Q2 2020 Mistras Group Inc Earnings Call
Sure.
[music].
Thank you for joining Mistras Group conference call for a second quarter ended 30 of 2020. My name is secure and there will be your EBIT manager today.
Well be second question after managements prepared remarks.
Depending on the call for Mr.
Well be Dennis Bertolotti, the company's President and Chief Executive Officer.
Prisoner Executive Vice President Chief Financial Officer in Treasuries, and Jon Wolk, Senior Executive Vice President and Chief operating Officer.
I want to remind everyone that remarks made during this conference call will include forward looking statements.
Companies actual results could differ materially from those projected some of those factors that can be calls that can cause actual results to differ are discussed in the company's most recent annual report on form 10 Bascay.
Other reports filed with as easy.
The discussion in this conference call will also include certain financial measures that were not prepared in accordance with U.S. get.
Reconciliations of these non U.S. GAAP financial measures. So the most directly comparable U.S. GAAP financial measures can be found in the table contained in yesterday's press release.
And the company's related.
On form 8-K.
These reports are available at the company's website in the Investor section and on the Fccs website.
Well now turn the conference over to Dennis Bertolotti.
Like it to kill good morning, everyone.
As anticipated second quarter revenue was down 38% as compared to year ago quarter, but thanks to our ability to quickly flex our organization in the face of rapidly deteriorating business conditions.
By Flex I mean make extremely fast changes to our cost structure, we were able to maintain year to date gross profit margin and actually improve it in the second quarter.
We also delivered significant improvements across a variety of additional key financial metrics.
Cash from operations was more than double a year ago corridor.
And free cash flow was up nearly 300% compared to the same period.
Last year, which enabled us to reduce debt at a record pace gross margin was 33.1% the best quarterly level in over five years, despite the lower revenue.
And over the first half of this your gross margin was approximately the same.
As in the first half of last year. Despite a 25% revenue decline, we also drove overhead down by over 10% in the quarter.
The success achieved this quarter demonstrates must real strong ability to a justin pivot to sustain positive cash flow during challenging economic circumstances, while maintaining the high level of service on which our franchise is built.
Having succeeded Wanda worst quarters in recent history, we're preparing for recovery in our end markets. We're also preparing to capitalize any opportunities being created by the sweeping changes the way, we all work, which has been accelerated by the global pandemic.
A bright spot in these difficult times, it's pressure being put on our customers to condenser supply chain to get more value from their integrator partners essentially doing more with fewer we're quickly adapting to this change, which we have anticipated for some time, we believe the current pandemic will serve to accelerate the adoption of this strategy.
Okay.
The market is definitely evolving from this traditional commodity service orientation to a value added orientation.
That is why we had been actively enhancing our service offering and diversifying into new markets and our traditional oil and gas market. We've added new capabilities that are adjacent and complementary to our traditional Andy Ti work, such as mechanical services and rope access.
We're also introducing timing cost saving technologies, such as rugged tablets.
We are bringing more intelligence to our customers under mistrust digital umbrella.
Already these capabilities are contributing towards 'cause success, both tangibly and tangibly.
For instance, anecdotally we have heard at some of our customers believe they get better information using mistress digital at home than they did when they are on their own job site.
We're also very involved in emerging industrial Internet of things market for instance, we had been having success with various departments of transportation, where our sensors are being embedded in bridges.
We are seeing there's a new renewable power space as well.
This represents growth opportunities, where we can leverage our unique technology into markets, which have tremendous potential.
In aerospace we are seeing the same trend of compression in supply chains.
We are gaining valuable experience with our Airbus and similar contracts, where we're consolidating the number of cast the owners used to have to have done individually I suffered gunners greatly reducing the time it takes to move a part through to supply chain.
In addition to offerings substantial cost savings.
Again, we believe there will be a growing demand for this ability to add value to the aerospace supply chain.
Our efforts to enhance our service offerings and broaden our product portfolio is one area. The global pandemic has not impacted as budgets loosen and the transition to value added services accelerates. We believe we are ideally positioned to help customers consolidate your supply chain, reducing costs, while generating there but.
Our business intelligence.
Because we track head count technician hours work and billable hours, we saw conditions gradually improve as we went through the second quarter and this continued into July.
Reports from the field complement these trends as activity levels are improving and bidding opportunities are increasing.
For example, we were just awarded a large new contract in the North American oil and gas market, which is scheduled to start soon ramp up over the balance of the year.
We entered the second half a year and a strong position having successfully managed through what many believe will prove to be the most challenging quarter of 2020.
With our strong cash flow and reduce capex spending we have the liquidity you needed to fund our operations I remain well within the terms of our bank agreement.
We are headed into the second half for the year with good momentum.
Based on the activity level, we have seen the study improvement in technician hours and some recent new contract wins.
We expect a high teen up to 20% sequential improvement in revenue during the third quarter over to second quarter of 2020.
There should lead the second half revenue was that will be higher than the first half. We also believe this level revenue will support an increase in adjusted EBITDA in the second half compared to the first half.
As well as positive operating cash flow in the second half of 2020.
This is why we believe we can further reduce total debt this year.
Second quarter 2020 wasn't challenging period for mistress, and I'm extremely proud of our team and how they continue to perform in these challenging conditions.
Putting the safety of our associates claims and partners first.
While continuing to deliver outstanding services, they are strengthening the mistrust franchise and our relationships where our customers.
We are committed to continually improving the value we delivered to customers and we are equally committed to improving the value we delivered to shareholders.
I would now like to turn the call over to add give you more detailed on our financial results for the second quarter and the first half with 2020.
Thank you Dennis.
Second quarter revenue was consistent with our revised outlook coming in at slightly under 125 million, which was down 38% from a year ago quarter.
We believe that the second quarter will be the low point of quarterly revenue this year and we actually the June at a run rate, which was much higher than we entered eat.
And this trend has continued into July in early August hence, we believed that our third quarter revenue will improve progressively over the second quarter.
For the six months ended June 30, 2020, our revenue was slightly over 75% of prior year babbling for the same period.
This is evidence of the high level of recurring work from our running maintained business. Despite the extreme turmoil in our key end markets.
Additionally, despite a revenue decline of 22% sequentially in the second quarter from the first quarter, we generated second quarter gross profit of 41.2 million in a 33.1% gross profit margin, which represented an increase of approximately 760 basis points for the prior quarter.
Our second quarter gross profit margin, it's the highest quarterly gross profit margin level that we have achieved over the past five years and is attributable to favorable sales mix and lower pass through costs, such as travel as well as temporary cost reductions in government subsidies being realized.
On a year to date basis, we have maintained our gross profit margin at approximately 29%. Despite the significant decline in sales nothing.
This is a function of our conscious effort to offset fix cost under absorption with lower variable cost demonstrating our ability to rapidly flex our organization as Dennis mentioned earlier.
Second quarter, selling general and administrative expenses decreased by slightly over 10% as compared to the year ago quarter.
This decrease is despite the addition of new centuries overhead to this year's cost.
Your mental unfavorable FX translation, which combined added approximately 2.1 million were 5% to this quarter's expenses.
Beginning in April 2020, we initiated a cost reduction and efficiency program.
He wants to the global pandemic, which is reducing the one rate of overhead by approximately 10%.
This reduction is expected to continue at least through the third quarter of this year.
Future that reduction in revenue volume in the second quarter of 2020, we recorded net loss of 2.7 million compared to net income of 7.4 in the prior year period.
We generated adjusted EBITDA of 11.5 million for the second quarter of Twentys, when compared to 24 million in the prior year.
We were in compliance with all of our bank covenants as of June 30, 2020.
Specifically, we maintain liquidity of over 55 million versus a requirement of maintaining minimum liquidity at 20 million.
Liquidity being defined as cash and cash equivalents plush unused credit when our revolving credit agreement.
And secondly, we exceeded minimum EBITDA for the second quarter of 2020 like 8.1 million.
As the minimum EBITDA requirement was 3.4 million and we generated 11.5 million for the quarter.
Although the maximum funded debt leverage ratio is currently suspended until the fourth quarter of 2020 wearing it resumes at a level of 5.25 times. We are on a pro forma basis already at 4.8 times on a rolling 12 month basis as of June 30, 2020.
Our shred free cash flow cash on hand, a cost discipline give us the necessary levers to help achieve perspective compliance with our bank covenants.
We generated 28.8 million of operating cash flow during the second quarter of 2020.
Given our exceptional free cash flow conversion, we generated 25.5 million to free cash flow in the second quarter, enabling us to pay down 18.8 million a bank debt as well as build up 5.7 million of cash on hand, since the end of last quarter.
Free cash flow benefited from a reduction in cash paid for capital expenditures interest expense and income taxes.
We only used 3.3 million for capital expenditures in the second quarter of Twentytwenty, nearly 50% reduction compared to the same quarter last year.
For the first six months of 2020, we've only spent a total of 7.6 million for Capex. This is in line with our goal to significantly reduce total capex. This year, so more typical Monday.
Accordingly, our net debt defined as total debt less cash cash equivalents.
216.8 million at June 30, 2020, compared to 239.7 million at December 31, 20 Nike.
Gross debt decreased by 18.6 billion during the second quarter 2020 from 258 million at March 31, 2020 to 239.4 million at June Thirtyth 2020.
20 year to date basis, we have paid down 15.1 million of debt.
Our effective income tax rate was a 21% benefit for the second quarter of Twentytwenty compared to 37% expense in the prior year period.
Our effective income tax rate was a 14% benefit for the six months of 2021st six months of 22000 compared to 45% expense in the prior year period.
The effective income tax rate in 2020 was lower than the statutory rate primarily due to impairments recorded earlier this year for which we will not or do not expect to realize income tax benefits. This unfavorable impact on these after they kind of income tax rate in 2020 was partially offset by income tax benefits at the cares act, whereas the effective.
Income tax rate in 2019 was higher than statutory rates due to the impact of discrete items. The global intangible low taxes income and other provisions from the December 17 tax cuts and job that.
The effective tax rate for full year 2020 is expected to be in that low to mid teens.
The ongoing cobot 19 pandemic continues to impact our two largest markets that big oil and gas and aerospace.
Net Nevertheless, we anticipate a high teen up to 20% sequential improvement in revenue.
Third quarter of 2020 compared to the second quarter, but down from a year ago.
While it is extremely difficult to forecast with any degree of certainty at this time, we believe that consolidated revenue in the second half of 2020 will be higher than the first half of 20 to 20 based progressive improvement in adjusted EBITDA and continuing positive free cash flow in the second half of 22.
This outlook is contingent on continuing macroeconomic stability, including the recent recovery in crude oil markets and the ongoing relaxation of certain stay at her mandates.
We're also confident in our sustainable business model and remain firmly committed to carrying out of our strategy today and over the long term.
And with that I'll now turn the call back over to does.
Thanks.
It's been proven many times that necessity is the driver for dramatic improvements and innovation.
We believe the current pandemic is one of those periods were in industrial companies will look at new and innovative ways outperforming their work.
This has long been at the forefront of improving technology, and creating new and better instruments, which can monitor important operational data generated by various equipment, such as turbans Transformers and other critical machinery.
With monitoring being done remotely online and in real time across more and more assets much more data is being collected as well as being more thoroughly analyze.
Thus, providing owners would smarter and more intuitive information.
Which they can use to improve the efficiency and safety of their equipment. This has to pass on the future.
We believe that a crisis such as the current world pandemic can be a catalyst at significantly moose owners forward to adopt his transition much more rapidly.
They will as they will recognize it will allow them to more efficiently manage their assets.
Mr host believes that our customers will be looking for partners such as us with a more sophisticated approach to assisting them.
Condensing their vendor list and searching for better business intelligence.
This is our strategy knowing that we can apply these tenants not only into our existing customer base.
But also new customers or market segments, we target in the future.
Before taking your questions I would also like to thank all the mistress employs once again for your dedicated customer service dedication and attention of safety, which you have shown in these extremely trying times your practicing of Karen connect is working.
Kill please open up the phone lines.
If you like to ask a question at this time you may do so they pressing star one on your telephone keypad. Your first question comes from the line of Andrew Obin with Bank of America.
[noise] Marty this is David Ridley Lane on CRE Andrew.
What were the achieved cost reductions during the second quarter.
And how do you plan on on sort of potentially using CRE loans and other temporary measures in the third quarter as your balance supply and demand.
Hi, this steady your I'll take this one.
Sure I mean, you Q3 is going to look a lot like Q2 in terms of the cost outs were continuing to you know to calibrate the corporate picture the revenue at hand.
So it's going to scale with with with the revenue travels a good example, if we're not traveling that goes away.
Actually I work comes back that comes back but.
But we've got essentially a very similar.
Estimate in there for for Q3 from from Q4, and it's a decent size number that 10%, especially now that being taken out due to the cost that measures we have in place currently.
Got it and a quick follow up.
No with better visibility into clients plans.
What would you say what would you estimate for portion of planned turnarounds did share from the first half into the second half.
And whats question, perhaps shifted out into 2021.
John you want to grab that one.
Okay.
Turning might still be on mute.
Yeah, sorry, sorry about test.
It's been time as we've been cladding working directly with every customer in every region. Some turnarounds have just been UBS deferred into 2021, some have been deferred into the second half and some have been ongoing but they've been ongoing without travelers they've been elongated they've been extended.
And so it's been probably the weirdest turnaround season that we've seen in many years I'd say, it's sort of a mixed bag, it's tough to give a precise quantification. It's probably a 50 50 in terms of what you know what got deferred into the rest of this year and then the question will be at what scale and scope and.
Those were open questions as well.
David I'll add a little color to that the.
Turnarounds that we have seen continuing so far.
To John's point, they've been going on at a.
Very much reduced hourly.
Impact typically a turnaround is six or seven day weeks and its 10 or 12 hour days didn't go in five or five day weekend gone eight hours Hallmark do on time, we've had one did that overtime, but that's really.
Then the.
The uncommon one of the bulk of them are taken their turnaround schedule and doubling it and we've even had a few customers approached us and ask us to do fitness for service on the equipment, where we actually look at the major components that they have coming up for their turnarounds in the call and they've asked us if they had to do.
I had passed the Paul because of coated what would be the impact and could be and could they rightfully take a look at extending it based on what we can do for online on stream inspection as well as just the clintons for surface calculation. So customers are looking.
In case the impact the fact, the more in a quarter, but to John's point right now I believe its a.
It's.
Most of what we've seen in Q2 got pushed into the second half.
A small percentage got pushed into 21 and only one or two that we see actually get pushed out further nat.
Understood. Thank you very much.
Your next question comes from the line of Sun.
Eastman with Keybanc capital.
Hi, guys. This is out to Iraq for Sean Thanks for taking my questions and congrats on the spot Brazil.
Thank you. Thank you.
So maybe you back off a question.
As we look onto next year 2021, with the revenue deferrals you've seen in season this year.
I guess I just wanted to get a sense on what your outlook is for the potential for growth next year and then what are the what are the big swing factors you would call next year and maybe what should we be tracking whether it be.
Customer capex budgets or opex budgets or even some general economy picks.
Thank you.
Okay. So I'll take the first and then let's throw up to the other guys on the rest, but as far as 2021, we haven't set our budget yet we're gonna be working that much sooner than normal just because of the way to year isn't truthfully, we recalibrate our forecast almost monthly just to try to get a good idea of where we are furman color and older reach.
Sources.
But what we're hoping to do is make 21 approximate 2019 as close as we can we don't know about the seasonality and how it'll it'll happen yet.
The way, it's trending we see the hours creeping up we see the the body's coming back we track them on a body separate taken on for coal that we track the amount of billable hours week over week versus the previous year.
We're on the rice, they're not coming back is as as fast as you'd want but that's just part of everyone being careful about the safety practices that cold it has imposed on them and and let's face it some of the spend reductions as well.
We think that the turnaround in the fall should be very close to what they had planned.
There's there's no certainly that they will goal of full length. You know some customers may try to save a couple of dollars to right now what we see as the fall is going to get us that better and then hopefully we're going to look at more about 29 team. We look but again, we haven't gone that far better or John if you want to add on that.
Yes, John Thanks, I'll I'll tag onto that and just say, but.
We believe the second half will be higher than first half for of this year.
And as Dennis was saying it should go into next year.
Domain a pattern that's at least fairly close to what 2019 was you're going to see some pretty significant growth off of a very low 20 baseline, particularly in Q2.
Yes, that's very helpful.
Yeah.
My next question is regarding the.
Environment can you talk about some of the regions are sector, gainshare or CV opportunity to gain share and is there a point at which smaller competitors become distressed and mistress market position.
Recently become incrementally better.
Yeah, I'll I'll take the first on that Theres definitely.
It's caused a lot of stress on business like ours, much much bigger businesses and certainly smaller ones and you heard about it in your communities of.
Small restaurants bars, and everything else small business are having a hard time getting through this.
I think not only is going be stress on on a smaller customers of ours for smaller competitor of ours.
Also think to my point I'm talking about the technology I think there's going to be a difference or what.
Types of vendors customer's going to be looking forward are going be looking certainly per financially stable and ones that they could give a three or five year contract to know and they'll be there through this.
But they're going to look at ones that can take on more.
Types of complex situations and take on more and more of the work because.
Let's face it you can only take away so much from an hourly rate or so much from a a fixed rate at some point you just got to do it more effectively smarter and a lot of times that means a lot less lenders trying to do all these different stops and having more and more doing one of these steps are one home projects. So I think it's I think it's actually going to be changing the way people.
You are looking and customers are looking at their vendor base.
Thanks, so much in congrats again.
Thank you.
Thank you.
Your next question comes from the line of Brian Russo what's the Dodi.
Hi, good morning.
Good morning Fine Brian.
Hey, so the up to 20%.
Ken sequential increase in the third quarter versus second quarter.
Still kind of implies a decrease of about 22% from the third quarter a year ago. Just just curious to know what's driving the decreases is what you referred to earlier the delays.
The turnarounds or is it got cancellation of projects one against a little bit more color on.
The year over year revenue driver.
Yeah, I'll I'll take person I am sure Jonathan back me up, but you're right. We're talking sequentially now because the truth is theres very.
[music] companies in our space, but I think that would compare 2022 or 2019 in India.
These marks were hoping to get closer to the run rate like I say next year I don't know if it will be flat repeat of 29 thing, but we're hoping to approximated, but we haven't gotten the budgets yet so when we see it truly Brian right now no aerospace in Europe got hit early and quick.
It's.
Going to stay a decrease for aerospace in Europe, we're starting to see a little bit more of that in the United States.
We can.
Definitely change our load in aerospace and hold our margins, but you're going to be on lower revenue.
The gas and oil spend right now for the rest of the year customers like I say, the turnarounds are being done at reduced levels. They may be being done at even just.
Bare minimum sometimes they'll make sure it at the safety and compliance and what they need done they may or may not spend the their whole budget on on the complete turnaround. So we're being cautious when we when we give guidance because we know those things could happen in the truth is our folks in the golf are looking at these these high contact.
Thanks, and all the cold and they worry about if customers will start to unfold stricter mandates and what happens is as you can only take the people that are local you're not going to bring.
Subject matter experts that we have around the country and bring them into those locations to customers are not going a lot of travel. So they do things had a reduction so we worry about that as well.
Okay, great and just to clarify.
The cost cuts in this second quarter I think you said.
I can also be.
Leveraged in third quarter.
Sure.
That equates to similar type gross margins.
No no Brian said, you're I would say that your year to date gross profit margin. The 29% that's what I would expect going forward. As one example, some of these cost out such as travel your pass through with really very little or no margin.
Yes, we don't expect this quarter's 33% to keep continue as revenue comes back some of your pass throughs come back. So we believe the 29% through six months, that's that's more but you should be.
Looking to expect in the in the back end of year.
Okay, Great and then.
Question on the oil and gas contract that you've mentioned earlier can you provide any details on that is at midstream downstream or.
Any other sub sector oil and gas.
Yes, we're being.
A little cagey about it because it's still not fully up and running but we could say it's more of a.
Well you called downstream.
Actually upstream I'm sorry, the other way round, it's not typical just the refinery sector its little bit different than that.
Okay. It looks like just you know you service segment.
It looks like.
Performed better on a gross margin basis than the.
The other choose the international and the other sector just what's can you just differentiate between services.
In terms of higher margin products offerings or.
I'd to cut incremental costs there versus elsewhere.
I'll, let John expand but I think the quick easy answer Brian has a difference in a way to countries handled the pandemic.
We have the ability in United States and to a large degree inside Canada, where services gets its revenue from to be able to quickly take our our utilization and fix it with a resource level very quickly.
In Europe as you know its handle a little bit differently. So there is.
The way they handled is everyone state unemployment in the various countries and inside our facilities and that.
We were getting the money back very quickly you know and five six days after falling for our recovery you get the money back very quickly. So it made it easier in that respect, but but you're not you're passing through its almost becoming like a pass through kind of thing because all this money is just trading dollars. Your point dolat offer employee dollar back or sometimes a little bit less than the country. So.
It's money kinda almost being watched on I mean, so your margin is going to go down just because of that John if you want to add anything to that.
Yes, I agree with Dennis we have more flexibility in terms of being able to reduce hours in the United States that is to reduce headcount.
Cost of making those reductions and so forth. We've a lot more flexibility. The other thing is that we had in the United States and Canada very good sales mix during Q2.
The mix toward.
Higher higher margin pipeline work and.
And aerospace.
More and that favor.
So that helped as well on a relative sab's AD and as that alluded to earlier much less out of pocket cost traveling costs associated with typically busy turnaround season.
Certainly I missed that work but.
On the other hand, it did help margins by preceptor too.
Okay, Great. One last question, if you don't mind, just bigger picture mistress digital.
And.
Internet of things I mean at what point is.
Become a revenue driver.
Yes.
Yes.
Reference tangible versus intangible right now just just curious what your bigger bigger picture and outlook is for that kind of industry innovation.
Yes, John's John's running it but I'll say, one quick thing and that Brian I mean.
We're actually looking at debt as being more of a market driver for us than revenue certainly it'll it'll bring some revenue with but especially in a days of cold and right now trying to show a customer who's going to save them money by charging them upfront has been a problem you know there their budgets are slashed and.
They have very little flexibility to spend outside of a reduced number.
So for US we believe that we have this technology that can really show a difference of how we get worked down for our customers. So we see that the most important aspect is going to be the.
The ability to retain and grow our market, but there is going to be some revenue on our but truthfully. It's not our main goal John if you want to add on.
Yeah. Thanks, as I totally agree I'd say, the two biggest benefits to customers are the enhanced visibility they get in terms of the status of what's going out of their plants and also the productivity. They get both are there resource base ended ours and I think that longer term.
Streamlining of work is what drives a better experience for them for our employees and drives more market share for us that's really what we're just how we're trying to win at this.
Okay, great. Thank you very much.
Thanks, Brian.
Your next question comes from line of meets the Neuro and hero, let's go to bed.
Yeah, Hi, Hi, good morning.
So I am.
I apologize if anything is repeats.
In terms of.
In terms of your business in this quarter.
<unk> percent is what percentage of this quarter was like a run and maintain.
The new versus like Capex revenue, and where do you see where.
In the second half.
Yes, John <unk> go for I'll start I mean, we don't typically breakout those and sometimes a little bit hard to tell but I would say that anecdotally there was a lot more.
Typical run and maintain work then there was project work, just because projects being a discretionary and timing.
Many customers were just not looking to spend on projects. During Q2. So the revenues that we did have were much more run and maintain based than they would have been typically.
Yeah, much that's actually one of our strengths is that having as many side because we do were near triple digits are at triple digits, where we have.
More than a handful you know two hundreds at a site that's a big part of why we we got through to a little bit less beat up and people would expect or others may have just because we're not as capital dependent on that so our ability to have folks now, albeit that said they reduce the number of folks at the site.
They reduce the number of hours at the site.
So I mean, you still have sites up and running they just weren't doing to spend like John saying that the works in a typical year.
[music].
I mean does.
[music].
I mean can these tough thing.
If you can if they couldn't refuse.
Number of bodies towers on a run and maintain breach.
Is that it is that.
I'm, just looking to police through down the road, where we'll see a permanent reduction in.
On site, Pete you know hours et cetera.
So the headwind or that's just come back.
To normal.
Mitchell I'll take the first shot on that so for the most part what you're doing is you're just occurring costs right. There there like John was saying there are not spending on capex and reduce on that so for the most part what you're doing is.
Your taken maintenance and you're prioritizing as to what is most urgent need it actually increasing operation.
And you're deferring the rest of it now to the extent that we can show them how to operate more effectively and efficiently with digital and things like that we're going to take on different services and everything to support it and maybe do a little bit less each Warner service and get more done that way. So customers argument looking for how do you have benefited but you can't really benefit by not doing the maintenance is actually comes.
Bakken even when I.
My first answer where we were telling customers how they can use engineering and online inspection and maintenance.
To prolong a turnaround you still got to get it done. It's just you know you're pushing it down the road a little bit.
Okay, Yes, yes.
And then I guess.
When you look at 2021, they like you're not giving guidance and I'm just sort of trying to.
You into maybe how customers are looking at 2021.
[noise] are a lot of our that fernholz.
I mean, they all going to have happened in 2021.
We keep.
Hey.
Level of.
Though I've spend that that it's going to be eliminated.
Our next these projects.
Yes, it has to happen at some point I mean.
Where are we just think your customers are in there and that thinking.
[noise] Chinese let's take her shopping.
Yes sure.
Mitch it feels like.
If it's Dennis was saying at.
It is getting to book now in many customers have gotten waivers in terms of having to comply with typical osha levels of inspection. So forth. So many customers have have obtained deferrals temporarily because of cold it but those are not indefinite sort of Dennis is quite you're deferring work now what you're going to have to.
Catch up on network. So there is pent up demand that is building because the dynamic that we're in right now from a longer term perspective, as Dennis was saying in terms of digital there is some amount of efficiency, that's going to be coming and continue to comment on ongoing basis, where we can we can help customers reduce non value added work.
You're not going to reduce the amount of inspection that needs to happen, but you can reduce the amount of administrative work around that inspection. So.
The net I think there's the net deferral of work that's to come should more than 10, outpace and should has to lead to growth next year.
Okay.
In terms of.
It's like like guest DNA.
Excellent excellent shop in the quarter cutting costs it is that.
Is this a sustainable level or you know had we read you know.
You know you're.
Right fighting wait here.
Let me sum, yes, I mean, just yet to go back about three years ago to find the level. We're at now.
So there is certainly some temporary cost outs, which will snap back when volume comes back, but we're continuing to look at the overhead the fixed overheads and recalibrate, what we need you know we this is a sustainable level, we will be subtracting not adding to the fixed overheads right now going forward. So we are taking.
So hard look at that as we as we see volumes recover in kind of continue to recalibrate that footprint, but we're very comfortable that it was certainly doesn't need to grow leak you keep it at the level that is now and reduce it further instill support the business. So we are taking a hard looks at that but to answer your question, it's very sustainable level right now.
Going forward.
Okay.
That's what I have a thank you.
Thank you Mitch.
Thank you.
Yes.
Is there no further questions at this time.
Okay. So your turn it back to me like.
Okay. Thank you, okay, I'd like to close by saying that.
Our results thus far this year demonstrate our ability and quickly flex our cost footprint to maintain our gross profit margin.
While we generate strong cash flow to fund our operations and deleverage our balance sheet.
We will believe there'll be a market recovery in the second half of 2020.
With resumed revenue growth and adjusted EBITDA expansion.
We are prepared to capitalize on the opportunities being created by the sweeping changes in the way, we all work, which has been accelerated by the global pandemic, specifically to transition of value added services, where we believe we are ideally positioned to help customers consolidator supply chain lot generating better business intelligence.
And we are bringing more and more intelligence to our customers under the mistrust digital umbrella.
Yes. It is the driver for dramatic improvement in innovation and we plan to stay at the forefront of leadership in our industry pursuing growth opportunities, where we can leverage our unique technology into markets, which have tremendous potential as always.
I remain firmly resolved to the successor administrators and I am extremely confident and optimistic and our long term prospects of increasing shareholder value.
On behalf of the whole mistress team I would like thank everyone for joining the call today, we wish everyone, a safe prosperous and healthy future. Thank you.
Thank you for your participation. This does conclude today's call you may now disconnect.
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