna be lumping, it's gonna change carried over a period because of the timing up again went nuts revenues come in but overall I would say I don't know that even fair to say that.

Probably.

Mmm, 30% or so <unk>.

Recapture capture.

Free cash well over in total adjusted E.V.A., but again.

I'm really look at on a corner by corner basis.

Far that nor even on a half your basement.

Again that just the overall strong focused around the one team Austin issue is is really helping drive that.

Thanks, so much nice work everyone.

Thanks. Thanks.

Mm.

And my next question coming from the line add I'll have my with Palm Sunday. This yeah. This open.

Thanks for more I guess.

<unk>.

Hey, just high level and make sure.

I understand so you guys are not seeing any kind of.

Broad base pause and the wheel and gas market. Although you are seeing some headwinds at inspection.

Yeah. That's correct out you know I I would I want to be a little bit cautious here in my answer because.

One thing that's evolved with our company over the last couple of years is the strength of having three segments. They can play in different cycles of the market and the A. the market has.

As you know is changing more consolidation and refining space with our clients.

Moved more towards condition assessment performance based risk based inspection work et cetera. So you know one of the the benefits right now Abbas and you know the last couple of years <unk> integration.

Is you can see the the importance of our mechanical services segment.

As the market shifts to Onstream. So we are going to see you know headwinds in different segments at different times, we we do see projects and turn around slide like we have some projects that split out of age to moving into H. one for inspection, but we we we feel that were positioning are so.

<unk> by sector, better meeting not just oil and gas and also by segment. They play at different strengths, depending on the cycle, where in so if I look at inspection conventional only as a product line. Yes, we're seeing some headwins our clients are reducing you know some of their guarantee.

Eight hours as they optimize their supply chain procurement spanned et cetera. So there is a headwind in that space, but I think we're a lot more diversified than you know than we were a a year or two ago. Our teams are looking at opportunities and pull through and cross selling a better than we.

<unk>. So that's that's basically where we stand I I do see you know right now are turnaround season started a week or two later in Q3 and it did extend into November it is starting to wind down now as expected we are going to have some holiday.

You know impacts because of the way Thanksgiving and Christmas play out in November December .

But you know overall, we're we're really working closely with our workforce team to a line or technicians in our hours with our projects.

And that's that's how we see it. So you know we've got I think a much better balance between the three segments and we did before.

Okay.

Then I I just want to zero in on Q4 and kind of your internal expectations.

Did you guys see versus 21 million either die in Q3.

You guys see the potential for growth sequentially in Q4 .

Yeah, I think you know when I look at Q4 as we sit today.

We expect the revenue to be equal to Q3 or slightly up you know and if you look at our historical trends queue for slightly better that will depend a little bit you know one quest were expecting a strong quarter as well as mechanical services. So revenue flat to slightly up versus Q3, we do expect.

To see further margin expansion slight margin expansion into four versus our results of Q3.

Okay and then the last piece for me just the corporate expenses and you talked about some of the one team and the professional costs.

So this is actually been creeping up all year I'm curious.

Do you see further growth.

And Q4 and when to some of the like professional expenses start to trail off.

Okay, Hi, Hi, Adam.

So you do see those creeping up in huge three <unk> sequentially from cute to and from cute cute three last year. They were up about 6 million where over order from last year. This year enough about 2 million from you 2019, this quarter I will say.

For third order was kind of an anomaly because what we we had occurring and we anticipated. This would occur at actually plan for it was that as we wound down the North American one team programming transition into the international we or giving several things.

But niveen professional costs.

That were normal recurring professional cost not be adjusted professional cost, but maybe not into a permanent labor head count in in the forefront function.

Nationally is emerine I mentioned earlier in in that color that you know, we are centralizing function and with back office activities and other functions. The corporate so kind of an overlap occurring in Q3 with labor costs going up travel costs going up unprofessional.

Costs going that will go down in the future as we move from I'm consulting costs.

Labor costs. Additionally, we've had an increase technology costs.

With respect to these ongoing efforts so.

<unk> looking forward I would expect you know queue for it's still going to be higher than what you see not normalized basis, but probably turn down a little bit from Q3, and then as we move into 2020, we should see that as I'm starting to normalize back in bed with them not as much overlap or or.

Additional cost however, again as we implement or start new nation ads are programs, you know that professional fees couldn't go.

Okay. Good color thanks, guys.

Thanks.

Mmm.

<unk>. The question do you want me to pass to start at the number one key on your touched Tom telephone.

My next question coming from the line of mine.

<unk>.

Good morning.

Good morning, Marty.

I was working on the if you could maybe talk a little bit more about some of the the non traditional markets that you're pursuing and the inspection and the quest area and I think you mentioned aerospace, but can you just kind of help us with the runway there what size they are now.

Wow.

And the opportunity C.C.

Sure.

So thanks for the question first of all you know one thing I will say is that our strategy is organic girl. So we you know we feel we've got a very good mix of our our 14 or so product lines. When you look at the three segments.

And we want to build off the the strength of those product lines plus the investments we've made in our technology development are engineering resources as well as our training of our technician. So we're we're really leveraging our our existing you know organization and segments to grow.

We we've broken our group up or if you will our our sectors up into two we have our core industry sectors, which are the ones that we feel you know, we'll we'll grow with the market rates are slightly above and those are more of our conventional a core businesses and then we're looking at our new venture markets.

Which means that they would grow faster than the rest of the market and when we look at those areas. We've you know some of them or not new maybe to the industry, but we see faster growth for us we do have an aerospace business today, both in the U.S. as well as Europe , However, we see aerospace and.

Some of the investments we've made some of our certifications et cetera, as one of those faster growing areas. So when you look at the 20 per cent of our other revenue that's not links to you know pipeline process refining that's made up of aerospace that's made up of L.N.G., we see mid stream.

In that same area, we've got a focused growth plan on mid stream, where we've got differentiation using project management as well as technology and then the other big one for US is moving from an oil and gas.

View to more of an energy view and we're putting a lot more focused as well on renewables more of that is on the international side right now than domestic but when you start breaking out that market and you look across all three of our segments it'll take us some time to make sure we've got the right investments.

In place, but you know we feel that that that diversity by segment and then by sector Slash geography, We'll we'll set of strong foundation for the company in the future. So you know we've got about 20% of our revenues. If you will today Mardi coming from those type of new ventures, but we expect goes to grow faster.

Than than the others and I think when you look at it you know quest is is a good example of taking.

Proprietary tools doing condition assessment inspection linking the the data and the digital thread working closely with the client and delivering a fit for service approach. It's it's a lot more domain driven it's a lot more collaboration with the client it's condition necessity.

Another assets and and trying to help them reduce their non productive time, and you know and extend the the life of their of their assets and so our our strategy. There is to go by critical assets, it's to focus on data and digital domain expertise and then.

Deliver compliant services in those spaces.

Okay. Thank you next question I had it just.

2020.

It's it's mmm mmm going to be any sort of impact for you or or what are the discussions like with with your customers about this.

So all Oh I'm sure like this I I've been working you know very closely at least to get our clients input.

As well as different associations within our space.

And you know I have the luxury as well that our board has some very good operator experience that I get to leverage as well.

And I am old 2020 has is not a new phenomena. It's been it's been well documented why it's being done you know and and and the timeline, where it was going to be implemented there's been a few delays et cetera, but many of the U.S. clients have.

Invested in I am old 2020 upgrades, if you will or if you want to call. It that you know over the last three to five years, it's not where they're calling out I am old 2020, you know we have a project coming up but December 15th prior to January one that that's not the way it's playing.

It's it was built into different turnarounds in projects. It was built into their capital plans and and a lot of the plants in the U.S. are capable of a of delivering the lower sulfur and product.

So we didn't include I'm old 2020, as a headwind or tailwind and you know I think we talked about that in a few various quarters because it's it's not called out like that for our services. We still look at it in terms of project turn around or you know capital projects slash maintenance. So we're not.

Factoring in either and we know that there's some I am on 2020 span that that's embedded in capital projects, but but it was very difficult to to split that out. So we didn't take that approach and and like I said I I think you'll see that a lot of our clients.

Have been factoring that in over over the last three plus years.

Okay. Thank you.

Mm.

Thank you.

Yeah.

Mm.

And I'm not shying any part of question I would like to send a conference call back over to me.

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Thank you before we close I want to reiterate our priorities.

Strategic projects selection and improved execution.

Optimized workforce management.

Continued pricing disciplines.

Leveraging innovation and technology.

Enhancing margins despite slower top line recovery.

Sustained cash flow improvement and the ongoing implementation of the one team program.

And once again, thank you for joining us on this call and for your continued interest in team and we look forward to speaking with you again next quarter.

Yeah.

Mm.

Mm.

Oh, nice and child I'm, just gonna studies coffins call. Thank you for speeding.

Having wouldn't have a great. Thanks.

Mhm.