Q4 2019 Earnings Call
Okay.
Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen police down the line.
[music].
Thanks for joining the mistrust conference call for fourth quarter at year end to 2000 marching My name is covenant I'll be your bit manager today.
We'll be accepting courses after managements prepared remarks, we're just breaking the call for Mistral should be Dennis Bertolotti, The company's President Chief Executive Officer at present, or Executive Vice President Chief Financial Officer, Treasurer, and John Walk Senior Executive Vice President Chief operating Officer.
I want to remind everyone that remarks made during this conference call will include forward looking statements.
The company's 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 the FCC.
The discussion on this conference call will also include certain financial measures that were not prepared in accordance with U.S. GAAP reconciliation of non U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measure can be found at the tables contained in yesterday's press release and the companies.
Related current report on form 8-K, those reports are available that's a company's website in the Investor section and all the Fccs website.
Now I'll turn the cops over to Dennis Bertolotti.
Thank you, Kevin and good morning, everyone.
Before beginning let me first provide some comments on a current state of the market.
The actions mistresses taken on are these extremely challenging conditions.
First please note that we're hosting this investor conference call from remote locations in compliance with the Jerdee, New Jersey orders to shelter in place.
Because the speakers today are all in different locations.
You may hear delays and other irregularities on the call not only are we coordinating this call remotely we are continuing to run our business remotely as well.
We have taken many steps in working with our customers, including setting up a dedicated virus response teams have been gathering as much information as possible to understand reacted a cold with 19 virus and evolving market conditions.
We have been issuing health and safety precautions as well as travel advisory and tracking information to our workforce.
In order to inform them about pandemic prevention and planning measures.
That's real Superbikes essential services, keeping our customers facility safe reliable and efficient.
So we're always on customer sites and we are now providing them with advanced notice of the practices we have implemented.
To manage our workforce within as part of their harvest response plan.
As you are where many cities in states, including a primary facilities in New Jersey, California, and Texas have already and I could various forms of shelter in place or stay at home orders, including definitions of essential businesses that are allowed to continue operating.
Well falling rules on social is does it seem and minimizing the number employees in one location.
Most U.S. customers are using the guidelines set up by the U.S. government under see some provisions which to find what business entities are essential under 16 different categories.
At this point, we're considered essential for the majority of our customers in every state we operate it and this is very fortunate to have such a position.
Many customers are going to the extra step of writing letters, stating why they are exempt from the applicable state and local laws.
And lighting any authority reading there document know that Mr. <unk> operating an essential business part are supporting their operation.
The same is true for Canada, and a European countries, which we operate in.
Allowing us to have a significant portion of our business continue to do the work.
Oh, the schering safety and reliability for our customers.
We are daily tracking our temporary reductions that customers report to our managers and updating our expected revenue versus our internal budgets established for 2020.
Due to the amount of revenue reduction and deferrals, we are experiencing we're making plans for cost reductions in all facets of our business.
This includes looking at temporary adjustments to capital spend.
Reduction of unnecessary spend and travel.
And some forms of R&D balancing hours with India affected facilities experience in revenue volumes reduced resident revenue volumes limiting of new hires essential to only.
Two essential only and including reduction of salary expense for all Brad possessions.
Our goal is to minimize head count reduction, but some reduction maybe necessary I.
As this crisis unfolds in the coming weeks and probably month. The management team will continue to review resources versus expected revenue with the goal of trying to maintain a healthy balance at all time between the two.
Hi, taking these actions, we anticipate being able to stay compliant with our newly established bank leverage targets for the year.
And expect to have a positive cash flow for the full year 2020 as well.
This crisis can quickly alter our customers resource planning and as a valued partner they are relying on us to quickly just to their staffing needs, both up and down as efficiently as possible.
That's Russ has long been recognized by the industry for operating excellence. Our management team has extensive utilization tools, which can insulate tell us our labor utilization per facility.
We have multiple staffing personnel signed a different parts of our system that offer assistance in placing human resources as well as moving needed equipment across our network.
We also conduct weekly calls I look for opportunities to move labor from areas of slack too high demand.
We have long been in the forefront of showing customers how to save money with our proprietary tools technology.
And our wide array of offerings and this crisis of health and finance only makes our offerings stronger and more differentiated from that are more competition.
While we would typically use is called to provide an outlook for the upcoming here given the rapid pace of change as well as the expectation that there are further changes on the horizon.
It is extremely difficult to forecast with a high degree of confidence at this time.
Until we have a higher degree of certainty.
When we talk to you about Q1 2020 results in May we aren't able to provide a full year outlook.
Mistress has a long history of showing the resilience of the flexibility responding to rapidly changing market conditions.
During the last downturn in the energy industry, we were able to quickly just to new market dynamics and maintain fairly stable performance.
Today, we have even better tools at our disposal to evaluate labor utilization rates.
And better systems to quickly moved resources, both manpower and equipment from location to location.
Consequently.
We are highly confident that we will continue to build value for our shareholders. During these trying times that over the long term. This will serve to further increase the value of our franchise.
No allow me to update you on a year just completed.
2019 was a year of solid progress as we continue to implement our strategy to leverage our extensive resources to capitalize on a large and growing market to accelerate growth and improved returns.
We reported record revenues significantly expanded margins nearly doubled free cash flow.
Improved operating leverage I made great headway strengthening and diversifying our operations.
All of these achievements follow discussions we've had with you which chart a path to long term success.
First for the second consecutive year, we generated record revenues and this was achieved despite winding down two significant contract any during a severe fourth quarter shock to our large send markets.
Most of that lost revenue was replaced through acquisitions.
We're now focused on generating organic revenue growth in markets, where we know we have distinct competitive advantages.
Second we had another year of significant gross margin expansion over the past two years gross margins have improved by 220 basis points. In particular this expansion reflects the progress being made throughout our business as all three segments improved their gross margin.
Each year over the past two years.
Our gross profit margins are great success story.
Presenting a focus of management.
Well, we're achieving our objectives through both concentration on higher margin business opportunities and productivity improvements that better utilize our resources.
We believe we believe the opportunity exists to further expand margins.
Which will remain one of our most important priorities.
Third we generated an almost 80% increase in free cash flow year over year.
Free cash flow provides a clear view of the earnings power of our business model.
And produces resources to fuel our growth initiative.
Fourth we achieved increased operating leverage with operating margins up 20 basis points. This year. Despite an approximate 4 million dollar increase in depreciation and amortization expense year over year.
Beyond our short term recalibration related to call. Good 19, we also have longer term ongoing programs for 2020 to seek out and implement efficiency improvement.
Will help further improved operating leverage which should result in an even better bottom line and enhance returns for shareholders in the future once we get passes media crisis.
Finally, we achieved significant progress in strengthening and diversifying operations.
We also announced just recently Dr. Anthony tether join mistrust as an advanced technical solutions consultant, where he will use his experience as the former director of the defense Advanced Research projects agency known as DARPA. The help expand our presence in both the technology and digital data markets.
All of these focuses are advancing our strategy to meet the markets demand for faster better and more comprehensive solutions as was actionable insights.
Although these are very uncertain times, we're confident in our long term strategy.
Finally, let me speak to you about our digital solutions program.
This is a companywide initiative involving all of our lines of business and the industries we serve.
Customers have been telling us they are they're hungry for better faster data as well as insights that can help them make better informed asset protection decisions.
The industrial Internet of things is rapidly expanding collecting real time information from sensors and other sources to provide a more comprehensive overview of an assets condition. The challenge is to interpret the data so that users can deploy their resources for the best possible outcome.
Mr. US digital is an emerging proprietary technology that allows us to integrate our vast data capabilities to solve these problems. We're quickly combining our key CMS, new century, and Onstream technologies to develop advance offerings that move us closer to a highly reliable predictive capability.
When we last spoke there was a note of caution to our long to our near term outlook as we wrapped up 29 King. Consequently, we are pleased that we achieve close to the top end of our revenue guidance.
Exceeded the midpoint of our adjusted EBITDA guidance.
And exceeded our free cash flow guidance.
Despite the uncertainty overhanging the market when we issued this guidance.
We value our credibility and relationships with the investment community. So we're working hard to improved transparency and increased disclosures.
Let me talk let me now I'll turn the call over to add for a detailed review on the financials.
Thank you Dennis.
We ended the full year 2019 with solid operating performance despite the market headwinds Denis mentioned.
For the year, we grew consolidated revenue modestly to 748.6 million.
742.4 million as acquisitions added, 3.7% offset by an approximate 3% decline attributable to to discontinue contracts and an additional 1.5% adverse foreign exchange impact.
More importantly, a favorable sales mix improved gross profit Q2 hundred 17.3 million up from 207.9 million last year, an increase of 9.4 million.
With our gross profit margin correspondingly, increasing 100 basis points to 29%.
For the second consecutive year gross profit margins also improved in all three of our segments.
We had another prudent year in maintaining overall cost control with their very modest 1.8% increase in SGN expenses for the year.
Note that incremental S. unique from acquisition alone added approximately 8 million divest you know year over year.
We also had substantial increases in our sales and marketing investment as well as cost incurred in developing and launching mistrust digital.
Additionally, we received 1.5 million joined the fourth quarter of 20, Nike for customer charges.
Absent these items, our core SGN expenses decline year over year by nearly 3%.
Income from operations for the year was up 9% to 24.1 billion.
As operating margins expanded by 20 basis points.
This was achieved despite depreciation and amortization, increasing by approximately 4 million year over year.
Net income was 6.1 billion for 2019, compared with 6.8 million a year ago.
For the year adjusted EBITDA was 73.5 million a nominal increase over last year.
As I previously mentioned.
1.5 billion of customer charges incurred in the fourth quarter of 2019, but Dinesh DNA have not been added back to the year to date adjusted EBIT.
Cash from operating activities was 59.1 million for the year compared with 41.7 million last year, an increase of 17.4 million were 42%.
Given our modest capex requirements, staying well within 25 million per year, our free cash flow was 36.2 million compared with 20.5 million last year, an increase of 15.7 million were 76%.
Strong cash flow. This year has benefited in part from our continually commitment to improving working capital management.
We essentially use nearly all of our free cash flow generated during 2019 to pay down 35.6 million of outstanding debt.
And this was in addition to cash of 4.7 million paid for the new century software acquisition.
As Dennis mentioned earlier, our cash generation capabilities are robust and our priority is to continue to use the majority of our free cash flow to pay down debt.
We're not contemplating to consummation of any material acquisitions in fiscal 2020.
Let me quickly review some of the highlights of the fourth quarter.
Consolidated revenues were down 1% from the prior year.
The overall organic revenue decline of 2.6%. In addition to a seven 0.7% decline due to unfavorable FX offset by acquisition growth of 2.3%.
After adjusting however for the staff leasing runoff fourth quarter revenues would have decreased by approximately 1.5%.
Consolidated gross profit gross margins were down for the quarter, both of which were primarily attributed to lower sales and an unfavorable sales mix in the current year period.
Over the course of the year, we had mentioned that improving productivity and efficiency was a priority you can see the results of those efforts within SSG in a down 1 million from a year ago to just 42.6 million in the fourth quarter and recall that fourth quarter includes a customer charge of 1.5 million.
<unk> net income was a little under 1 million for the fourth quarter of 2019, compared with a net loss of just over 1 million in the prior year period.
Adjusted EBITDA was 14.5 million for the fourth quarter of 2019, compared with 16.1 billion. The same quarter last year note again that the 1.5 million customer charge in the fourth quarter of 2019 within X gene AEG is not being added back to the adjusted EBITDA.
As Dennis mentioned earlier mistrust is a strong cash generator. We stated last quarter that we had anticipated. They continued strengthening of our cash flow generation coming into the back half the 20, Nike and we achieved that with fourth quarter cash from operations of 18.6 million and free cash flow a 13.7 million.
Strong cash flow. This year has benefited in part from our continuing commitment to improving working capital management.
The company's net debt defined as total debt less cash cash equivalents was 239.7 million at December 31, 2019, compared to 265.1 million at December 31 2018.
Gross debt decreased by 35.9 million during fiscal 2019.
From 290.6 million at beginning of the year down to 254.7 million at the end of this year.
We continue to use our strong cash flow and effective working capital management to reduce outstanding borrowings.
As defined in our credit agreement our leverage ratio was approximately 3.6 times as of December 31, 20, Nike is whats compliant with our credit agreement as of yearend.
We requested our bank group and they granted US effective March nine a deferral in the timing of the original leverage stepdown such that our allowable leverage will now stake at a 4.0 until June 30 of 2020, reducing to 375 at September 32020, and eventually reducing to 3.5 at December.
2020 and periods thereafter.
Given our cash flow.
Annual interest expense and net yet we believe our balance sheet is strong and will support the funding of our growth objectives.
As Dennis mentioned earlier, we anticipate being able to say compliant with our newly established bank leverage targets for the year and we expect to have positive cash flow for the full year 2020 as well.
As we stated last quarter, we sold a weakening in the oil and gas market coming into the fourth quarter, which we felt would continue into the first quarter of 2020 as well additional macro concerns had surface since most prominently the impact of cobot 19, while crude oil prices remain under price pressure given the uncertainty at this time.
As Dennis mentioned, we will not be providing full year guidance.
Our results have exhibited seasonal fluctuations with the first quarter of the year typically the lowest level attributable to reduce energy industry activity and we anticipate fiscal 2020 to follow this historical pattern. In addition, current factors such as low crude prices and Kogan 19, or further impacting Q1 2020.
Accordingly, we expect revenue for the first quarter of 2020 to be down sequentially from the fourth quarter of 2019 as well as when the first quarter of last year by approximately mid teens percentage. Despite the lower anticipated revenues, we expect positive adjusted EBITDA in the first quarter of 2020.
We are confident in our sustainable business model and we remain firmly committed to diversifying our end markets of the long term while at the same time, serving our current markets with an evolving differentiated offerings, while also de leveraging our balance sheet with our strong free cash flow.
And with that ill now turn the call back over to Dennis.
Thank you Ed.
We fully understand this crisis will cause stress throughout most of our daily lives and negatively affect most businesses by planning to make it passed a crisis. We are excited about mistresses future.
Industry is under intense pressure to optimize efficiency of their assets.
And do continue to comply with increasingly complex governmental safety environmental and other regulations.
This is creating growing demand for our services.
From that fundamental view, we're strategically expanding into complementary growth markets, where we can leverage our broad capabilities and extensive experience we create.
Well, we create a competitive advantage.
We have already taken bold steps to capitalize on the opportunities. This creates by expanding midstream strengthening aerospace presence and investing in our digital initiatives.
At the same time, we've taken decisive actions to improve returns, having shed underperforming business unit, establishing pricing discipline improved productivity and reduce costs.
Cobot 19 virus has become a major threat to global growth.
And currently our customers are taking steps to reduce exposure tutor sites.
And there are in place many times this means essential employees and contractors only and so far customers are usually counting our crews as part of that essential headcount.
Normally our crew size is being reduced due to the specific work projects, but this has varied from small to larger percentages of the crew, which were looking to move effective in place to other sites.
As our original forecast for the spring of 2020 was scheduled to be one of our business in years.
Unfortunately, this seems to be the new normal and we're keeping a village and watch on not just the virus.
But on our end markets and any impact to may have that could affect our operations.
The impact to Q1 2020 revenue is expected to be in the mid teens and will affect the remainder of the year, although customers may make up some of this deferred work once the crisis subsides.
Our first concern of course is for the safety of our employees as well those of our customers and we are implementing actions as prescribed by government health officials to provide them with the highest degree of information and protection.
The nature of our market is changing global enterprises are asking for more comprehensive and better services.
They are quickly evolving away from traditional asset condition reporting to more predictive intelligence that can help them make better decisions how to best deploy their maintenance and repair budgets.
And we believe we're at the forefront of this evolution, but our creation of mistrust digital to hobbled revolutionary innovation.
There is a testament to the hard work dedication of the many loyal mistress employees.
We have been able to.
Two accomplished so much so fast the time.
I sincerely appreciate the loyal support of mistress employees.
In the face of this extreme market volatility health concerns and highly cyclical end market.
I started this very business many years ago, and no distrusted going into new and on low unknown locations.
And operating under the pressure of staying safe and giving customers. The critical information they need in order to operate their facilities.
Now with the additional stress of market in health concerns.
We are supporting their efforts to find ways to continually staying focused on their health as well as that of their peers.
And on the enormous benefits they provide to our customers.
I am supremely confident that mistress remains not just the best choice for customers.
But also for our employees and their careers given are ongoing investment and not just our business.
But more importantly, and our people and their futures.
Carrying conexus alive, and well administrators and I look forward to our collective success and 2020 and beyond.
At the same time.
I also want to recognize the patients of our long term shareholders, who continues support us through this ongoing journey.
We will now take your questions Kevin Please open up the phone line.
Ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your Touchtone Telecom. If your question. It's been answered you wish them with yourself from the Q. Please press the balance sheet.
My first question comes from Edward Marshall with Sidoti and company.
Hey, good morning, Dennis Ed John.
I Oh, all the best too.
Families and your employees during what's considered to be an interesting time.
Just want to I wanted to start I think you just address this dennis but looking at kind of some of the pent up demand that was.
Related to some of the deferrals, Brian will 2020 in 2019.
I anticipated that that would hit in the first half of the year as you're having conversations with your customers now seeing crack spreads go negative I'm wondering if those projects are just simply being deferred or they are actually being canceled out of 2020 in any kind of.
Color you can provide.
Discussions, you're having with customers. Thanks, sure I'll I'll handle that question.
So.
It's a combination we've had some locations that are pushing it off by two to four to six weeks typically two to four weeks that are saying that they want to delay.
We've had a few that a push it off completely out of Q2 and moved it into Q3 I don't know any that have cancelled it.
Until further notice.
But typically what they're doing is they are reducing the hours because I think what's going on with this oversupply of market. That's out there and this lack of demand. If you go on the Street. Your you only car out there I.
I think refiners are in a rush to get back online. So we've seen a lot of refineries that have kept up their schedule to do the maintenance they reduce the amount of hours.
They limited the amount of people coming from outside of their their region because of the hotel.
The lack of hotel space and everything else, so they're trying to keep it to more local folks reducing the amount of hours and typically taken the outage itself. The ones that are keeping the outages going from say two or three week outage to four or five or maybe even a six week outage just because of trying to work it at a slower pace, making sure that the crews that they.
We have our virus free.
Another indication of places like in where there's camps up in offshore or in remote areas, where people have these close quarters in camps, you will see customers extending the weeks sometimes they go 10 days on 10 days off or 21, and 21, we're now going to four or 5678 week.
Don extended period off to make sure people can can quarantine themselves, while they are off and bringing back on longer periods. So what they're trying to do is make sure that once they have a isolated.
By risk free workforce that they maintain and as long as possible. So I guess the answer to your question is it's a little bit of everything but customers are trying to slow down the amount of bodies that go to their sites because that will reduce the amount of.
Virus and protection, but at the same time, it's not uncommon for customers would be doing.
Question here is about where they traveled problem in the last so many days to be doing respiratory through us that's a scope or even a thermal scan to check for temperatures things like that are not uncommon for <unk> customers right now as part of their plan as well and that's why we're doing tracking of our employees. So that we can tell them, where they've been personal and business.
Twice.
Got it and I guess it is might be an unusual question, but with crack spreads being where they are I'm wondering.
Have you seen any.
Pull forward of work maybe that would have been originally scheduled for the second half of the year that might be being pulled into the first quarter. An up you know maybe the scope is changing or small projects as opposed to the big turn around just kind of curious.
Yes, I'll take I'll take that one as well.
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I would say, we haven't seen anything pull forward, but what I'm what I'm seeing is in fact, even within the last there to I've got some of my.
Senior Vice President talking to me about some customers are trying to bring people back on what happened as they should really limited what was essential and not are starting to bring people back on a having seen.
While it could make sense to say if something was going on in fourth quarter can we can we bring it into a scope I just don't know with the lack of people and everyone going remotely and lack of people and sites I didn't know if they could pull that kind of planning off.
In such a short period of time, but I think what they're trying to do is I think from what we're seeing now there's some places say in Western Canada in places like that were to real price has gone down so far that it just may be prohibitive to try to do too much right now and there are trying to watched or total capital, that's where you're going to see more of the delayed scorn further out right now but for the most part I haven't seen.
Anyone pointed and but like I say there. It seems like there were trying to do their best to hold it within the quarter if they can.
Got it.
This might be the first calling and while that I haven't heard you guys talk about.
Your alternative initiatives, meaning aerospace and midstream penetration.
Any updates or comments that you can kind of elaborate on for those two markets and your penetration there.
Yeah. This is sure John I'll I'll I'll take the first part of that and I'm sure Dennis might want to to pickup on it.
From an aerospace perspective.
That part of the business is holding up really well.
Virtually all of our customers are considered essential and therefore, it they've given us exemption letters to which enables us to continue working on their behalf because were by proxy essential as well.
So the aerospace business is holding up very nicely.
In particular, we're working with.
At least one or two.
Important customers to expand scope and to be even more useful to them. So we feel very good about aerospace in the United States.
In France. Unfortunately.
That country is under virtually an entire lock down for the month of April.
Anticipate that and really made that will will come up for air again, So we are seeing.
Virtual stoppage of our aerospace activities.
Mutual agreement with our largest customers there, even though our our business development efforts are ongoing and they're still very promising.
On on the midstream side.
You know onstream.
Isn't the process of having a good first quarter.
Our other mysteries efforts, we're going at pace.
But the spring as you know little bit hard to peg right now.
Got it.
Thanks for the color guys I appreciate it.
Thank you Ed.
Our next question comes from Andrew Obin with dealer.
Good morning. This is David Ridley Lane on Crum for a Andrew.
You know within the yes, you know what portion of your costs are variable versus more fixed in nature and got because here you are taking several near term cost actions.
Maybe sort of any way to give us an idea the the scope and size of goes.
Hi, this is that.
David I'll take that one.
On the piano, we certainly breakout the depreciation amortization from best DNA that DNA is obviously fixed.
Much of our best due date is variable what we're going through now is an exercise of as we said on the call recalibrating the footprint into the revenue at hand, and the volume. So we will take you know the measures as necessary to continue to scale.
You know the workforce and <unk> and <unk> and Capex spend as well, we'll make sure that all cost all overheads future in current.
Scaled to the revenue level.
As far as you know is is fairly variable.
Yeah, we will manage that too there to the revenues cycles as they.
You don't play out over 2020, so we're studying that very hard right now, but we do believe there's a there's a good levels of control we had.
To manage that number and we'll keep it again constantly kind of balanced and recalibrated with the with the revenue level to minimize that breakage to the bottom line to the operating profit line.
And just as a follow up on the on the aerospace commentary.
How much of your work is kind of tied to the original equipment versus aftermarket services, which might be impacted by suite ground games and so forth.
You know today.
The Earth. The 736 737, Max program has impacted us I'd say more in France, then then to the United States.
But I wouldn't call the impact to be very large because we've got a pretty diversified aerospace business across many platforms.
So the Max has had an impact.
I think earlier in the year, we were estimating that impact of as much as.
A billion or to maybe a couple of million dollars of adverse impact. If it continued for very long into the year I think I saw news bolt and the other day that.
That production may resume in may and that would bode well for.
A slightly lesser impact upon our business.
But we have other error aerospace initiatives that could offset that.
Reduction so overall not a big impact.
Understood. Thank you.
Our next question comes from Sean do you spend with Keybanc.
Hi, Jim Thanks for taking my questions.
Hello, just high level high level for me to start.
The color on.
In the prepared remarks on how you guys are managing through the uncertainty is certainly very helpful and I don't I don't want to thank you into a box that.
Just some more color on what you guys are expecting as sort of a base case recovery in terms of timing you know maybe you know what you expect to come back quickly what make what might take more time and then.
What point in the year well you have some good visibility into the into the fall.
Anything even just qualitatively around settings sort of a baseline would be very helpful.
Okay, Sean I'll take that as you know we're all watching the same news I've got Cnine on my Little home office, all the time trying to see.
The by Im just trying to watch what's going on.
From what we can see I guess the best I can tell you is it's going to be in the states that don't have the orders in our lease affected but our gas and oil customers.
It are really at the forefront of of those that are taking the changes because of during these turnarounds. They can bring anywhere from hundreds to thousands of new employees I consider sites and their concern is where they've been right. So what they what they're trying to do is minimize it but I think in areas that aren't affected very.
Hard and if they can keep the crews as local as possible and do the testing and that bring in a lot of new people.
I think they're going to try to follow this this 15 day or if it gets extended little but I think they're trying to fall that more or less but we do see signs of those customers coming back sooner.
Like John Hussein in our and our shopping environment aerospace it can be aerospace it could be to fund those areas are going hard and strong so I'm on the shop environments. We see the only slow down there is what John was alluding to in countries like France, and others, where they're just doing a total walk down the curve.
Country for awhile, but once that lockdown comes back up.
They'll come back up so it's hard to say date certain.
I really believe that there's a possibility that customers could take this spring.
I was personally our company we had a very very busy April and then it fell off sharper into May and June for spring I believe that April will definitely be taken off from the top but the hope is that it gets spread out among the three months of the quarter and you'll see may and June to be a little bit more.
Maybe stronger or not as certainly not as weak as as what April look like and they into a prolonged spring so it looks like.
From the energy side from the manufacturing side for aerospace and defense and things like that I think what you're you're probably going to see as a.
Hard push on April numbers, and then probably gets much more moderated into may jump from overseas, but again, that's my guess and by region in certain areas of the country make it harder than others for instance, Texas has gone to a city by city, but not yet it to a statewide if they go statewide which I believe could be fairly soon on a shelter.
Our in place codec crimp some of them operations as well too so.
That's still very fluid.
Okay got it I realize it's an impossible question, but just as much insight from.
You know the frontline services is helpful from our Adams right. So no I appreciate it.
And then maybe just from a financial per physician perspective, you know anything big Chunky uses are sources of cash over the next 12 months.
That may not be totally obvious that we should be conscious of and.
Maybe just a discussion on the flexibility you have around managing cash and debt levels through all this uncertainty would be helpful.
Gotcha.
Sure I had said I'll take that one.
Theres Theres nothing.
Out of the ordinary planned in terms of inflows and outflows for 2020 I'll be did kit keep capex.
Under our.
Guidance for 20, Nike and we'll manage that even further down we're not going to impair our business obviously, but.
We'll pull the Capex down hopefully you know.
A meaningful present this year and we do believe our cash flows are or sound, we're going to continue to malice managed the balance sheet very well.
As I mentioned on the call, we do have a little more room on the on the step down.
Leverage for the covenants, we have going going through the year now down to a three five at the end of year. So now we believe our cash flows are strong we will stay even a positive all year and cash flow positive all year and manage our liquidity. We are going to worked very hard to keep our whip as minimal last weekend entered.
And the you know the cash in putting customers as Dennis as John said, we are essential personnel with our customers and you know they decreased as a partner. So we do believe the cash inflows you know we will continue on the pace that they have historically, so we feel very comfortable there again, we will manage down the capex requirements.
As well throughout the year goes so we feel very comfortable that.
We can manage through and again, we'll take the cost out as necessary to keep the cash inflows and outflows.
Outlets and positive throughout the year. So I'm very confident that that's always been a very good strong suit of mistress, all the time and you know and we will manage that through these down cycles as well. So I'm confident there that will keep our liquidity and keep our cash flow moving along.
Got it helpful. And then lastly from me, we've just reading about how remote monitoring applications around critical infrastructure could be a pretty prevalent theme coming out of all this.
Can you talk about what you're seeing there where you fit then and.
Maybe just long term, whether you see any potential sort of secular positives coming out of all this.
Yeah. This is John I'll take that one Sean.
Hard to predict on secular positives right now when you're in the midst of the fog awards hard to say that once the fog clears up it's going to be sunny but.
Certainly we feel that way in general.
From our company perspective and to your point on the remote monitoring we're very active on that front right now we've got our products team doing quite a lot of development working on beta product with a couple of different important customers in the the wind turbine space.
Remote monitoring solutions that we and they are excited about.
Terms of the potential looking forward.
We think that this is certainly from what our customers are telling us. This is an area theyve keno interest and awareness and it's an opportunity to add a ton of value and to replace manual inspection work that's done occasionally.
Even to augment to replace to an extent drone work that's done today and provide more real time awareness and visibility of the status of those assets and the operating condition. So we think it's very exciting also in oil and gas you know, we've got a calibrate product, which has been gaining steam as well for remote monitoring and and certainly of course.
I'd be silly to to not mentioned bridges, we've had a number of bridges. We've been installing you know for an important state department of transportation last year into this spring we.
We are in the process of we've been awarded several bridges in Europe.
That we're actively working to to serve to install monitoring gear and to perform monitoring services for.
Including one bridge that's that's in the news right now in the UK. So we feel very excited about the remote monitoring space. That's a key part of one of the likes of our future.
Interesting shot out there yet.
Go ahead, let me add let me add this on.
To your point, the new normal might be that customers start looking at this and saying if there's key areas, maybe we should get some remote monitoring on it for for times like now I mean, we're learning to do this remotely and others are trying to do more and more remotely. So I think to your point and again, it's hard to predict that this is a turning point, but people might start looking at this insane.
Is there capabilities, we can do to add to keep monitoring because most refineries are going to want to shut down there and those because the amount of work an effort to shut down.
Vacate the lines come down probably then start back up is too much work so they're running on essential and think times like no. Other run at a lighter low just to keep the place going so tierpoint, who knows maybe people will start looking at the new norm is to try to have critical areas monitored I mean, that's that's a possibility, but as you know it's hard to see what's the key turning point.
People's minds, but it's certainly out there.
Really interesting I really appreciate the time, all the best EMG team take care Jets.
Thank you Sir.
Our next question comes from Tate Sullivan with Maxim Group.
Hi, Thank you good morning.
Thanks for the previous commentary and I'm really focus on right now at least the questions not to Q.
I think you already when you were enough to revise covenants indicated you got out of that day, which gives me an idea first quarter, but I can you remind me give Oscar I mean, your contract terms will be outside of refining I understand now I mean, it will depend on how quickly. They are fine has come back with some maintenance work after April but everything else.
At an average like the current revenue do you have what level of revenue revenue visibility now for the current for Twoq. Please just following up previous questions on that.
I hate that we've got a.
A decent visibility out for one quarter, obviously in normal markets in you know steady state environments, which this obviously is not at the moment so.
It is very fluid and they're changing changes happening where.
You know, we're getting out sooner than we thought leader hopefully staying longer than we thought so there is a lot of movements.
I mean, the turnaround schedule and project work, we generally have you know.
We've only calendar.
Going out it even past the quarter.
But but we we have the obviously we're forecasting as we go.
And.
You know we've got good visibility to Q2 right now, but again it is very fluid and there is it's going to that's why we held off on full year guidance. We're hoping by right may will have a much better view for the year.
Yes, Ted it's John I'll try to add to that I agree with everything I just said.
You know for Q2, I think the of the toughest area for US is going to be Europe, just because you know the degree to which France and now the UK have.
Issued a work stoppages and restrictions and so forth sheltering a place those those are somewhat different from how the United States has issued the same sorts of restrictions. So for instance, as I mentioned earlier in my commentary on France. In particular, we're going to have a big shortfall versus certainly what we would have done in any previous expected piece.
Good.
But the United States, it's right I mean, and Dennis is commentary too.
Certainly agree that you've got project, some which have moved so much of extended but have slowed down which we have some that are going on as planned roughly as planned right now too. So it really runs the gamut and it's just so fluid as much as we want to guide right now and to really try to answer your question, specifically, it's really hard to do.
Got it because day to day the inputs keep changing.
Okay. Thank you.
No absolutely understand given the current situation it.
Separately at two on the Capex and following up previous comments I mean, how quickly.
Can you can you cut off that valve right away or you have some commitments for capex for the rest of the year just a peak a little more commentary on that how quickly you can ramp but.
Oh, Yes, we will interbody have like as an example, we had.
A large number of new fleet vehicles planned.
For the rest of the year to take delivery, we've already postpone that and cancel where wherever we could.
You know beat needs run and maintain capital in our facilities will keep activity to not there the business, but but no. We're not there is no. There's no long term build outs or commitments that we can scale that capital.
Two.
To the scope of the business. So we could we could easily take that down 10% very easily if not closer to 2025% we could reduce capex for the full year that we will we are already looking into that and we're not committed there. So we can scale that.
As needed throughout 2020.
Great Okay.
Okay season, if it's Dennis if I could just to add little bit more as some of the flavor of why we're saying it's complex I won't give one where exactly but one of our European operations hit in a smaller country out there had a large turnaround plan.
The turnaround was almost canceled because they have different crews coming in from different countries and because of the European border controls and all that they almost had to cancel the turnaround just because they were finding not art our skill set but other skill sets were coming from outside countries and for a while there was there was concern that theyre going to cancel and then they found another lender that can handle those operate.
Since within the country itself.
So thats why its you know I mean that customers are trying to do this but this this whole spacing and protection really does make a change where.
Truthfully the amount of bodies that we had off last week versus this week is changed just lot more dramatically do you think so it's.
It's hard to get an idea of exactly when but we do see this is as customers are trying to fight to to maintain as much in the spring as they can.
Great. Thanks, Thank you Dennis.
You got it.
And I'm not showing any further questions at this time.
Okay, I would like to thank everyone for listen todays call I wish the bus to everyone. During this emergency.
I hope for a safe and productive day week and a return to normal activities for everyone in near future. We appreciate your interest and mistrust.
We look forward to updating you on our next scheduled call. Thank you folks.
Well, ladies and gentlemen, so's conclude todays presentation. You may now disconnect have a wonderful day.