Q4 2019 Earnings Call

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Excuse me, ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily anchored at Cowen. Your line is when again be placed on music home.

For your patience.

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Ladies and gentlemen, thank you for standing by and welcome to the Q4 and full year 2019 earnings call.

At this time, all participants are in listen only mode.

After the speakers presentation, there will be a question and answer session and instructions will follow with that time.

If anyone should require assistance during the conference. Please press star zero on your Textron telephone.

I would now like to hand, the conference over to your speaker for today Mr. Don Bleasdale. Please go ahead Sir.

Thank you Deborah welcome everyone to change 2019 fourth quarter and year end conference call with me on todays call Reno, Gotti, or chairman and Chief Executive Officer, and our Chief Financial Officer, Susan Ball.

This call is also being webcast and can be accessed through the audio link under the Investor Relations section of our website at <unk> Dot com.

Information recorded on this call speaks only as of today March 13th 2020. Therefore, please be advised that any time sensitive information they no longer be accurate as of the date of any replay listening or transcript threed.

There will be a replay of todays call and it will be available via web cast by going to the company's website teammate Dot Com. In addition, a telephonic replay will be available until March twentyth.

The information on how to access. These replaced features was provided in Yesterdays earnings 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 Securities Litigation Reform Act of 1995.

Leading statements of expectations future events for future financial performance.

Forward looking statements involve inherent risks and uncertainties and we caution investors that a number of factors could cause actual results to differ materially and those contained in any forward looking statements.

These factors and other risks and uncertainties are described in detail on the company's annual report on form 10-K and in the company's other documents and reports filed or furnished with the securities and Exchange Commission.

The company assumes no obligation to publicly update or revise any forward looking statements, except as maybe that work along.

In Reno will begin by providing an update on our business. Susan will then tell our results and before we take your questions amarin or will highlight or once seen progress and market outlook.

Now I'd like to turn call over to every area. Thank you Don and good morning, everyone. We appreciate you joining us today.

Before we get started I would like to comment on the recent market developments, resulting from the Corona virus and the decline in crude oil prices.

First and foremost, we're taking active precautions to help protect the health and wellbeing of our employees and working closely with our clients.

While it is too early to forecast the ultimate impact of these events teams agile and scalable operating model coupled with a strong track record of Rightsizing. Our cost structure has prepared us for these dynamics times.

Team is well positioned to lead in this volatile market.

Leveraging our unexploited competitive advantages, which includes the breadth of our subject matter expertise and cross segment integrated solutions.

In partnership with our clients, we are working to develop and deploy technologies across our inspection engineering assessment and mechanical services portfolio to deliver increased productivity and extend the economic life of their assets.

I will now review our performance, we're pleased with the fourth quarter results as we continued to deliver improvements in free cash flow EBITDA gross margin and SGN a despite various topline challenges.

Consolidated fourth quarter revenues were $288 million down 7% from a year ago.

Primarily due to lower activity in our inspection and heat treating segment and the 2018 shutdown of underperforming businesses.

Here are some highlights of the quarterly and full year achievements.

Fourth quarter, adjusted EBITDA was $23.2 million or 8% margin full year, adjusted EBITDA was $80.3 million or 7% margin a year over year increase of 11.4%.

Despite lower year over year quarterly revenues of $22 million fourth quarter gross margin was $84.2 million were 29.2%, a 160 basis point improvement over the prior year.

For the full year gross margin was $328 million or 28.2% of revenue up 190 basis points over the prior year. This gross margin improvement was realized despite a year over year reduction in annual revenues of $84 million.

Fourth quarter, SDMA was $79.7 million, a decrease of $10.4 million were 11.5% from the prior year period.

Full year, EPS, DNA decreased by $32.5 million or 9% when compared to the prior year.

Free cash flow was $20 million in the fourth quarter and approximately $30 million for the full year 2019 more than doubling our free cash flow of $14.7 million in 2018.

During the fourth quarter, we paid down $17.5 million of debt with a full year paydown of more than $33 million, reducing our debt to the lowest level and over three years.

Our fourth quarter and full year performance showcases our ongoing commitment to generate increased free cash flow for debt pay down.

Focus on working capital and other efforts to reduce costs.

Additionally, we further expanded gross margin through pricing discipline project management and market diversification.

I will now provide a high level segment overview.

Mechanical services segment delivered positive year over year revenue gross margin and EBITDA.

This strong performance was driven by a 31% growth.

Over the fourth quarter of 2018 in the Onstream service line, which includes hot tapping services.

The full year adjusted EBITDA percentage was the highest for this segment and teams history.

The investments in manufacturing and engineering technology, and workforce management drove the increase profitability year over year.

Going forward mechanical services as well positioned not only in the oil and gas sector, but also in some faster growing markets such as pipeline power and process related industries.

Most recently team completed on its third consecutive turbine at the largest completed work story on its third consecutive turbine at the largest hydroelectric plant in the U.S., but.

The dam is in a remote location and all components were built between 1967 at 1974.

The clients biggest challenge was the degree of precision required to deliver the critical tolerances necessary to maximize turbine life inefficiency.

And due to the significant size of the units. The work was required to be performed on site.

Working collaboratively with the client we provided a specialized and advanced modular field machine that utilize the laser guided self leveling solution.

This client also benefited from materially reduce downtime and the elimination of costly freight.

The quest integrity segment achieved its highest ever quarterly revenue and EBITDA in the fourth quarter of 29 team driven by continued international expansion.

Wes delivered back to back years of record performance with more than 18% revenue growth for each of the past two years and EBITDA margin expansion of 260, and 714 basis points when compared to 2018 and 2017, respectively.

Yes continues to perform exceptionally well in its target markets and is quickly building market share in new industry sectors.

As an example, a quest client recently required a thorough inspection and clean up after foreign debris was launched in their power units system.

The client needed to avoid the process of complete this assembly manual inspection and cleaning.

Question was engaged to utilize our robotic camera systems and remote operated tools to perform the operation eliminating three weeks of downtime and saving millions and lost revenue for each day the plant was idle.

We expect quest to continue to grow in 2020 as a result of the market leading solutions, we provide our clients.

The inspection and heat treating segment reported lower fourth quarter revenue and adjusted EBITDA when compared to 2018.

In the past year, our IDH t. clients focused on maintaining high utilization rates and operational flexibility to maximize margins.

Rather than large traditional turnarounds smaller pit stops were used to minimize downtime. We continue to work closely with our HD clients, leveraging our stable and extensive nested footprint to provide additional high margin services.

Each these performance is expected to improve in the second half of 2020, driven by a stronger turnaround season and additional discovery activity.

We are strengthening our HP revenue diversification efforts focusing on international growth innovate innovative technology and sector expansion within LNG midstream aerospace and renewables.

Utilizing our advanced technology, we are disrupting the inspection market. We recently provided laser scanning in place of ultrasonic inspection for one of our multinational refinery clients to measure and external protrusion on a critical pressure vessel.

Teams integrated solution, coupled with our subject matter experts eliminated the unplanned shutdown of the vessel for internal inspection and repair.

Team is now an exclusive provider for the company and has deployed similar services to other facilities globally.

Looking at our business from a geographic standpoint, we experienced fourth quarter year over year EBITDA growth in all our divisions, except for the West coast.

The West Coast was impacted by delays turnarounds regional market share in pricing pressures increased costs in part from SB 54, and other related factors.

The Canadian Division grew with mechanical services more than doubling revenues from the prior year quarter, while ice tea operations were down 1%.

We continue to closely monitor project sanctioning activity regulation changes and other market factors that may create some near term headwinds.

In our International Division the H.T. segment grew revenues by 13% when compared to the prior year quarter.

We continue to focus on diversifying our revenues and expanding to new markets, while maintaining our high standard of safety and quality.

Recently, a European client required a specialized solution to refurbish their wind turbine generator shops on site.

We developed and deployed a customized machine that took 50% less time when compared to our closest competitor.

Teams enhance solution was extremely well received by our clients and is now their standard operating procedure for all future repairs.

The Central Division is receiving several request for proposals after our aerospace operations obtained federal Aviation administration certification in the third quarter.

Team has more than 35 years of experience in the aerospace industry and is a single source provider for all engine certification programs recently, we provided chemical processing advanced NTT and metallurgical services to one of the largest engine manufacturers in the world.

Through our one source solution, we were able to expedite inspection and deliver on time, ensuring no disruptions to the clients operations, while meeting all necessary epay requirements. This further demonstrates team's ability to secure high grade revenue and diversify beyond our core energy sectors.

Yes.

I will now provide safety performance highlights safety is our number one core value, we improved our IR year over year by 25% and reduced recordable injuries by more than 30%.

During the year, we received the voluntary protection program Star of excellence from for clients and the American fuel in petroleum manufacturers distinguish safety award from three others.

The 2019 safety performance was one of the best for the company I remain extremely proud of our people and their commitment to safety as we strive for zero zero recordable injuries.

Ill now turn it over to Susan for a detailed financial review and then we'll share more about our one team progress and outlook. Susan. Thank you, Dan Marino and good morning, everyone I will review our quarter over quarter performance and highlight some of that 2019 full year results.

Holiday net revenues of $288 million in the fourth quarter were down 7% from the fourth quarter 2018 on a full year basis consolidated revenues were $1.16 billion.

Hard to $1.25 billion in 2018 in the fourth quarter, both quest integrity and mechanical services increased revenues as compared to the prior year.

Thats driving the majority of the year over year growth and posting a record quarterly revenue performance Quest and mechanical services revenue increases offset by a revenue decline of 19% in our inspection and heat treating segment.

Full year revenues were negatively impacted by foreign exchange at approximately $12 million. Additionally, exiting underperforming operations in late 2018 contributed full year Varian approximately $20 million with a fourth quarter NPAC at 3 million.

Consolidated gross margin for the fourth quarter 2019.

He is significantly and 29.2% of revenue, which was an increase of 160 basis point when compared to the 27.6% gross margin achieved in the prior year quarter is represented the highest fourth quarter gross margin in over four years.

Five of our revenue decline, we were able to generate favorable fall through due to the progress of the one team program. The fourth quarter 2019 cost saving benefits of the one team program approximated $5.1 million.

On a segment basis for gross margin mechanical services increased 8% over a 1% revenue increase.

Quest increased 27% on an 18% revenue increase.

He was down 25% on a 19% revenue decrease.

The fourth quarter net loss was $7.2 million, which was down from a 4 million dollar profit in the fourth quarter 2018, primarily due to the impacts of the effective tax rate variants.

Pretax loss for the fourth quarter, 2019 was $4.5 million as compared to pre tax loss at $13.7 million for the prior year quarter.

Consolidated adjusted EBITDA at $23.2 million in the fourth quarter as 2019 was down slightly from the $24.5 million reported in the fourth quarter at 2018.

Adjusted EBITDA as a percentage of revenue increased to 8% from 7.9% in the prior year quarter on a full year basis, adjusted EBITDA of $80.3 million was a year over year increase of approximately 11.4%.

6.9% of revenues compared to the 2000, adjusted EBITDA percentage of 5.8%.

Now turning to our segment performance.

The mechanical services segment delivered fourth quarter 2019 revenues of $133.3 million up 1.4% from $131.5 million in the fourth quarter as 2018.

Adjusted EBITDA was $19.5 million or 14.6% margin up significantly from the $14.3 million earned in the same period last year.

Full year 2019 revenues were $535.4 million up 1% with adjusted EBITDA of $77.6 million at 66% from the prior year, resulting in a 5.7 percentage point margin improvement.

The quest integrity segment posted record results for both revenues and adjusted EBITDA in the fourth quarter revenues of $33.6 million were up 18% over the prior year period of $28.6 million.

Third quarter, adjusted EBITDA was $11.5 million or 18% higher than the prior year corner.

Yes record revenue year at $150 million was over an 18% increase from 2018 revenues of $97.2 million adjusted EBITDA for the full year 2019.

$32.4 million as compared to $24.8 million in the prior year.

Inspection and heat treating segment reported fourth quarter 2019 revenues at $120.9 million down 19% when compared to the same period last year fourth quarter, adjusted EBITDA was $10.7 million down from $15.6 million earned in the prior year quarter.

As Amrine on mentioned Dicey top topline negatively impacted due to the end market continued focus on maintaining high utilization rate operational flexibility to maximize margins.

Additionally, the closure of underperforming businesses in late 2018 contributed to a decline in revenue quarter over quarter.

For the full year.

Revenues decreased 17% to $530 million and adjusted EBITDA decreased to $42 million or 30%, representing 157 basis point margin decline.

Despite lower revenues the fall through to 88 was fairly limited to 17%. This was largely due to the discipline.

To the result of our disciplined project selection and effective cost control measures that we have implemented over the past year.

Full year revenues were negatively impacted by a decline in revenue generated from our Canadian operations as well to shutdown of businesses.

Approximately $40 million now moving to ask DNA, we continue to realize year over year reductions of vesting expense to our cost management actions, including expansion of the one team program.

Total SNA costs for the fourth quarter 2019, $79.7 million as compared to $90.1 million in the fourth quarter of 2018, a decrease of $10.4 million or 11.5%.

Full year basis estimate was $328.2 million down $32.5 million from that full year 2018.

Our full year effective income tax rate was approximately 1.3% reduction of effective tax rate was primarily the result of an increase in the valuation allowance recorded on the expected realization and deferred tax asset or federal foreign and state net operating loss carry forward.

The company has.

Federal tax net operating losses of approximately $150 million, which are available to offset any future domestic federal taxable income in 2019 team generated $58.8 million of operating cash flow, representing an improvement of $17 million over 2018.

Capital expenditures were to the in 2019 or $29 million with $5.8 million being spent in the fourth quarter 2019 free cash flow in 2019 for the full year with $29.8 million, which was more than doubled the full year free cash flow.

$14.7 million achieved in 2018.

We ended the fourth quarter 2019, with $12.2 million of cash cash equivalents and have $66 million available borrowing capacity under the credit facility with total liquidity of approximately $78 million at yearend, we remain committed to paying down debt with any free cash flow generation.

We paid down $17.5 million of debt during the fourth quarter and in total full year debt pay down of $33 million, our senior secured leverage ratio ended the quarter was at 1.9 time.

In closing, we remain committed to paying down debt by generating free cash flow through increments incremental cost reduction margin improvement and continued focus on management of our working capital that complete financial review I will now turn the call back to Emory now. Thank you Susan before we take your questions I'll recap the last.

Two years of our successful one team program and provide our market outlook.

The one team programs to cost pillars generated savings of $22.9 million in 2019 and delivered within our targeted range of $20 million to $25 million for the full year.

We remain on track to achieve the projected run rate savings of $35 million to $45 million by the end of 2020.

We controlled costs through enhanced supply chain management and improved project execution utilizing our workforce function to generate a 240 basis point gross margin expansion. During this two year period.

This expansion was achieved despite a 3% topline revenue decline, primarily resulting from the shutdown of underperforming locations in late 2018, and various external market impacts.

Our adjusted EBITDA grew by approximately $28 million for 50% and more than 250 basis points.

And most importantly, our commitment to capital management and deleveraging the company led to a free cash flow improvement of more than $80 million. During this two year period.

On the last call we discuss the deployment of the one team program into our international operations using the successful and scalable North American blueprint.

This strategy further positions team for profitable growth, we're now able to deliver discrete and specialized services and differentiated integrated solutions globally implementation activities for one team international are now more than two thirds complete and we'll complete through story will continue through 2020.

We have transitioned the focus of one team.

To the revenue enhancement pillar, highlighting pricing strategy product and service mix prioritization and integrated project management benefits. This includes important actions such as deploying an enterprise account management approach driving cross selling across our segments to further expand margins and central.

During our billing processes. Additionally, we are focused on diversifying our industry sectors and geographies, while providing innovative technology leading solutions.

Now shifting to the market outlook. According to data us refinery utilization rates remain at elevated levels with the fourth quarter, averaging 88%.

The months of October and November experienced a decrease into the high Eightys, but December saw returned to above 90% utilization levels.

Analyzing full year averages refinery utilization has continued to run high in 2019 with an average of 91% for the year well above the 10 year average of 89%.

We continue to evaluate our business in two halves, which has become even more critical due to the instability of our end markets in the near term we are experiencing a slow start to the first quarter driven by the prolong holiday period delayed start to the 2020 turnaround season, and overall Lumpiness of Quest Bill.

In Us in addition, the Corona virus has created some disruptions to our operations and the recent drop in commodity prices may lead to a decline in capital spending by our clients similar to last year and as a result of these challenges the first quarter is likely to be the softest quarter of the year.

While we continue monitoring the global markets. We currently anticipate the second half of the year to be stronger than the first half and expect both quest integrity and mechanical services to deliver year over year growth operating cash flows are expected to follow a similar trends.

We are focused on managing what is in our control and mitigating the evolving end market fluctuations.

Our vast unsuccessful nested business remained stable and allows us to first expand upon our current footprint and service offerings and second closely collaborate with our long standing diverse clients to.

Quickly mobilize resources as needed.

Teams workforce management function has successfully maximize labor utilization rates, while reducing costs, we continue to take steps to optimize workforce deployment deployment to mitigate labor inflation and enhance operational effectiveness.

While we also continued to execute on our diversity Playbooks further high grading revenue and becoming far less dependent on any single sector or geography.

In conclusion, we remain steadfast in our priorities free cash flow debt, paydown, expanding margins and topline growth to build the sustainable and profitable business.

We believe the diversification of our markets will allow us to grow and expand our client base. We are excited about the opportunities ahead, and we'll continue to be disciplined in our investments for the long term.

Deborah I'll now turn it back over to you for questions and answers.

Ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone keypad again that is startling to ask question. Please standby well, we've compiled acumen a roster.

And your first question comes from the line of Sean Eastman with Keybanc capital markets.

Hi, Dan this is outs on for Sean.

Good morning, Congrats on being the congrats on being the cash flow guidance as a 19, just kind of wondering how we should think about cast for 2020 and maybe if you can give some directional commentary on how EBITDA free cash flow could trend in 2020 and on.

Okay and good morning.

Thanks for for the question. So first of all all store a little bit with the overall market trends I think that obviously a lot has has happened over the last 30 days or so.

We continue to monitor the the budgets for 2020, and we will have full Q1 at our Q1 call, which is not far from today, we will have a full.

Let's say better picture for first half in second half together, but directionally.

We do expect at this time that our EBITDA would grow in the range of about 5% to 8%. When you look at year over year growth in terms of EBITDA and through.

Strong and disciplined working capital and Capex management, we do expect to see about a 10% improvement.

10% to 12% improvement on on free cash flow now again, I will just highlight that theres a lot going on today in the markets.

There's a lot of instability, obviously from a demand standpoint, a lot of instability when it comes the oil price.

Consumer GDP levels, so we have to.

It will continue to refine our model I think even more than the last two years looking at the business in two halves will be extremely critical for us and we will have to stay very close to our clients now what I like about our positioning.

And thats because of the hard work over the last two years by the leadership team and the company is we now have three segments that are able to play in different cycles of the market between HP mechanical services, which plays in a lot of the Onstream market, which I expect us as cash tightens from the capital side there'll be a lot more off.

Our next and Onstream repairs, and then quest continuing to expand international.

Offshore et cetera, we're just a healthier business when it look when you look at not only the financials, but also the three segments that are now able to play in different parts of the market. Susan would you looked at anything I, Yes, I would only say at or reiterate that the free cash flow Emory and I mentioned.

The increase there that does our lump in usually backend totally CD improvement in free cash flows that generally get involved in the second half the year latter part of the year.

Very helpful.

And then can you just give us noted on the diversification into the markets like aerospace So in June renewables, and maybe the slowing a bit on how much of the businesses in 2019, and maybe where you expect us to trend in 2020 and beyond.

Sure. So the the best way to look at our business right. Now is if you take the refining we generate approximately 40% to 45% of our revenue in that sector and then when you look at other related oil and gas or chemical businesses. It adds up.

To about 75% to 80%.

Which leaves 20% to 25% of our revenue coming from what we consider new venture more emerging noncore markets meeting non core to our existing revenue stream.

So that 20% to 25%, we do expected to grow up to about a third of our total revenue, but that would take us over the next two to three years, so im not going to go into detail of each specific sector.

Aerospace obviously is extremely exciting for us.

We've been in this space for a lot of years.

We will be investing some capital expansion into the aerospace business.

And we we feel that both in the us as well as in Europe. We've got expansion opportunities. There. We've made significant investments over the last few years in in other sectors that are able to allow us to play in renewables.

Some of the midstream space, although it is oil and gas related it's a lot more integrated project management expansion into offshore being led by quest and the opportunities that that brings us to to cross sell so we're going to overtime.

Bring more color to the growth of our let's say emerging markets, but right now that we're targeting about a third of our revenue from that space over the next two to three years.

Thank you.

And your next question comes from the line of Edward Marshall with Sidoti and company.

Hi, Marino Susan good morning.

Hope your hope you're well.

Probably means a lot more today than it did a few weeks ago, but.

But.

As I look at the fourth quarter calls from a lot of the refineries lot of your customers. They pointed to higher maintenance spend for 2020 and kind of makes sense inputs versus output spreads narrowed in.

Refined in inventory levels are pretty high so as you kind of step back and I think about.

No if that if that spending is higher in 2020 than was in 2019, how does that affect the on stream services of mechanical services and what does that due to that business versus what might the positives that might help with ice age too.

Good morning, Ed Thanks for joining this morning.

So right now we were re we're re looking obviously at the 2020 budget considering the the current.

Mostly let's say oil price impacts and what it does the capital and the best way to look at this at least for from our view at this point is the following you've got.

Two or three tiers or not tiers, but groupings of clients you've got the integrated clients that have upstream downstream midstream that.

As you are seeing Theres, a lot of capital reductions on Opex reductions happening hourly right now and that grouping of clients that is that also has refining is going to take some time to evaluate their capital projects and how they're going to spend their opex. So I do expect that in that.

Group it won't be a necessarily a slowdown, but I think that we're going to have a period of time here for the next 30 to 45 days for things to settle in terms of their capex and Opex budgets. So thats. One grouping then you have the other grouping of clients that aren't fully integrated that more let's say more on the refining space that are going to try to.

Obviously increase utilization is right now maximize their differentials and cracks using you know the drop in in the input costs. So I think that when I look at the the latter Onstream services similar to last year, while they want to maintain high utilizations.

And try to maximize margins is good for Onstream.

It's also good for some of our quest offerings that are used like fired heaters, which is one of the largest downtimes in a refinery we've got a fully integrated offerings. So that's how we're looking at it is that onstream in H.. One is going to you know as things settle we expect that to be strong.

Long and continue on.

I would be right now.

Cautious on project work specific Capex, so we do see age to turnaround stronger than H one.

But we are staying very close to our clients in terms of those capital type delays and it's not only capex related theres a lot of concern right now just bringing in hundreds of people into a site when it comes to health and Corona virus. So I don't want to panic, yet I think we've got to be close to our clients we've got to monitor.

Yes, but I think having the three segments allows us to better handle that cyclicality and I would expect that over the next 30 to 45 days were going to get a lot clear picture in terms of the types of clients and if they're going to be focused more on opex and run and maintain versus Capex and project work.

Got it got it.

And then the view.

If you look at quest Theres been some good incremental margins as they are generally is and I'm curious you've talked about a few emergency solutions that you provided during the quarter and I'm wondering how much of that was what I am identifying in the margin versus maybe the scale on the topline or just overall I know there is no restructuring in that business, but overall.

And then just better execution.

The the biggest push right now for request is they continue to create and.

Gain share in the international and offshore market, So thats really whats driving their overall growth and margin improvement.

The the what comes with that though is that there are some specialty services like robotics for example, where when that hits, obviously, it's a good impact it's a good integrated solution for our clients, but the majority of the growth is coming in those are in those markets and you know wouldnt as I've explained.

A little bit before they are essentially creating new markets in terms of the size of the the lines that their inspecting in terms of the integrated offerings around the refining and process and petrochemical space, but.

The specialty services are good AD so as advanced engineering.

Providing fit for service support to our clients, but the bulk of the growth is in those new sectors.

Got it and I guess, we're looking at quests, you've talked about some new applications, some new processes that you're using or that customers are using with your services for I'm kind of curious how do you.

How do you accelerate the growth in that business I mean, what's your vision ultimately for that for that division and can be as big as a mechanical services nights to over time.

So it's a good question in their growth rate over the last two to three years, obviously is far exceeding the core industries.

And what we're doing now is when you look at how we prioritize our investments around capital recruiting sales efforts.

R&D investment as well is starting to set up service centers globally for their tools instead of being fully centralized it all in one location. So we're setting up a model that would allow them to continue to expand their business development efforts.

We're setting up a model that allows them operational support globally, and we're continuing to to recruit and train our talent to be able to handle the nice thing about quest is when we go to a job.

If you're looking at just as the high end inspection equipment, you're sending to technicians in two tools. So it is a very low investment compared to some of our competitors and that allows us to scale now what's important knows that we do this scaling so.

Safely, obviously, we do with quality, so we're pushing the growth.

And managing the quality, but this this model of continuing to run the business centralized with the central support will allow us to continue to grow quest as we as we move now when you ask where is the top end. Obviously, we continue to see good growth in that market, because they're creating new mark.

Good.

We don't want to be naive I think theres always competition that we've got to be aware of but.

I think the clients are giving us extremely good feedback they like the investments we're making in R&D, we were collaborating with a lot of our clients were increasing our engineering.

Support and resources. So we're we're prioritizing the investments to to keep quest growing as quickly as possible.

Great Great. Thank you very much for your comments today non PC.

Thank you.

Your next question comes from the line of Adam tall, Heimer with Thompson Davis.

Hey, good morning, guys.

Good morning out of.

Yes. So for Q1, you said EBITDA as kind of inline with last year.

So so at this point, yes, we would project that we're going to be similar to.

Last year at this time with some slight improvement, but again with the changing.

Environment right now, we're continuing to us on what's occurring here in March.

Okay, and then as it relates to current of ours, you haven't seen any facilities.

Shut down you said you just maybe a seamless project work.

Yes, Thats at this point to Adam if I, if I look at it overall.

What what is happening obviously as everybody is seeing the demand side coming down we have had some projects delayed.

Where it would be bringing in a significant number of people into a project like a turnaround or capital project. So due to the social destiny distancing and rules around trying to keep things minimized for the time being we have seen some things push.

We've also seen some call out reductions not necessarily due to the krona virus only but as our clients are looking at how they're going to manage their opex and capex and so I expect that like I said earlier to last 30 to 45 days. So we can get a better read on where thats going but yes nothing has.

Physically shut down completely.

There is some operations that have moved to shift work where to limit exposure of just being around significant number of people, they're going to shift work. We've had some of the run and maintain projects reduce hours per employee again to reduce some of the exposure, but I guess directly to.

To answer your question no shutdown so far.

And obviously, we're staying very very close with our clients to manage.

The situation.

Okay, Perfect and then I think you said in this.

Up this year quest up this year.

Flat is that revenue or EBITDA.

So the comments are on revenue.

I didn't clarify on H.T. in terms of flat that's the one that we see we're going to need at least another month or so with the changes in the environment to to get a better handle on the H.T. full year. So right now I think as you've stated yes revs.

When you up for the two I HP projecting to be flat.

But we do see a stronger second half turnaround season, which which could push things, but we need a little bit more time here to see how the exactly what you. Your first question how that plays out Fry HP, where a lot more nested in embedded within the client plants.

Okay, but as you acquired revenue nights to you might have some either digress just with the cost saves is that fair.

In terms of margin expansion, yes, I think that if we're in a flat overall right now.

I said earlier, we were driving and anticipating an expansion on EBITDA year over year.

I think that.

Mechanical services when you look at last year, we expect the topline growth hold.

Gross margins somewhat in line and really trying to gain market there.

Question.

Topline growth and at through the investments there might be a small drop in in EBITDA percentage, but the growth is our focus on IDH TV.

I would plan for flattish revenue and right now.

Slightly off on EBITDA due to the cost improvements that we would be implementing throughout the year.

Okay. That's perfect. Thank you very much good luck.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

You have a question from Stefanos crashed with CJS Securities.

Good morning embryos Susan.

Good morning.

So you mentioned competitive pressures in the Gulf coast affecting how you.

I have those been in your expectations with pricing discipline as there is there something different there.

Yes.

Weve I guess the last couple of quarters I've highlighted the fact that we are.

Focused on gross margin improvement and.

Pricing discipline and price project selection, let's say.

So it is a continuation of that and it's primarily been west coast in golf divisions.

The only thing I would add Stefano said, I I would be concerned with where I am concerned within the next quarter or too is depending how the market plays out some of the smaller regional players that are going I need to try and.

Continue to generate profit et cetera.

We're going to have to monitor the pricing and gross margins very closely because I think it's.

So if the market wasn't going through the volatility that we're seeing right now I would give you. The same answers I did the last two quarters due to the volatility in the market and depending especially like an IDH t. and some of the more commoditized product lines.

I would need to monitor that a little bit closer over the next 30 to 60 days.

Got it that makes sense all right. Thank you guys.

Thank you. Thank you.

I'm showing no further questions at this time I would like to hand, the call back over to downplay sale for closing remarks.

Actually Deborah all I'll close this is Dan Marino.

So thank you everyone and looking ahead, we will continue to leverage innovation and technology applied pricing discipline and execute on the one team strategy focused on our revenue enhancement pillar. Thank you for joining us on this call and for your continued interest in team. We look forward to speaking with you again next quarter.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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