Q3 2019 Earnings Call
Ladies and gentlemen, please stand by your conference call will begin momentarily. Once again. Please remain on your line your conference call will begin momentarily. Thank you.
Well be accepting question after managements prepared remarks, I'll now pass the call over the Mistras group director of marketing Communications. Please proceed.
Welcome to the Mistras Group conference call for its third quarter of 2019 My name is an estimate target.
Participating on the call for Mr., Josh will be Dennis Bertolotti, the company's president and Chief Executive Officer.
Prajzner Senior Vice President Chief Financial Officer, and Treasurer, Dr. cereals, Mccovey, all those founder and executive Chairman and John Walker Senior Executive Vice President and Chief operating Officer.
I want to remind everyone that remarks made on this.
During this conference call will include forward looking statements.
The companys actual results could differ materially from those projected some of those factors that can cause actual results to differ are discussed in the company's most recent annual report on Form 10-K , and other reports filed with yes, you see.
A discussion in this conference call will also include certain financial measures that were not prepared in accordance with U.S. GAAP.
Reconciliation of these non U.S. GAAP financial measures to the most directly comparable us GAAP financial measure can be found in the tables contained in yesterday's press release and in the company's related current report on form 8-K.
These reports are available at the company's website in the Investor section and on the Fccs website.
Now I'll turn the conference over to Dennis Bertolotti Dennis Thank.
Thank you Mr. good morning, everyone.
During today's call will provide an update on mistresses business performance.
Financial results for the third quarter.
First nine months was 29 team.
As was discussed our lower outlook for the remainder of the year.
Third quarter results continue to reflect the progress being achieved toward our long term strategic initiatives.
Revenues were up.
Margins expanded and earnings increased on a year over year basis.
We also generated strong cash flow.
A hallmark of mistress.
Let me know some key highlights for the quarter.
Gross margin increased across all three segments.
Hi, scenery decreased by 100 basis points as a percentage of revenue.
Generating strong cash from operations of 19.4 million.
And free cash flow of 13.4 million.
Where's your basis free cash flow was 46 cents for third quarter.
Additional highlights for first line lung study or.
Consolidated gross margin increased 160 basis points.
Cash from operations of 40.5 million with free cash flow of 22.5 million.
That's paydown of 23 point Threemillion.
Exclusive of the 4.8 million paper him century software our latest acquisition.
Revenue and operating earnings were ahead of fiscal 2018 on a year to date basis through the first nine months.
Indicators of robust business.
However, our strong momentum developed over the past two quarters encountered some headwinds coming into the fourth quarter of 29 team.
In particular I.
Note of caution unexpectedly rose among our oil and gas customers.
Attributable attributable primarily to increase macroeconomic uncertainty.
Although our long term outlook remains intact.
Factors are clearly influencing current activity in the oil and gas market would push outs in demand.
Most of our oil and gas exposure is predominantly on the Oh and downstream sectors, the downstream being driven.
Our capital spend including turnaround and modestly in the run and maintain topics fan.
Consequently, we feel well positioned with our strategy focused on growing or want to maintain revenue.
Sector of the market that we dominate.
I feel very good about where we are in our outlook for the long term.
I'll just unexpected pause in the oil and gas end markets has created some immediate challenges there will affect our performance through the end of 29 team and they drag into the first quarter next year.
Consequently, you can understand why our full year outlook is not lower than originally anticipated.
And why we are accordingly, lowering our guidance for 29 team.
We view this as a timing issue as we expect most of the work will return to the market over the next couple of quarters.
I will walk you through a detailed update in few minutes.
Looking out into 2020 and beyond our underlying oil and gas business remains strong.
And our plans and strategies to grow profitably.
Over the long term are unaffected.
Based on what we're seeing and hearing underground. We believe we are gaining market share and except for a few locations. We have retained the vast majority of the customer service.
Close to 90 labs across the U.S., Canada in Europe .
Each of these locations remain staff with our experienced professionals says that we're well positioned to serve customers and capitalize on current opportunities.
As well as to continue to grow our market share in 2020 can be on.
You know by Conservative estimates, we sort of a $14 billion industry, it's any NDC span of the business.
That's how integrators fund generated in the data mechanical sectors in which we participate.
These markets are growing at healthy rates in support our growth aspirations.
Our product line extensions into adjacent markets, such as mechanical and pipeline inspection fed increase that opportunity and a quickly evolving mysterious digital platform.
Why do you know even greater opportunity.
So quite large it is a highly fragmented industry.
And many of our smaller competitors simply cannot match the depth of our resources or to breath of our services invaluable experience.
This build strong relationships with our customers because we saved them unnecessary spending.
We are also utilizing our resources to create new products and services and to make strategic acquisitions.
All of which help diversify our end markets provide additional stability to our results.
Further distance ourselves from the competition.
Before turning the call over to Ed Let me offer a few comments, that's something to key developments in the quarter.
Performance at fostering continues to reflect a strong U.S. girls.
Relatively weak Canadian market.
The recent commercialization other 20 inch tool.
And the impending introduction of their larger 24 inch to show increased their contribution.
And with the Geospatial technology from a new century acquisition, providing excellent complement to Onstream stream data.
You analytics, we believe there are strong synergies that will open up new possibilities in the future as walls benefit our complementary PC myself work.
We see this acquisition as a strong strategic fit.
One of our stated pillars for growth.
In the midstream sector of the energy market.
Be viewed as a growth market driven by increased regulatory oversight.
The rising customer demand due to more vigilant mechanical integrity programs.
All needs mistrust is uniquely qualified to do love it.
[noise] West parent is good momentum and should outperform or fourth quarter as of last year.
We expect them continue to ramp up utilization at a second facility in aerospace. We also continue to benefit from the strength of our French operations.
Overall aerospace remains a key corporate growth pillar, where the outlook for the industry over the next few years continues to be strong.
Data management is also one of our strategic objectives.
In mistrust digital is a discrete way to integrate our vast data capabilities.
Onstream string view.
Seeming to software.
Ruggedized mistrust digital feel tablets.
Sensing and monitoring capabilities and now the new century software or just some of the various ways gonna weaving that we are weaving together our data management capabilities.
To establish a leading position as the asset protection market enters the age of the industrial Internet of things.
As the market gets more sophisticated we want to beat a leader in the market for more data and predictive analytics.
Which we think are the industry big growth drivers.
An exciting endorsement of our strategy has been the rapid adoption of our mistrust digital tablet roll out.
We've been probably had a growing number refineries.
These customers value. This technology, so much so that they're asking us to open up the up.
Well, what other onsite vendors piggy back on the software.
Hence we are reviewing the monetization or this application to other third parties.
We expect to continue to roll out our mistress digital talent to other customers accelerating rate.
More of our locations throughout the fourth quarter and especially in 2020.
This quarter, we acquired new century software, which forms another element of Maestros digital.
More importantly.
This acquisition is another example of forward thinking about the direction of the midstream sector.
And the opportunity to leverage technology to growth.
New century is a leading provider of pipeline integrity management software and services to energy transportation companies.
You century provide software solutions.
Data management expertise and extensive pipeline experience to enable a global network of customers in the oil and gas industry to manage pipeline integrity.
<unk> regulatory compliance requirements.
And maximize safety and reliability.
This acquisitions aligns with mistresses mission of delivering value added integrated.
Smart data solutions to its customers.
I will now I'll turn the call over to Ed for a detailed review of the financials for the quarter.
Thank you Dennis.
Looking at results for the third quarter consolidated revenues were up 5.5% to 192 million.
Organic growth was 2.1% with acquisitions contributing 4.4% offset by 1% decline due to unfavorable currency translation.
Consolidated gross profit for the quarter was 57.8 million, a 10% decrease over the year ago quarter.
Consolidated gross profit margins improved significantly to 30.1% for the third quarter compared with 28.7% in the prior year quarter, an increase of 140 basis points.
The weren't going to be expansion of our gross profit margin is indicative of the success of our underlying strategy.
Focusing on more profitable opportunities in our core operations shedding less profitable businesses, and making strategic acquisitions that helped to improve margins.
We believed our year to date gross margin in 2019 can be maintained into 2020 to even with short term volatility in revenue volumes.
Operating income improved for the third quarter 210.8 million compared with 3 million in the comparable period last year.
On a non-GAAP basis, adjusted operating income was 11.2 million compared to 10.1 million last year, an increase of 10%.
Net income for the third quarter was 3.1 billion compared with a net loss of 1 million for the same period last year.
Adjusted EBITDA was up 7% to 22.4 million for the third quarter of 2019.
As a percentage of revenue adjusted EBITDA improved to 11.6% for the third quarter compared to 11.4% in the same period last year.
The improvement in adjusted EBITDA is reflective of the successfully achieved by focusing on higher value operations and better leveraging our global infrastructure.
As Dennis mentioned earlier the company is a strong cash generator.
We stated last quarter that we had anticipated and continued strengthening of our cash flow generation coming into the back half of the year.
And we achieve that the third quarter cash from operations of 19.4 million and free cash flow of 13.4 million.
On a on a per share basis free cash flow was 46 cents for the third quarter, this which consistently strong on a sequential basis over the second quarter and a significant improvement over the prior period last year.
Strong cash flow. This year has benefited in part from Mark commitments, you improvement improved working capital management.
Now looking more closely at our segments.
Services revenue increased by almost 8% in the third quarter.
Organic revenue grew a little over 2% and acquisitions, primarily on stream incrementally added nearly 6% to revenue growth.
The services segment generated a gross profit margin of 28.4% for the quarter and improvement of 90 basis points compared to the year ago period of 27.5%.
Margin expansion is a key corporate strategy and we are pleased to see our margins continued to expand in our largest segment.
Driven by pruning low margin operations and growing higher margin operations, including acquisitions, such as west pen in one Sri.
Very strong operating leverage in the segment with significant contribution margins weren't incremental revenue.
International revenues in the third quarter were up 5.4% organically offset by 4.4% unfavorable currency rates, 41% nominal increase.
The growth organically is noteworthy in that it was achieved despite the previously disclosed one off at the low margin German SAP leasing business.
For the third quarter International reported a 31.6% gross profit margin compared to 29.7% a year ago, which represents a 190 basis point improvement.
We attribute that improvement largely to higher labor utilization.
Just a result of increased visibility visibility that was a key focus in this next year.
[noise] products and systems revenue decreased slightly in the third quarter to 5.5 million due to the sale of a subsidiary that was divested in 2018.
Gross profit margin increase for the segment to 49.6% compared with 45.6% in the prior year due to a favorable product sales mix.
We had another prudent quarter in maintaining strong cost control with a below inflation increase of 1% NSG in a year over year.
As a percentage of revenue estimate was down 22% from 23% in the same period last year, a decrease of one full percentage point.
Once again, reflecting our focus on improving operating leverage.
Considering expenses. This year contained there was assumed in the inclusion of the Onstream acquisition, the ongoing investment, we're making and sales and marketing as well as with developing and launching mistrust digital we believe our efforts are beginning to reflect the many efficient efficiency initiatives underway at mistress.
Spending in the quarter was consistent with our expectation that the first half 20 Nike levels represented what we felt would be the run rate for the full year.
We continually review and rationalize our companywide overheads for seems to make sure we maintain a flexible inefficient footprint to support and invest in our growing business.
The company's net debt defined as total debt less cash cash equivalents was 252.9 million as of September 32018, compared to 265.1 million at December 31 2018.
The company is pay down over $23 million total debt during the first nine months of this year.
The company. Additionally, paid a total of 7.7 million for acquisitions and income taxes related to the net settlement of share based awards. During the nine months ended September 32019.
As the pointed our credit agreement our leverage ratio was approximately 3.6 times as of September 30, 2019. Our goal is to produce this ratio to below three times by no later than the into fiscal 2020.
Given our cash flow annual interest expense net debt, we believe our balance sheet is strong and will support the funding of both our organic growth objectives as well as any selective tuck in acquisitions, such as new century software.
Our effective tax rate was approximately 61% for the third quarter of 2019, including a 1.4 million or five cents per share write off of certain deferred tax assets.
As Dennis mentioned earlier, we are seeing a weak oil and gas market coming into the fourth quarter and we experienced and overall fall season that ended much sooner than anticipated in particular, the oil and gas turnaround sector slowed attributable to factors such as supply buildups earlier in the year as well as refineries shifting resources to pair.
Prepare for IMO 2020.
I know to caution that unexpectedly and lose amongst oil and gas customers towards the middle of September 2019 into October 20, Nike is attributable primarily to increased macroeconomic uncertainty.
It is the same due to portion that is being heard and various sectors stemming from many factors, including trade tensions negative European interest rates and the slowdown domestic GDP growth.
Although the long term outlook remains intact. These factors are clearly influencing current activity in the oil and gas market, resulting in push outs of demand.
Consequently, the company's full year outlook is now lower than than originally anticipated for the fourth quarter and accordingly to the company is lowering its guidance for full year 2019 as follows.
Total revenues are expected to be between 740 million to 750 million.
Adjusted EBITDA is expected to be between 70 million to 75 million.
Capital expenditures are expected to be under 25 million.
And free cash flow is expected to be between 28 million to 32 million.
We are still developing our full year 2020 budget, but women early we anticipate modest single digit topline growth, while maintaining year to date 2019 gross profit operating margins and cash flow levels. There are also a number of additional growth opportunities all of which will be incremental to our current expectations.
We will provide our outlook for full year 2020 on our next scheduled call.
We are confident in our sustainable business model, which has proven to be nimble in responding to sudden and severe cyclical changes in the oil and gas sector.
We remain firmly committed to diversifying our end markets over the long term while at the same time embracing our current end markets with an evolving differentiated solution.
With that I'll now turn the call back over to Dennis.
Thank you Ed.
As we implement our long term strategy, we recognize there maybe some bumps along the road. However, these distractions or not a hindrance to achieving our ultimate objective I'll be talking to the partner of choice in the MDT market and it's a Jason sees.
We continue to steadily transform industrialists with our basic principles always at the forefront that began delivering value.
Meeting our promises.
Debating to drive productivity for our customers.
And developing industry, leading productivity tools.
I am confident and can you and continuing to see signs that our customers operations see value in this friend with us as a true ROI.
The enthusiastic reception of our mistrust digital tablet initiative further illustrates the partnerships, we are forming with our clients.
I also believed that we do this better than our competition and this will be evidenced by a relatively stronger performance than our market.
As we exit 2019 and head into 2020.
We are keenly focused on differentiating ourselves in the markets.
Particularly through our expanding service lines would solve for customers needs of reduced overall labor to accomplish that given project involving digital solutions as I mentioned earlier.
We also remain firmly committed to maintaining our position at the forefront.
During the development of advanced inspection tools utilizing proprietary technology.
We add value.
And this enables us to present market and generate solid operating profit with predictable attractive cash flow.
And the process.
We serve our customers with an exceptional returns or investment.
By delivering top quality results.
Superior economic value.
I am confident that we're on the right path executing on our strategy and creating value over the short mid and long term for Mr shareholders.
We will now take your questions Brian Please open up the phone lines.
Hi, pleasure, Sir Thank you, ladies and gentlemen at this time, if he would like to ask a question over the phone. Please press Star then one on your telephone keypad.
And have an answer to a school yourself from Q.
Okay.
And our first question will come for line of Edward Marshall with Sidoti and company. Your line is now open.
Hey, good morning, guys how are you.
Great. Thanks.
No I'm, so I'm looking at the gross margin here and it's easy to I guess to attribute to acquisitions made.
Over the last couple of years and maybe the returns you're seeing on that but you've done considerable work on the caution and that's good to see can you kind of break down the gross margin improvement for us and kind of how much of that generated by these higher mortgage and acquisitions versus what you're doing from a cost basis.
So I'll take the first correctly that free that's the truth is onstream in west pad have not been performing as strong as we wanted to so while they are very good cash generators and very good gross margin.
Attributed to our gross margin profile, they haven't been pushing that as far as we were looking for us in a lot of the gross margin improvement is simply coming from our sales mix our focus on our utilization in Europe are.
Maintenance of making sure that the kind of sales that we get our the type of sales we won the oil and gas market. While it can be competitive you can find the right customers. The line yourselves and if you add value. We believe we've been doing a good job of getting the gross margins up.
If anything do you agree guys, it's definitely I mean acquisitions absolute part of it in sales mix. Some of the business that we exit is such a staff leasing had lower than average margins, but we're also driving utilization and efficiency across the board international being one that has showed very good improvement there. So it's really across the board on lots of levels improving that gross margin.
Yeah, I was surprised to see it actually go up and down revenue basis.
You know is it is this something that you could potentially sustain as we move forward, even given the difficult revenue environment.
Yeah, we believe so even if even if revenue were to jump off a little bit we still really comfortable and confident that the gross margins would hold off absolutely. Yes, we're very proud affected our margins are holding even a little bit less than what we wanted to get revenue for sure in Q3.
Got it.
I heard the comments about 6% to revenue I guess from Onstream.
I'm curious, what's the investment then for the new tooling.
Larger diameter tooling in that business and then maybe ultimately the contribution to earnings the earnings profile in Q in Q3.
Yes, Hi, Ed it's John Thanks for the question. The investment is relatively modest it's in you know it's in the high six digits to low.
Seven figure number the contribution is almost instantaneous and it's very impressive.
Because the high technology content and effort to design and rollout these kind of tools.
The margins that could be earned on them.
Very good.
The question is just utilization so we're in the early stages of getting qualified with customers on the 20 inch tool.
And the 24 its tool will be ready at about a month. So a lot of rollout lot of activity that we're excited by and a an upside to come.
Got it and I guess, it's easier to measure the actual capital outlay.
But you mentioned trials, just a moment ago I'm, assuming there's a there's a there's investment period of.
Well that trial at relatively low or non comp contributing margins, maybe is there anyway to quantify that as you kind of expand in the into the U.S.
There is Ed, but I'd say, that's more of a rounding difference in terms of Onstream is certainly a profit contributor even with those those investments.
So it's just a really matter of when the uptake comes from them.
I appreciate the comments guys. Thanks.
Thank you.
Thank you and our next question will come to light of Sean you spent with Keybanc markets. Your line is now open.
Hi to in this is Alexandre Sean Thanks for taking my questions.
Morning.
Morning.
Given the single digit growth guide for 2020, I'm kind of just wondering what the drivers are to think about that can help achieved the higher end to the range versus the lower end of the range. The low single digit range and I'm just kind of wondering if the near term headwinds you're seeing right now are going to carry into 2020 at all.
Yes, good question so.
At this point, we're still form and it together, but we don't see a huge January and February we believe the spring, although it's going to be a strong spring in fact, it might be one where we have constraints on just trying to make sure. We have all the labor. So we're trying to beef up for that as far as the things that we have going on.
It's actually most recently even inside the aerospace there's a lot of a potential for investment we've consistently had a lot of work in the LNG market with a new construction and insight renewables with a wind generators.
Howard.
Canadian and European markets have a lot and renewable power and aerospace.
Theres a lot of oil and gas potential there's a lot of customers who were two years ago buying on on the hourly rate and our trying to look at this more on the value and we see theres a lot of potential on those kind of changes. So we feel real good truthfully in our oil and gas market, even in the up and downstream.
We get passed us little cost.
Trough that we have ourselves in Q4, and we see aerospace and renewables also pushing it so there's really no one driver, but fortunately its little bit more across the board for us.
That's helpful and I was just also wondering if you could comment on the M&A pipeline for I guess tuck ins versus larger acquisitions, you're seeing nowadays and maybe how that compares to what you're seeing over the past couple of quarters.
Sure. That's a good question I mean, right now we've been kind of acquired since we had a two larger acquisitions are watching our leverage but we did a new century, one and it was one that actually came up as a very very good strategic fit and right now we're doing smaller tuck ins because most of our money's going down to pay our debt service, but we do believe it's a very strong market.
There were looking for acquisitions, we do believe Theres a lot of.
Opportunities, we still have folks dedicated to a full time, they're looking to make sure enough and various strategic its biased while we're launching our side, but there is no lack of things going on out there and that just might be because.
People seeing it.
As a good time with the market being up but yes, there is very rich pipeline out there.
Thanks, guys.
Thank you.
Thank you and our next question will come from Andrew Obin with Bank of America. Your line is now open.
Good morning. This is David Ridley Lane on for Andrew.
Can you tell me if it out.
Good morning, you talked about new search for new century software.
There are any.
Help us with the rough revenue and margin and maybe talk about the client overlap or if this is uh huh.
Opens up opportunities for cross.
Okay. So.
Roughly speaking PC mass is a very good establish software for pipeline integrity management assets, which is a stationary and for primary loan pipeline above ground, we weren't very well known are very good on the very pipes and there is different.
Codes and measurements that you have to go buy so new century was actually that portion of it that you had the very pipeline market very strong we have a lot of crossover customers in fact prior to us doing the acquisition by pure coincidence, we had four different customers asking us into a new us one in Canada.
And one in Europe , asking us to look at new century, specifically by name we'd already gone there have been reaching out to them, but just by coincidence. They were talking to us about it because a lot of customers on.
On pipeline. They also have to have stations, where the pipeline comes from below ground to above ground and then you treat the.
Okay.
The chemical or fluid or gas that's in there you pressurize that you dried out whatever they have to do so these pumping stations, where we were piece in August we just didn't get to follow the pipeline below grade now that we do we have very good connection on that so our crossover our customers.
Looking at peace in last two new century back and forth is actually a very very strong profile, but.
Truthfully, we actually original hoped and new century for the Onstream acquisition, because onstream puts out the data where the pipes are they put out the GP asked is located but they don't show that to a customer people like new century actually Geo located put it on may ops and do the consequential damages that.
Onstream Didnt have sold between Onstream PC, most a new century.
It's a real great fit for us and there was one other part of a question I Didnt get to write down I think that amount of you answered.
I would just a rough revenue and margin.
Oh, we haven't disclosed the the purchase price where much of the transaction details again as Dennis said this is more strategic how it helps the other.
I want to screen and PC messes software components. So we havent, it's fairly it's not the size it as it back it hasn't either or other businesses.
Understood and then how does the a the current environment compared with late 2016, which I believe had some similarities and oil and gas weakness.
You had a very strong bounce back in the second half of 2017, how are you sort of anticipate in a similar trajectory here.
So.
It's a good question, but I I don't believe at this point that we're seeing its going to be last as long. So I don't think to balance will be as prominent because last time. It went from 16 to 17 and to your point it caused a pretty big jobs and the first half of 18, because a lot of pass on I believe there'll be some of that but I think the amount of pushed off or deferred work.
We minimize only because it's going to be most of the Q4 and maybe a smaller amount for Q1 as well.
Got it alright, thank you very much.
Thank you.
Thank you and our next question will come from a lot of Tate Sullivan with Maxim Group. Your line is now open.
Hi, Thanks, good morning.
You mentioned a couple of times a digital tablet rollout can you update I mean, yes is it already I mean, what phase are you I is there already with customers and are you already seen higher margins with where the tablet has been for a better or where are you in the stage of that rollout. Please.
I take this is John .
So 2012 2019, as the or that we officially started to roll out to tablet.
Right now we're just in a handful of sites, we've got about four or five sites that were looking the rollout of pilot basis in the fourth quarter.
Theres a lot of upfront demonstration and show Intel and we're getting a lot of enthusiastic sums up now. It's a question of just getting through that the day to day of implementation and getting out.
Into active production. So so far all the feedback is terrific we're hearing.
Incredibly positive support.
Even though we're not necessarily the first to the market in our industry. What we're hearing is from people who have seen others attempts at this by other competitors of ours that we seem to have the best best solution available. So it's relatively early.
And the focus right now is for our existing.
Customers doing MDT first.
The next focus will be our existing customers and expanding to mechanical services that are adjacent to Ndtv you heard Dennis speak of that thing to think of insulators scaffold or as an example, but there could be others and then the next phase will be going.
To new customers that are not existing customers doing both sets of NTT and related mechanical set of services. So we've got a roadmap mapped out we've got the product built at this point and now we're in active rollout.
Number of pilots and as Dennis said in his commentary that's really the activity for 2019 looking to get very busy on this in 2028. They take it's Dennis first welcome to the call and to thanks and that was what John said, it's a productivity tool that we really believe will be something that customers are looking for I mean virtually this as John .
So no one's finding this by surprise everyone's trying to find a secret sauce and creating it but I think as being first to market with the ideas, we have and the ability to lean on what we've done with CMS and other digital cross projects are ready and use of working on that I think gives us an edge as to what the customers are looking forward. So we're really pushing that strong do think it'll get.
Good good favorable.
Results in the market as we rolled out like Johnson.
Okay. Thanks second one for me you mentioned that fully staffing you're not be labs in anticipation of meeting future client demand I mean is part of both the or implied guidance or for Q related to not ups, the lower refining work not absorbing as much as the overhead from those labs or is a meaningful portion of that lab work tied to though.
Oil and gas customers as well.
We're fully staffed up for them for the volume level, the our our labor force kind of flexes to the volume at hand, so on.
That was kind of the comment there that were we ratchet down overheads, where we can but were fully ready to go.
Yes in the flows to the business, but to be fair take the work is going to capital side of it and that's always something that is our.
Overheads on our labor I mean, we are size very well for our run and maintain portion of the business and then when it comes to the additional work people go from 40 hours of 60, 70, or 80, and we bring and other folks and all that so we feel like our staffing for what we have is going to be fine. That's why we believe we can do well on the margin while even in this down cycle.
Okay. Thank you and you on the on the free cash flow in the quarter receivables declined from 155 to 148 without a one time.
Faster overcome.
Faster collection on there's receivables or what is there something more fundamental on and that you can extend going on there. Please.
You know that was just a good good fundamental quarter, we continue to work hard at working capital.
Well I'm still not happy where do you. So as we can drive that down further so yeah. We see continued increases in improvements you cash flow from from driving down the working capital in a team sport. We're all very heavily involved in that the operations in the finance side and I think theres still more gains we can we can have on working capital.
Okay and last one last one just based on your comments for me on oil and gas exposure and I think you covered I mean, how quickly it can turn and some previous comments as well too but.
Can you clarify what you meant by the IMO 2020 prep I mean does our refineries shifting their capex to preparing for more out put related to the IMO 2020 could more inspection work follow that.
Sure cadence Dennis I mean, typically we don't get a lot of the reasons why they're doing.
Turnarounds that could be capital could be safety de bottlenecking things like if I am all in all that but lately a few of our customers have told us that their budget spend while being curtailed earlier than usual was partly driven by IMO 2020 of them, having to buy different slates or different more expensive feedstock. So while we don't truly understand.
Well that's about.
As far as as how it affects them and why we do here customers, telling us that their budget for 2019 got cut off abruptly because of what's going out of IMO 2020, as you know that's a one won 2020.
Good I'm supplying the the higher grade fuel. So we do believe for some reason this does have some effect.
We're not close enough to understand if it's going to go much into January or February we do believe it might have part of the softening there as well.
Okay. Thank you for that time, and where you have a good rest of the day. Thank you.
Thank you.
Thank you follow up questions coming from life, Edward Marshall with Sidoti and company. Your line is now open.
Hey, guys you caught my attention when you said not a huge January and February but you see March trending better.
Is that what you're hearing from customers I mean jobs are lined up what can you maybe elaborate on on what you are.
What you were.
Talking to their place sure typically years past spring and fall was just to add it was just in spring and then in this time of year in a few years ago customers started in the areas, where they had to whether to support it. They started doing January February turnarounds. Early 18 was a very good indication of that all the pent up demand that was being asked about.
Earlier not pushed back into early 18 people were during January and February we Didnt see that in 2019, we don't see that in 2020, what do we absolutely are speaking about turnarounds that are booked customers are talking to us about skill sets needed and work requirements that will be happening again I don't that's all March or April one head start.
But it's all spring related so there is what we consider to be at least a normal if not above normal spring pace and I was in 2020. It's just it may not be at January or February start.
Got it got it and you also mentioned labor and and is I guess first question would be as labor an issue now.
Or is aligned with price and then you talked about a specifically towards margin that being somewhat constrained do you try to talk about how you're going to manage through that.
Cost scenario.
Sure, It's Dennis again so.
The customers are talking to us about is busy areas a lot of times inside the more dense industrial areas in the golf.
In the West a western Canada, Western U.S. and they know that they are competing with other competitors of yours for that same type of labor skills. So they are very open to talking to us about payroll increases not so much about margin increases but to pay all the way through to the taxes and everything else will go with that so there's a lot.
I'll talk going on now about what is the call will look like for next year predominately in the busier areas, but truthfully in most areas customers are willing to talk about pay increases for skill sets. It may not be across the board it might be in the ones where they believe the.
The biggest.
Infringement on the labor is coming from in the higher skill sets.
Yes, there's really been no pushback on customers talking about increases, it's just really about holding the margins in a button pay will flow through.
Got it and typically you're a oh, you're kind of flexible with your.
With your with employment.
Is this more permanent labor ads.
For potentially future growth or or or how you manage the operations surrounding the additional labor.
So to spring turnaround itself is typically more of just flexing up and down but the things that we're talking about earlier in the oil and gas market to things that we see in construction and renewables and all that so certainly are going to be organic and they will be permanent jobs added to wherever the markets are so we do see but we do see a lot.
Of growth out of that but again the springtime is typically the for the most part you're just moving bodies others, whether we can move and I'm sort of strong us having a lot of running maintain contracts, where we have a lot of people in the same families allows us to move people from one refinery family type to another helping them out there and are turnarounds and given on people.
Who are familiar with their operations and way of taken and data as well.
Okay perfect. Thanks, guys. Thanks, Kroger, taking all my question no problem. Thank you had.
Thank you ladies and gentlemen. This concludes our question answer session for today. It is now my pleasure hand, the conference back over stats Bertolotti, Chief Executive officer for any closing comments or remarks.
Okay. Thank you.
I appreciate your interest in mistress look forward to updating you on next scheduled call before I leave I'd like to thank all mistress employees for their continued hard work dedication to make in our company one that safely and effectively delivers reliable increasingly more predictive data for all our customers. Thank you for listening to today's call.
And wishing everyone, a safe and productive day.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude or program and we may all disconnect everybody have a wonderful day.