Q2 2020 Team Inc Earnings Call
[music].
Thank you for standing by welcome to the second quarter 2020 team incorporated earnings Conference call.
His time, all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this time, you'll need to press star one on your telephone.
Please be advised that today's conference is being recorded.
I would now like to have a conference over to your speaker today Mr., Kevin Smith Senior director of Investor or Investor Relations. Please go ahead Sir.
Thank you should want welcome everyone to team 2022nd quarter Conference call with me on todays call already Marino guiding for Chairman and Chief Executive Officer, and our Chief Financial Officer. Susan Ball. This call is also being webcast and can be accessed through our through the audio link under the Investor Relations section of our website.
Team he DACO <unk> information recorded on this call speaks only as of today August 2020. Therefore, please be advised any time sensitive information may no longer be accurate as as a date.
And your replaying, Oh, we're listening or transcript freedom.
There will be a replay of todays call and it will be available via webcast by going to the company's website <unk> Dot Com. In addition, a telephonic replay will be available until August 12 information on how to accept this.
Replay feature.
<unk> was provided in Yesterdays earnings release before we continue I'd like to remind you that this call contain forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 19.
Including statements of expectations future events or 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 from 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 then it companies other documents their reports filed or furnished with the securities.
Exchange Commission.
He assumes no obligation to publicly update or revise any forward looking statements, except as may be required by law and Marino will begin by providing an update of our business. Susan will then be tell our results and before we take your question Emery highlight or market album, One team program second half expectation I would now like turn turn the call covert.
Thank you Kevin and good morning, everyone. We appreciate you joining us today teams second quarter was extremely challenging as we navigated through the global pandemic and an oversupply the oil market, which resulted in significant stress and volatility for our clients and employees based on our performance.
Teams global workforce was up for the challenge and I'm proud of our people for their execution and perseverance during these dynamic times.
Before we get started I would like to formally introduce Kevin Smith, our new senior director of Investor Relations. Kevin has over 15 years of industry experience in the energy sector, including DNP mid stream in LNG working in Investor Relations and previously as a research analysts.
Susan and I are glad to have Kevin join our team and we are sure you will enjoy working with him.
Despite the unprecedented drop in industry activity. We are pleased with our second quarter results, which reflect the tremendous efforts made by everyone in the company.
Consolidated second quarter revenues were $189 million down 40% from a year ago, but in line with the revenue outlook. We provided on the last earnings call.
Quarter got off to a difficult start as many of our clients implemented stay at home restrictions delayed projects and significantly cut capex plans.
The unprecedented reduction in activity began in mid March Troughed in April and May and slowly started to recover in June when global economies travel and other regulatory restrictions began to relax.
Second quarter gross margins of $57 million were 30.3% exceeded the comparable quarters high watermark and set a record quarterly gross margin since 2015 pre acquisitions.
Adjusted EBITDA for the second quarter was $12.7 million were 6.7% margin.
Despite realizing a 126.5 million dollar decline in year over year revenues, our second quarter cost savings of $35 million supported our strong 16% adjusted EBITDA decremental performance.
The second quarter cost savings exceeded our previously committed target of $20 million to $25 million.
Team generated over $22 million of free cash flow in the second quarter, which given the economic backdrop is a noteworthy achievements.
We paid down more than $26 million of debt in the quarter, achieving the lowest debt levels. Since 2016, we remain committed to paying down debt with any free cash flow generation.
The second quarter performance was driven by a few key factors first our aggressive and decisive cost actions aligning with the significant decline in activity.
Second the permanent structure changes that were implemented make team a much leaner market responsive and more profitable organization and finally, the success to date of our run rate revenue diversification initiative, which is expanding our addressable markets with differentiated products and services to a variety.
Appliance.
Turning to our segment performance mechanical services second quarter revenues were $92.8 million down 36% from the second quarter of 29 team and adjusted EBITDA was $16.9 million a decline of 35% when compared to the same period last year.
Despite lower quarterly revenues MSR activity improved throughout the quarter. In fact June was the best month of the here for our hot tapping on line intervention businesses.
Onstream services, such as emissions control and leak repair also performed better on a relative basis and were less impacted by the overall market conditions.
One example is that are on stream service line recently completed the world's largest onsite heat cure accomplish it repair of a petrochemical Rick reactor.
In just 14 days teams highly trained technicians were able to repair 17 foot diameter reactor that had over 2200 square feet of repaired area.
Comprehensive repair work extended the life of the facility for another two years.
The client selection of our onstream offering which delayed their capital expenditure expenditure to replace the full unit reflects the current decision, making in many of our core end markets.
As we focus on diversifying into new sectors and mess experienced growth in the areas of new cuellar power municipal and renewables.
Inspection and heat treating revenues in the second quarter were $80.5 million down 42% from the second quarter of 2019, and adjusted EBITDA was $9.5 million, a 32% decrease from the same quarter last year.
Despite lower activity levels across most of our core sectors.
He realized growth in the pharmaceuticals, and neutral or industries.
Additionally, our pipeline integrity solutions business performed well with limited impact from market pressure and the pandemic.
In the second quarter pipeline integrity solutions received long term commitments from three large pipeline operators. We expect this trend to continue and will be further supported by the fins gas major rule that will go into effect later this year.
Our I H.T. segment remains focused on maintaining margin growing revenue through well informed cross selling and delivering specialized and more fully integrated value added solutions to our clients.
Example, HP repair to chemical refinery streamline located 170 feet above ground level that ultimately required multiple capabilities across different product lines. We delivered both our rope access technology and welding services significantly reducing weeks of time that would have been required to complete.
The operation by eliminating scaffolding and cranes teams integrated service offering allowed declined to consolidate service providers and reduced the number of onsite personnel saving time and expense.
Quest integrity second quarter revenues were $16 million down 50% from the same quarter last year, adjusted EBITDA was $1.7 million for the quarter, a decline of 83% when compared to the year ago quarter.
As expected several of quest planned projects for the quarter were pushed to the second half of the year, resulting in a weaker performance question was impacted by the overall slowdown in industry activity and both domestic and international stay at home orders travel restrictions and quarantine requirements.
Quest, However, did make inroads in Latin America, where we have a successful track record.
Wes heater performance optimization has led to additional opportunities and specialty and conventional inspection and mechanical services. As an example quest is currently performing both asset integrity and reliability management programs for a large clients in Mexico.
Given our solid backlog of projects, we expect west financial performance to improve in the second half of the year and into 2021.
From a geographic perspective, there were varying levels of global recovery, Canada, and many of our international businesses were slow to return.
In addition to quest success in Latin America or other segments are also seeing increased activity with large onstream projects in Mexico, Peru and Brazil.
Domestically, we experienced activity increases along our Gulf coast, and north divisions, which collectively cover pads to three and four.
Given the Pandemics geographic impact we have yet to see the west coast improved through the same degree as the rest of the country, but we have been successful and gaining market share in this region.
I'll now turn it over to Susan for a more detailed financial review Susan Thank you, Dan Marino and good morning, everyone.
Marino mentioned, our second quarter consolidated revenues of $189 million were down 40% from the second quarter of 2019.
All three segments were down year over year, the largest dollar amount other revenue decline did come from inspection and heat treating mechanical services segments.
On a percentage basis mechanical services posted a 36% revenues declined in the quarter, while inspection and heat treating was down 42% and quest integrity was down 15%.
Stay at home restrictions due to the pandemic caused an extensive disruption to our business across all geographies and industry sectors. During the quarter. The movement of critical personnel and subsequent quarantine restrictions may travel difficult and severely limited climbing engagement and productivity.
These restrictions hit our question segment, especially hard given the nature and locality of its product offering.
The reduction in demand in the energy sector and macroeconomic conditions caused many of our clients to reduced capital spending and delay key projects. However, we did realize a nice rebound in the latter part of the quarter as economic and industry activity increase.
Our consolidated gross margin for this quarter was $57.4 million or 30.3%, which was about the same quarter year ago and marks our highest gross margin percentage achieved since 2015, our adjusted EBITDA for the quarter was $12.7 million. Despite.
Realizing 126.5 million dollar decline in year over year revenues, our adjusted EPA declined by only $20 million from the comparable quarter in 2019 as a result of our global cost actions as a point of reference our second quarter 2019.
One of the strongest quarters in recent history from a revenue standpoint gross margin and adjusted EBITDA.
The second quarter total cost savings associated with our immediate actions for approximately $35 million. These cost savings reduced both our SDMA and operating expenses almost equally.
Cost reduction actions included furloughs for non billable technicians as well as other overhead and corporate positions suspension of four one k. match reduce salary minimized contractor and professional fees headcount reductions and elimination of nonessential costs.
Now moving to SGN <unk>, we continue to see excellent progress in our year over year reduction dashing expense due to our cost management actions, including the expansion and acceleration of certain initiatives under the one team program.
Total SDMA costs for the second quarter, 2020, or $58.9 million. The lowest quarterly estimate then since 2015 pre acquisition. The second quarters as she may expense was down $22.7 million or a 27.8% improvement from the.
Second quarter of 2019.
On a sequential basis SDMA was down $19.6 million, we anticipate paid but total full year 2020, SDMA will be reduced by 10% to 15% when compared to 2019 up approximately 328 million.
This includes both the specific cost reduction actions undertaken in 2020 as discussed as well as other net period over period impacts not specific to these cost actions that had previously been in place.
The second quarter reported net loss was $13.5 million.
Compared to a profit of $6.1 million in the prior year quarter. Adjusted net loss non-GAAP measure was $10.3 million for 33 cents adjusted net loss per diluted share for the second quarter 2020, compared to adjusted net income of $9 million or 37.
Adjusted net income per diluted share the same quarter in 2019.
Significant adjustments in the second quarter included $3.2 million.
Severance expense, primarily related to restructuring charges and approximately $1 million in legal and professional fees.
Consolidated adjusted EBITDA.
That was $12.7 million in the second quarter, which was down from the $32.8 million in the second quarter 2019, but up sequentially from the negative $3.9 million in the first quarter of 2020 now turning to our segment performance and mechanical services segment reported operating.
Quarter, 2020 revenues revenues of $92.8 million down 36% from $144.9 million in the second quarter 2019.
Adjusted EBITDA was $16.9 million.
$10.3 million sequentially, but down from the $25.9 million earned in the same period last year, Despite lower revenues EBITDA margins for the business segment slightly increased to 18.2%.
Versus the 17.9% in the comparable quarter.
Gross margin dollars decreased 35% on a 36% revenue decline.
Section of heat treating segment reported second quarter 2020 revenues of $80.5 million down, 42% when compared to the $138.7 million posted in the same period last year second quarter, adjusted EBITDA was $9.5 million up 5.9 million dollar.
Were sequentially, but down from $13.9 million in the prior year quarter.
EBITDA margins increased this quarter to 11.8% as compared to 10% in the prior year quarter.
Gross margin dollars decreased 28% on a 42% revenue decline.
Quest integrity revenues of $16 million were down 50% from prior year period revenues of $32.3 million second quarter. Adjusted EBITDA was $1.7 million down from 10.3 million in that year ago period, given the large decline in revenue quest ABT eight.
Margin declined to 10.7 per cent compared to 32% in the second quarter of 2019 gross margin dollars decrease for quest.
68% on a 50% revenue decline.
Previously discussed quest performance was more severely impacted by the travel related restrictions and extended quarantine period.
Our effective tax rate on a six month basis was approximately an 8% benefit on the pretax six month boss.
Anticipate on a full year basis that the effective tax rate for 2020 will be approximately 7% to 10% this lower rate than the statutory rate is driven by significant discreet and permanent type items recognized in the year, including impacts associated with the care Zack.
The items not deductible as well as different impacts of domestic versus foreign income and losses.
The company has domestic federal tax net operating losses of approximately $120 million, which are available to offset our future domestic federal taxable income under the cares Act, we were able to carry back certain domestic federal net operating losses to previous years during the quarter, we received $12.1 million of Inc.
Income tax refunds allowable percent to filings associated with the cares that.
In the second quarter team generated $26.3 million of operating cash flow, representing an improvement of over $28.4 million over the same period in 2019.
Capital expenditures in the second quarter of 2020 were $4.2 million, resulting in free cash flow for the quarter of $22.1 million. We continue to maintain a full year capital expenditure forecast of approximately $20 million.
We ended the second quarter of 2020 with $15.6 million of cash and had available borrowing capacity under the credit facility of approximately $53 million with total liquidity approximating $69 million at June 32020.
We paid down $26 million of debt during the quarter and reduced debt by nearly $8 million from the end of 2019, achieving the load that levels since 2016.
As discussed on the last earnings call. We completed the credit facility Amendment and extension in June 2020.
Amended facility matures January 15, 2022 and provides us the additional covenant flexibility to operate through this recovery period.
We believe that our liquidity resources are enough to meet our working capital needs and cash requirements, our financial priorities continue to be to conserve cash generate free cash flow pay down debt and protect our balance sheet. In closing we are pleased with the results we achieved with our disciplined cost actions and we'll continue to manage our cost.
Trucks are down and we'll take further actions as needed if market conditions warrant further adjustments our cost actions can be expanded as needed throughout 2020.
That completes the financial review with that I will turn the call back over to AMRI now. Thank you Susan before we take your questions I'll provide a market outlook reviews, the progress of our one team tune up and our current expectations for the second half for the year.
Teams core end markets remain highly volatile with cobot 19 hot spots throughout the country and internationally.
From a macro perspective, we are seeing positive signs of increased economic activity is parts of the world are steadily resuming operations.
Global oil demand is recovering driven by gasoline and diesel while jet fuel remains depressed however demand of all three refined products collectively remain below 2019 levels.
Given the combination of cuts in oil supply from OPEC, plus and US production declines we expect the oil market to be Undersupplied and the second half of 2020, resulting in a drawdown and of inventories and eventually improvements in industry fundamentals.
Refinery utilization rates are now approximately 80%.
Historically these levels have provided healthy margins for refineries and should lead to increases in both opex and capex spending.
In addition, many of these plants delayed large turnaround work due to high utilization rates in 2018, and 29 team and will now need to undertake more comprehensive turnaround projects over the next 12 to 18 months.
Team benefits in the long term as higher utilization levels lead to additional asset wear and tear due to the corrosive nature of the operating environment.
Our downstream clients continue to schedule off cycle projects that have shorter durations known as pit stops to perform limited scope maintenance by collaborating with our clients on these smaller projects and leveraging our stable and extensive nested footprint, we are able to optimize our gross margins.
During the second half of 2020, we expect our clients will maintain tight capital spending budgets and instead focus on opex projects as a result, our onstream and color of activity should lead the recovery followed by nested operations and later in the year projects some turnarounds.
In order to proactively prepare team for the recovery and the future we're committed to the following.
Leaner cost structure through our one team program.
Concentrated focus on key clients and quality revenue supported by enhancements to our business development and sales model.
Diversification across targeted markets in sectors and sustained investments in technology and digital innovations.
I will now expand on a few of these commitments first starting with one team we announced the expansion and acceleration of the next phase of the program to deliver additional permanent and variable cost reductions that will further optimize the organization.
We estimate the one team tune up and other cost reduction actions will deliver between 50 and $75 million of annualized structural and variable cost savings for the year.
In addition to our leaner cost structure, we are successfully leveraging our technology and digital applications.
Team has a long history of operations over 45 years, and even a longer history. When it comes to technology application and development over 100 years, our investments in technology integrated solutions and digitally enabled operations, especially within the current environment are becoming even more impact.
Turning to support our ability to work remotely and limit the number of people needed on site.
One example of this is our touch point corrosion solution.
Team is applying an engineered line lifting solution that provides pipeline supports to be directly assessed for corrosion. This unique system allows our inspectors to identify pipe corrosion without the use of conventional lifting methods such as creams.
This technology has been proven to increased safety and quality as well as reduce costs.
Our team digital applications have been extremely successful in driving assurance and efficiency through quality digital capture and analytics completing over 75000 project and turnaround inspections since 2018.
Leveraging our knowledge and best practices for team digital we're now beginning to transition to a more comprehensive technology platform.
Team continues to support our clients as they seek differentiated and cost effective solutions for their complex asset management challenges during the second quarter, we partnered with Microsoft to build the foundation for our New field service management system.
This digitized workflow enables team to further enhance our safety service quality and client relationships. We will soon begin pilot opportunities to measure end user adoption, starting with advanced inspection and Onstream mechanical services.
Teams technology and digital applications further enhance our integrated solutions that help our technicians perform our services more efficiently and effectively as well as foster deeper nested relationships are three segments are well positioned to provide integrated asset management solutions and digital applications.
To streamline client operations for example, our digital asset data management program was used for a midstream client to import client asset data for the purpose of corrosion rate monitoring code compliance and asset performance management teams digital workflow processes and data automate.
Jason have become extremely important, especially now as our clients are trying to limit exposure and manage margins.
Clients are reassessing, how they manage their existing assets and leveraging our engineering specialized labs and subject matter expertise around the world. This collaboration further establish establishes our role as a trusted advisor when it comes to their critical assets.
I will now share our current expectations for the second half of the year.
We are cautiously optimistic that the worst is behind us, which should lead to improved macroeconomic conditions for our clients and the restarted their planned projects and turnarounds in late 2020, leading into 2021.
At a company level, we anticipate second half revenues will be between 15 and 25% above the first half of 2020.
As a result of the one team and other cost actions, we expect our full year 2020 gross margin to be in line with 2019.
Strict working capital management capital spending discipline and cost controls should allow us to generate more than $15 million of free cash flow in 2020.
As we entered the second half and look to 2021, we will continue to make disciplined decisions and prudently manage our business based on current economics to ensure costs do not outpaced the recovery.
Certain macro trends remain outside of our control such as cobot 19 impact the oil and gas imbalance and the upcoming election.
In response, we are proactively managing our business to focus on what is in our control.
First teams asset light and scalable operating model, coupled with the depth and breadth of our products and services has made us even more agile, allowing us to flex with business demands second our global workforce management function allows us to centrally coordinate and forecast employee utilization.
Communicate more effectively with our onsite field technicians and provide ongoing logistical support to mobilize and this dynamic environment third our business stability in reliability stem from being client centric with our investments in technology.
Fourth as assets age Onstream services become more critical for our clients to reduce unplanned downtime and comply with environmental regulations and finally as past cycles have proven demand for crude oil and other refined products will rebound and our clients will become more comfortable over.
Time shifting back from Opex to a capex mindset.
In closing, we believe our geographic footprint and product mix offer team a unique market position, particularly in this environment, we remain committed to driving execution excellence and strong financial performance with responsible and profitable revenue growth, while generating significant cash flow.
Finally, I would like to say, how proud I am of the people that team and especially our technicians on the front lines. They have worked tirelessly. During this time to engage and serve our clients leveraged technology and manage our risk and financial resources, operator, I'll now turn it back over to you for quest.
I didn't answer session.
As a reminder, that's a question. Please press star one of your telephone keypad, well Paul for a moment to compile acuity roster.
Your first question comes on line of Adam Paul Highmark.
From Thomas Davis.
Hey, good morning, guys.
Good morning items.
And where you know when I look every thing and that's pretty good outlook for the back half of the year I come up with full year EBITDA.
Right around maybe a little bit better than $50 million is that in line with what you're thinking.
I would say at.
Adam that.
Going through the numbers and plugging. It then that would be a general range of based upon the commentary on the discussion points with estimated reductions and gross margin.
And I think Adam the one variable will be how the recovery on the topline occurs and the balance between permanent and variable cost reductions. So I think from an ESP DNA standpoint, the 10% to 15% drop is in line with.
Our our plans compared to 2018 2019 story.
The the variable the permitted balance will depend on that topline growth and although the ranges, 15% to 25% right now.
But as revenue recovers some of the costs, obviously will be.
Needing to be put back into the system. Unlike some of the non discretionary spend overtime training travel and those type of things more the indirect costs.
Okay. What did you see in July Marina.
In terms of activity.
Yes.
Yes, so what we've seen Adam is that April may Troughed, we did see a nice improvement in June.
And the July August I would say has been we forecast out to be a bit more moderated right. Now. So we were on a good pace of improvement I think this second wave of.
You know some states taking additional additional for cautions like I mentioned, the West coast as an example.
As moderated the the growth improvement. So we are seeing in order improvement in activity in terms of utilization and hours, but.
Not as big of a move as May to June obviously.
So it has moderated slightly but still improved over June.
Okay, and then from a seasonality standpoint in the back half it sounds like.
Q3, EBITDA, obviously up from Q2, and then Q4 another step up from Q3.
Yes, I think again at a top level as as the year goes on and we start freeing up some of the traveling quarantine restrictions. Obviously, we expect quest to have a stronger second half than first as I said in the prepared remarks.
The improvement of.
The market demand as inventory start to draw down we do expect to see a revenue growth going into the second half of the year.
Maintaining some good cost controls in place, yes, I would say that Q3 will be over improved over Q2 in Q4 over Q3, that's a fair assessment in terms of EBITDA.
Okay, great well good job in a tough environment. Thanks. Thank you.
Your next question comes from the line of the sandals, Chris from TJ Securities.
Good morning, Congrats on the corner.
Thank you good morning Stephens.
First on the on the 50 to 75 million of cost savings for the year are those inclusive of the 35 million and also what percentage of that 50 to 75 will be permanent versus temporary.
The 30 to 75 is.
50, 75 is inclusive of 35 million.
Been recognized additionally.
We're still estimating approximately 40% of the cost reductions would be permanent in nature.
That that obviously can vary and we'll continue to change.
Progress summary, recalibrate our.
Cost structure, but right now currently would be about 40% permanent.
Got it thank you.
And also in the press release, you mentioned midstream activities is close to 2019 levels can you remind us what percentage of your business is midstream and maybe what segments. That's most exposed to.
Sure. So we don't have lifted specifically, but if you look at some of our pipeline percentages.
End of fees and a little bit actually moving into our other category, that's where you'll see we're in the range of.
8% to 12% of our revenue coming from what we would consider pipeline midstream and other type of terminals et cetera, so that type of work.
What was the second part of your question.
On what segments.
Exposed.
So the biggest impact for that part of the segments right now comes from mechanical services.
And that addresses some of our pipeline integrity.
Tapping line intervention and then once you get that work what a lot of the midstream clients do is they provide project manager. They require project management support and then that allows us to pull in other segments like inspection and obviously quest plays a large role as well in in the.
Midstream and pipeline sector. So it is generally starts on either the midstream or the inspection side, but what we're finding is that that overall integrated package.
Fits very well with what our clients are demanding right now.
Got it thank you very much and ill jump back in Q.
Your next question comes from the line of Sean Eastman from Keybanc capital markets.
Hi, guys. Thanks for taking my questions and I think there was a commendable effort this quarter, so complements to the team there.
Thank you Sean.
Good morning, just wanted to start just from a high level. If we go back to sort of pre coded 19.
You guys were looking at maybe low single digit topline growth in 2020, let's say.
1.2 billion and topline as what you were sort of planning around and.
Now we're looking at sort of 940 for the year topline Im just curious from a higher level to get a sense from you.
Relative to that pre co that outlook.
How much of this.
Revenue pressure is a deferral and how much just never comes back I.
I hope that question makes sense would be helpful to get your phone that dynamic.
And we're constantly monitoring Sean I think it makes a lot of sense, we're constantly monitoring each segment for exactly what we think is coal bid.
Oil and gas imbalance delays versus cancellations and one way to look at it is that if you look at the nested business.
That one is hard to make up right because it's constant run and maintain so the biggest impact of what would be the castle, let's say or non repeat is going to come from nested and that's about one third of our revenue.
We're not quantifying publicly right now what the impact is but thats the biggest impact on a project slashed turnaround perspective.
I think that the smaller.
Pit stops are occurring and we believe we'll continue to occur.
A lot of the larger turnarounds are being delayed not cancelled. So they are being pushed into the second half of this year in some into 2021 now the I guess the good news for US is generally when those type of projects and turnarounds get delayed and with the high utilization rates that have been.
Experienced we generally have increased discovery activity during that time. So we go in with a certain plans scope and then because of the delayed projects and corrosive environments. We find the discovery increase which is good but I would say most of that sort of our business is delayed not council.
Then on call out it's a bit of a mixed bag. Some stuff is that can be delayed that would be considered call out as being delayed but.
I would say that one's probably 50 50 between delayed and cancelled so I think thats, probably the best way to look at it is almost by business type.
Yeah, that's really helpful.
The next one is just.
An update on the competitive environment. So you know you did mention you guys are gaining some share on the west coast.
But as we think about the softer.
Macro environment alongside sort of the gross margin discipline.
Guys stick to.
This pricing continued to be a pressure point, there or you know their point here at which smaller competitors become distressed and teams market positioning becomes incrementally better not any thoughts on that dynamic and marina.
Sure.
I would say Sean that we are obviously starting to have discussions and we did last quarter as well with our clients that are under margin pressure, we've been able to maintain or contain our price reductions to 2020, so none of them at this point or lead.
Moving over into 2021, our clients have been very open collaborative in some cases we've gained.
You know more revenue with a drop in price in other cases, we've been able to pull through some additional segments and services.
But from a client perspective, I feel it's been constructive and collaborative and I think we're trying to work together as a team to get through this dynamic environment from.
Competitor standpoint, I think a lot of our major competitors by segments are doing similar to what we're doing in terms of focus on cost et cetera, especially for the standard work, we are seeing regional pressures in certain markets, where as you said clients. Some of our smaller competition has focused on.
Cash generation, if you will so they're getting very aggressive, especially on the standard front when it comes to customize engineered integrated.
And more advanced services.
Feel that that's one where thats when we step up and that's when our clients are willing to work closely with us and we start looking at total cost not just the cost of a flange or the cost of a piece of hardware and there I think we've been successful in shifting some of our revenue to more.
Integrated advanced customized solutions and looking at total cost for our clients not just.
The team price.
So thats, how weve managed it we continue to refine our sales and business development organization I think we've got a strong toolbox and portfolio of offerings and as I stated I think last quarter.
Going into this year, we felt very confident with our our portfolio and we still do.
You know this market has almost given us a catalyst to start looking at diversification of revenue in some of the sectors that I mentioned earlier, so I like where we are our leadership team has become very agile they they're very very close to our field operations and.
We are getting a lot more visibility on RFP is and really focused on.
How we can differentiate ourselves with our clients beyond just a price discussion.
Alright helpful. Very helpful. One last one for me so just as we think about.
The increase scope of cost reduction here I still think 40% of that permanent in nature.
To the extent, we do see sort of a healthy revenue recovery in 2021.
You know how should we be thinking about the incremental margin on that in light of the cost save.
Plus maybe.
One time savings like travel and entertainment coming back into the system.
You know any sort of high level thoughts on that dynamic would be great.
I'll, let Susan comment I think what we would expect as the market recovers.
We will see a larger fall through in the first half of the year, because obviously revenue will probably outpace cost additions yet we remain very disciplined.
And how we're tracking and monitoring our cost savings obviously to deliver the numbers that we are.
My expectations would be that over a full year. It would be front end high fall through and then level off to a range of about 40% to 45% in terms of pull through.
No I would agree I mean, it's going to.
Very dependent upon the period of time as you move up and.
The.
Classification of the categories of our revenue, but definitely agree.
We're going to hit that cost that retina outpaced the competition through the year.
Excellent. Thanks for the time very helpful.
Thank you Sean.
As a reminder, example question please press star one of your telephone keypad.
Your next question comes from the line of Martin on the way from Johnson Rice.
Good morning, congratulations on what you're able to do on the margin side.
Thank you good morning Marty.
You mentioned renewables in your prepared comments and talking about new sectors, maybe could could you expand on what you're doing there and also.
Are you all involved in in inspection and taking care of.
Hydrogen infrastructure, whether it be.
The production of hydrogen refueling facilities, I'm, just thinking about pipes under pressure and didnt need to be inspected.
Yes. Good question. So maybe let me start with renewables for US is not a lot on solar but we are on hydro and we are on wind and on the inspection front a lot of visual.
Inspection work as well as some drone work and other rope access type activity, where were either doing a visual or actual inspection on corrosive environments and some some of that is in offshore environments and some of that on land on the mechanical side, we're doing everything.
Came from machining bolting.
Type work on site.
Including some repair work.
As well and.
You know different mechanical services, depending if its new construction or repair and then when you look at some of the quest.
Services and going more into the hydrogen and what we consider more high energy piping.
We do have some very differentiated high resolution technology fit for service.
Processing, and then helping our clients manage their critical assets both in terms of maintenance as well as a life extension, we do some work and our own labs, but the majority of it would be on site on our client sites. So it's it's that type of activity and.
Those type of markets.
Great and my next question.
Relates to your comments about technology and Digitization asset management.
Are you seeing as result of Cobot 19 that customers are looking more seriously at these programs are or.
Getting more involved in these programs and I realize there's some headwinds near term to probably implementing some of these.
Programs, but maybe any anecdotes that you have from conversations with customers about this.
Sure, Yes, and we've spent a lot more time, obviously virtually speaking with clients to get a better handle on how they're viewing their critical asset or their asset management programs and thats been very insightful for how we spend our R&D dollars as well.
What I would say is that the on the inspection side.
The use of.
More analytics risk based inspection is becoming a more discussed and it's not going to be a light switch that goes on it will be a transition we estimate between two to three years of of a move.
Where we start getting enough analytics to to make the right decisions.
Of when to inspect which assets require repair so you're not doing additional repair et cetera. So that's that's getting a lot more attention right now and a lot more systems, which is one of the reasons were.
We're making our digital pivot to more critical asset based as well as data and analytics.
We're finding a lot more efficiency driven results for our technicians, but also the clients are seeing a lot less rework right now and a lot better management of permitting and subcontractor activities. So that that's real in here and now on the mechanical side, we're finding that use.
Of digital and technology tools I referenced the oval the.
One of the systems, we have for touch point corrosion.
Where we are using technology instead of people and cranes and other hi safety risk items were also using a lot more laser scanning to help move from an engineering hands on approach to to get better accuracy. So thats real and then.
I think the other big one for our clients when it comes to their assets is being able to almost create an asset digital asset file that allows them to to manage their their fit for service.
Techniques, which is what they are starting to build around critical assets. So I think it's going to be an evolution, but anything right now that is safety driven reducing exposure and the use of analytics is what I would say is getting the highest.
Attention and then making sure that our systems are agnostic to some extent so we can communicate across different clients using different platforms.
Great. Thank you I'll turn it back.
Thank you.
I'll now turn the call back over to management for additional comments.
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Yeah.
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