Q1 2022 Mistras Group Inc Earnings Call
Thank you for standing by your Mistras Group Conference call will begin momentarily again. Thank you for your patience and please continue to standby.
[music].
Good day, ladies and gentlemen, and thank you for joining Mistras group's conference call for the first quarter of fiscal 2022.
Name is Daniel and I will be your event manager today.
We'll be accepting questions after management's prepared remarks.
Participating on the call from Mistras will be Dennis Bertolotti, the company's president and Chief Executive Officer.
At <unk> <unk>.
Vice President Chief Financial Officer, and Treasurer, 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 the.
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 in this conference call will also include certain financial measures that were not prepared in accordance with U S. GAAP reconciliation of these non U S. GAAP financial measures to the most directly comparable U S GAAP financial measures.
Can be found in the tables contained in yesterday's press release and in the company's related current report on form 8-K.
These reports are available at the company's website in the investors section and on the SEC website.
Now I'll turn the conference over to Dennis Bertolotti.
Thank you Daniel.
Good morning, everyone and thank you for joining us today.
In the first quarter revenues were up year over year for the seventh consecutive quarter since the depths of the pandemic.
Even as our end markets continue to recover.
This was a strong signal that our strategy to expand our value added services across all of our business lines has been successful.
Especially considering our growth has been accomplished despite several of our end markets remaining below pre pandemic levels.
Adjusted EBIT for the first for.
For the first quarter was also essentially in line with our expectations.
Consequently, we are confident that we are well positioned to achieve revenue growth with expanding adjusted EBITDA margin credit full year.
Ed will provide details on our full year outlook later.
We expect to achieve these improved results based on stable performance in our core operations and increasing contribution from our growth initiatives and renewable energy private space and data solutions.
Our growth initiatives related to data solutions are very promising and we continue to see our offerings, winning over new customers and enhancing value to our existing customers.
Not only is once we winning new customers. It is also currently leveraging enhanced functionality of its applications preliminary across our core oil and gas customers.
The software will differentiate us in three different ways.
<unk> customer retention, we will become an even stickier component of our customers' daily activities.
As they continue to utilize our more than 85 unique applications.
Second by unlocking unique insight and direct benefits, we will create value for our customers from our applications.
Which they cannot achieve with other vendors.
And third our ultimately monetizing the overall digital platform through greater use of the underlying applications, along with related licensing and consulting fees as customers increasingly integrate our applications and CCAR analysis. Other data, we will leverage our applications and automate analysis work.
Possible more importantly, subject matter experts, who make the most of the data generated for the benefit of our customers on a daily basis will remain a pivotal piece of our value added services.
Revenue for the quarter was up five 2% and was achieved.
<unk>, a slow start to the downstream sector of an otherwise strong spring turnaround season.
The slow start primarily reflects delays in other deferrals caused by both supply chain issues at customer sites.
As well as continued upward by customers to capitalize on high barrel prices.
Consequently ramp ups that usually take place earlier in the quarter did not fully start until mid March April .
April activity is in line with historic norms, and we expect it to continue through the balance of the spring season.
Our upstream business was largely unaffected by recent volatility in oil prices or supply chain issues.
With strength in offshore drilling and land based projects in Canada and Alaska.
Midstream sector results were as expected with a solid increase for inline inspection up over 10%.
Downstream and petrochemical sectors were however, a little slow in the first quarter due to the overlapping schedules and slight profit taking.
We expect activity to be consistent with historic norms for the full year.
These different recovery levels reflect the independent nature of the distinct market of the overall energy space, which we participate in.
We are very optimistic about our aerospace and defense business, which includes commercial defense and private space.
Revenue was up significantly in this sector in the first quarter at 24% and we believe this will be a long term growth market for us.
Our experienced helping our customers manage their global supply chain created and executed for Safran in Europe is prompting new opportunities, which are materializing in North America.
As an illustration, our customer recently partnered with us and purchasing and qualifying equipment in order to create machining capability for them.
Which alleviated a major bottleneck in their supply chain, we are optimistic that our growing experience, helping to manage our customer supply chains will continue to expand this new value added Misra service offering.
And we are growing increasingly confident the commercial aerospace market, which has been in a severe slump for two years is finally on the verge of a recovery.
Foundries casting houses and others are telling us to be prepared for significant volumes of material.
To be shipping to us.
Testing in the second half of 2022.
With our private space business already.
Calling strong we expect this high margin sector of our business to resume its overall growth later in the year and continue to the second half success in 'twenty two.
The industrial and other process industry sectors also had very strong growth in the first quarter, which.
Which further illustrates the benefits being realized in our push for greater diversification in our end markets.
So with the growth experienced in the first quarter, we have a clear path to our full year revenue expectations and we'll get full year guidance later in this call.
We also expect gross margin to expand significantly over the balance of the year.
Just on an improvement in sales mix and further efficiency gains.
Gross profit dollars in the quarter were flat with a year ago.
Although gross profit margin was down however, excluding almost $3 million differential of items, which are onetime in nature and not expected to reoccur, particularly in the services segment.
Gross profit dollars and margin would have been up from a year ago.
International gross margin increased from a year ago. So.
So it's clear to see why we believe gross margin will be up for this year, Ed will walk you through those details.
Overhead costs remain under control consistent with the level, we operated at the first quarter of 2019 to pre pandemic period.
As we are intently focused on improving our operating leverage.
Given that the first quarter is always our seasonally slowest we believe our performance continues to reflect progress across our strategic initiatives.
As noted earlier, our private our private space flight business is not only growing.
But it is creating new opportunities.
Both aerospace and private space customers are asking us about solutions to their supply chain challenges.
We are finding initial success in private space and industry that is less impacted by historic norms and that is open to new ideas.
They are even willing to help US fund the procurement of dedicated equipment with our assurance to assist.
With the additional parts for their supply chain.
For instance, our facility in Georgia.
We are preparing and partnering with our customer to emulate our Lakers <unk>, France facility undertaking a multitude of value added operations from testing to machine.
This saves cycle time and reduces cost for our customer.
This is great business for <unk> as it leverages, our existing physical assets.
At very little incremental cross and presents a new solution to many companies experiencing global supply chain challenges.
As our aerospace business resumes its growth it will need incremental growth.
It will add incremental growth to our results and is another reason why we are confident gross profit dollars and gross profit margin for the full year will significantly improve from the first quarter.
I am also very pleased with the progress being achieved with our some sorry of wind blade monitoring and insight web portal and.
In the first quarter, we began monitoring our new customers' entire wind turbine farm.
Expanded our data analytics team.
And began to finalize the automation of our monitoring capability.
Sawyer represents a unique growth opportunity that leverages, our existing sensor and acoustic emission technology at minimal incremental cost. It offers the potential for three revenue streams sensor sales 24, seven monitoring and turbine and blade repair, which align nicely to our current business.
Model and existing revenue streams.
Compared to current testing and maintenance practices and soya represents a quantum leap.
And our safety efficiency and cost per owners and operators of wind farms.
Both large and small bolt onshore and offshore.
As we expand capacity, we expect to see some sorry to contribute to the growth of our power generation revenues.
We still expect to be monitoring 60 to 100 turbines by the end of this year along with the capacity to be monitoring up to a 1000 by the end of 2023.
We continue to see the benefit and application I am sorry to monitor many different OEM and megawatt capacity turbines.
And I am excited for the future of this unique growth opportunity from mistrust.
Finally, one fleet, which we have previously described our version of an industrial App store.
As well as our complementary data solutions are gaining traction with.
We've already implemented one suite and 36 separate installations spanning 110 unique customer sites with over 800 individual subscription.
Its inception.
Starting at zero users in January of 2021.
And we are seeing a steep ramp up in a number of customers and users.
<unk>.
The one suite platform. This is demonstrating that customers are becoming increasingly dependent on the data and tools available and John Sweet.
It enables them to turn data into actionable insights using AI.
<unk> analytics.
And the other advanced technology hosted one suite to help them better manage their assets.
Because their mistrust data solutions strategy has three primary objectives improving customer retention.
Proving the value added and ultimately monetizing our digital capabilities. We anticipate further expansion of one suite utilization throughout this year with revenue doubling.
In the second half into one suite applications, both one suite and to the story of represented evolution and asset protection through which <unk> is uniquely qualified to leverage our proven capabilities and expertise.
These interrelated data solutions combined to create a robust <unk>.
<unk> analytical platform delivering enhanced ROI for our core and new customers.
I'm very excited about our prospects for growth in these new areas of opportunity in 'twenty two and beyond.
I would now like to turn the call over to Ed to give you more detail on our financial results for the first quarter.
Thank you Dennis.
Morning, everyone.
We met or exceeded our top line expectations for the fourth consecutive quarter with the bottom line near expectations as well.
We continue to string together a record of consistent growth. Despite operating in markets that have not fully returned to pre pandemic levels.
This reflects the ongoing strengthening of our business be increasing leverage in our business model and the success of our growth strategy.
Turning to results for the quarter consolidated revenue increased five 2% over the prior year to $161 7 million.
Revenue growth in the quarter was driven primarily by strong performance in upstream aerospace and industrials.
Our growing data solutions business, which includes existing software licenses and monitoring plus the rapid adoption of one suite as well as sensory is sensor monitoring and data analysis business and other software is growing nicely.
We expect one suite revenue to double in 2022 over 2021, as we begin to monetize our digital strategy.
Gross profit for the quarter was approximately $40 million with a gross margin of 24, 7%.
Gross margin was lower in the first quarter compared to the prior year, primarily due to higher health care cost in North America, and other nonrecurring items in the first quarter compared to the year ago period amounting to almost a $3 million differential year over year that was 2 million more dollars in the current year $1 million less dollars in the prior year.
Normalizing for these items as Dana said gross profit margin was comparable year over year. Furthermore, factoring in the prior year 401 match and Leach subsidies, which expired gross margins would have actually improved year over year.
Note that before we can match.
Resumed in August of 'twenty, one and the Canadian waste subsidies expired in October of 'twenty. One. So these headwinds will continue to impact comparability in the second and third quarter.
Despite these headwinds and as Dennis mentioned, we do expect gross margin over the balance of the year to trend significantly higher than Q1 from an improved sales mix and efficiency improvements.
Selling general and administrative expenses in the first quarter were $42 million, which is down sequentially from the fourth quarter by one 7%.
Cost containment remains a focus and among the main reasons. We are confident we can increase the leverage in our business model.
We expect overhead to remain at about the current level over the remaining quarters of this year.
For the quarter, we reported a GAAP net loss of $5 $4 million or <unk> 18 per diluted share, which was consistent with the prior year adjusted.
Adjusted EBIT for the quarter was $5 5 million compared to $7 million a year ago relatively.
Relatively consistent with our most recent expectation, especially given the nonrecurring items, which impacted gross profit, which I mentioned earlier.
Our effective income tax rate actually a benefit this quarter was 19%.
For modeling purposes, we would anticipate an effective income tax rate of approximately 30% for the full year 'twenty two.
As is typical for us we consumed cash in the first quarter as we built up net working capital in particular accounts receivable extended out seven days on average, which adversely impacted our free cash flow.
This was primarily a function of March being the biggest building months of the quarter. So the increase in AUR is a function of any quarter in billings.
We expect free cash flow for the year to approximate 50% of our adjusted EBITDA, which is in line with our historical conversion ratio.
The only exception is a discrete $4 5 million cares act related payment of deferred payroll taxes due by December 22, which will be a reduction in this year's cash flow as well as in the EBIT conversion ratio.
We expect capital expenditures for the year to approximate $20 million.
The company's net debt increased by $10 4 million in the first quarter to $188 9 million compared to $178 5 million as of year end as a result of the aforementioned increase in networking capital.
Given that our priority use of cash flow continues to be the reduction of outstanding debt. We believe our anticipated full year free cash flow expectations, we will enable us to end the year at or below our targeted leverage ratio of equal to or less than three times at that level, we intend to evaluate our use of cash flow as it means to access.
Great growth.
Our business has been recovering from the low level of demand experienced in the second quarter of 2020, when the effect of COVID-19 peak.
Energy prices and demand have improved since that time, our end markets are rebounding to pre pandemic levels.
Our second largest market aerospace and defense, particularly the commercial sector.
Had been lagging other end market recoveries, although an accelerated improvement is anticipated in commercial aerospace in the second half of 'twenty two.
Accordingly for the full year 2022, we expect to grow revenue to between $695 million to $715 million, which should generate adjusted EBITDA of between 65% to $69 million.
Our free cash flow is expected to be between 27% and $30 million. After the previously mentioned cares act payroll tax payment of $4 5 million.
By December of this year.
Given shoring energy markets, improving commercial aerospace demand robust industrial manufacturing and a rapidly developing data solutions, we are confident in achieving our outlook projections.
Our business model is robust and sustainable through extremes of economic cycles.
And we remain firmly committed to executing our plans.
Maintaining our intense focus on cost containment, while continuing to prudently invest in our business that is our strategy both today and over the long term.
And with that I'll now turn the call back over to Dennis for his wrap up before we move on to take your questions.
Thanks, Ed.
We started 2002 as expected, which has us on pace to achieve our third consecutive year of both top and bottom line growth, while also reducing debt.
Our focus on optimizing our efficiency improving the outbreak creating leverage in our business and generating increased shareholder returns.
With adjusted EBITDA expected to grow faster than revenues over the course of 'twenty. Two you can clearly see our commitment to this objective.
We will continue to assess our overhead costs and calibrate to a revenue level to help ensure that we can maximize our returns as revenue continues to rebound.
Our core legacy markets are recovering and just as importantly, we believe this is a transformative year for our growth initiatives as.
As we expect to be exiting the year with a strong foundation of renewable energy revenue, sorry, you're seeing our commercial aerospace recovery private space growing and last but certainly not least with data solutions expanding via one suite.
Which greatly enhances the value we deliver to our core customers as well as new and emerging industries, we are participating in.
Put directly.
Our innovative technologies and once we will help drive our core legacy business.
We truly believe that we have unique and proprietary technologies that have strong demand and growth markets.
As government entities continue to impose new and more restrictive compliance and safety standards in both North America and Europe .
There has been significant public interest and investment in much of today's critical industrial infrastructure to ensure they operate at peak efficiency.
When coupled with global supply chain issues that demand new innovative thinking a strong market has involved many opportunities that will support long term growth.
Our focus remains on developing new and innovative solutions that help organizations meet these challenges and optimize their productivity.
I am very excited about our prospects for growth in 'twenty, two and I believe that our expanded mechanical push into aerospace and defense and.
And data services will help us to accelerate our growth objectives.
Before taking your questions.
I'd like to thank all the <unk> employees for their continuing dedication to constantly evolving customer needs.
Proud of the team and the way we've executed on our strategic planning goals for the future.
While continuing to focus on serving our customers and the present.
The strategic investments, we have made in the digital and expanded services space will drive growth in our targeted end markets.
Your focus on caring for the safety and wellbeing of everyone that we interact with has made metro is more resilient than ever as a valued partner.
By sticking to the tenants of our carrying connects initiative, we can provide a better workplace not only for the <unk> family.
For all of those whom we work with in a positive and safe manner.
Daniel Please open up the phone lines.
To ask a question you will need to press star one on your telephone.
To withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from Mitch can Euro lists third event. Your line is now open.
Okay.
Mitch Your line is open.
Please check your mute button.
Yes.
Alright.
I figure that the mute button.
Can you hear me.
We can image yes, okay. Thank you good morning.
Couple of questions first.
If I heard you correctly.
So upstream in the energy markets the upstream.
Did I hear that it was up about 10% and downstream was down.
Is that correct.
Yes.
Yes.
So.
Can you just talk a little bit about downstream.
I remember talking to you earlier before.
Where the sweet spot is for turnarounds in energy prices.
Crack spreads.
Well it was largely in line with what I was expecting.
Yes.
<unk>.
When.
Is there pent up demand I mean the weakness.
Are we going to see.
Big pop in the second quarter for downstream services or.
<unk>.
Is it going to get pushed out.
Even lease spread out throughout the year I'd love to hear what's happening in that market and from a predictability point of view.
Yes, Mitch I'll take it person and throw it to Jon if he's got follow up so don't read too much into the first quarter. There was a lot of projects.
Six eight months ago that were laid out for the first quarter and things starting to move it.
Customers start looking at labor issues within I'm sure all the vendors to get work done when they were sold closely space. So they started to moving things around delaying them I believe of everything we've seen the only one was pushed out of the year. So everything was just delayed into different quarters, mostly two or three and four so.
So I don't think its any kind of indicative sign.
Definitely tried to shorten a little bit on the front to back if they can we're not so sure of the back half, but they tried to shorten under front, sometimes just trying to looking at the crack spread but I think as far as the planning goes in.
I'm trying to figure out are they looking to do work. This year. The answer is essentially yes.
They just had a lot of.
Contracted projects on top each other and they are trying to make the best of how to get that done. So I think the spring or is this maybe start a little later and run a little bit longer I don't see that as being anything.
Too alarming.
They've got plenty of projects to get done in 'twenty, two plus some 2020, one I will say I think they are.
Still cleaning up some 2020 one.
Whether they decide to defer some 'twenty two because of crack spreads and proppant taken and all of that remains to be seen I am sure. It plays out differently for each vendor and customer and maybe even that particular refinery.
But.
I don't think Theres, a huge amount and I think they are trying to work it back I think.
Any time, you look at deferring a inspection or maintenance cycle, you can only do it for so long so what theyre deferring today is going to be picked up next year or that youre out and that's what's happening now.
John I don't know if you got anything different on that.
Dennis I agree with everything you just said.
I think we did see at least two decent sized turnarounds that I'm aware of push out that were scheduled for towards the end of Q1 that got pushed out to later in the year.
Really supports what you just said.
Okay.
And then when you look at margins I mean anything is anything permanently changed post the pandemic.
In the.
In the energy side the services business.
From a margin perspective other than the things that you would called out specifically.
So I think the only thing you might see dragging on.
Might be a lag between.
Right now.
Inflation is hitting certain skill set and customers are willing to talk about certain skills, having an increase they are not willing to talk about an entire contract. So what happens is as you give out the skilled increases as needed by market conditions and you recovered by the customer a little bit behind.
But that kind of stuff will catch up on itself. So I don't see that as being the two major but thats. The only one part of the inflation.
As far as the differences in the margin I don't think so I mean, they're going to try to be careful on model.
Spend that Theyre doing and you can see that here in the last couple of years.
The margins on all of that hasn't really changed.
Yeah.
To be fair 2020, Covid type of just.
Margin reductions that I believe all of them.
Thank every customer we've gotten all of that back. So there was some of that going on but theres nothing thats really carried over.
Okay.
And then.
I'm just trying to get my arms around the one suite.
Ecosystem here.
So.
Is the is the one suite.
Where are we finding the revenue in each is it in.
All of your reported line lines or.
Number one and number two.
Like how.
How you see revenues going to double.
This year the second full year.
But.
Is it.
It's more than just doubling of the once we there isn't it you talked about customer retention and other benefits.
Yes.
How should we be looking at once we within a your financials and then.
No.
Where the benefits are coming.
Yes, no Thats fair question.
To your first question inside of financials, Youre going to see it mostly right now and the service North American sector. Eventually as we're rolling this out youll start to see it in the international so and even a little bit in products I would think since our and all of that goes through so.
The question the answer to your first question is it will play across all three because it's going to help core as well as emerging customers in markets. So.
So youll see it in all places we are breaking out.
The new segment or sub sales segments, we're going to be showing data on all of that once we get all of the data sector. So once we it's going to double for instance, we've added roughly around $3 million in new income over the last year.
Once we will expect to eat through 'twenty, two I should say.
From what we started doing and there is also other money coming in from existing customers, but these are existing customers with new money. So.
Once we as part of our data solution and really what it is is it just gives our customers the ability to earn has many more applications that they never knew or had access to so to your second question is it's going to make us stickier.
And not only some of the data parts in the small segment that people see that data sale.
These applications on the 85, the vast majority of those are for oil and gas customers.
So it's going to have oil and gas customers in all three segments up down in midstream as well as petrochemical and power benefiting from access to.
Two of these fees.
Applications to many as in those words, so the applications could be anything from storing data to calculating.
Results to predictive.
Hutch is future life in future fill heights and tanks and all these other things.
It's going to make us stickier because.
Our job as inspectors is to go out and gather data for them, but it's really.
To tell them what that.
Piece of equipment at asset new or used.
Has value to them as an operation and does it.
The things that we find does that materially impact how they run it today.
In the past, we would as the industry just inspect it and turn it over to them and say, it's your problem to figure it out.
That's really not where this is going to evolve. So you really have to be a more holistic provider.
Provider and tell them.
Instead of telling them weeks or months down the road immediately what does.
Information does for that piece of equipment. So having all these different applications that they can.
<unk> through once we allows them to readily be able to do much more than just.
See the data and have it up on our screen and store it.
Which is what the old idea of data was since youre electronically storing what used to be on piece of paper now we're making.
Information for them that they can actually have that data and understand what they have to do with that equipment that they have to do more inspection can they run it as is can they run it modified put on a sensor or something that we have to do a 24 seven to look for more.
Cracking or growth in whenever they Steve Hi car.
That's how we see it until it's absolutely going to make us stickier and hopefully the customers will spend more and more of their time using these applications that they basically just didn't know existed before.
Okay, and then just one more question I'll get back into queue.
Regarding your.
Your aerospace customers in your comments regarding.
An expectation for some significant second half perhaps.
<unk>.
Yes.
When it comes to that second half an aerospace would are we talking like.
Getting back to sort of pre pandemic levels or beyond that.
When you talk about strength in that second half.
Yes, Great question I would say right now, it's mostly talking about getting to that not so much getting past it.
For what we do we do a lot of the engine components sells at a higher rate stress.
Stress tested parts of the plane.
Planes, we certainly do anything from <unk>.
Landing gear to stretch.
While wing skins, but a lot of it's on the engines and all of that is getting back to.
Roughly a pre COVID-19 right now.
Don't have the bodies being built for the international double wide aisles single wide, we see everything coming back. The one caveat I will say is we believe the demand is getting there and we will be there here very shortly the supply chain across the board there's problems there's problems when everyone.
These supply chain vendors laid off hopes in 2020, one now they're trying to hire them back and they can't hire back the same skills as fast as they need to or sometimes just amount of bodies.
Uh-huh, playing along in the supply chain mitigation and try and do more steps for them.
Really kind of leaned into one of the problems you got an aerospace right now and we Havent stayed a little bit in the fracking flag of oil and gas.
Our customers are saying get ready get ready or the work's coming and you find out they just can't get the components in the valves for their site as quick as they want to start off.
So you see supply change Reagan across a lot of areas just because people with.
With this great lay off and everyone quitting or being laid off they are having a hard time across the board in essence.
Machining and everything else just ramping back up to that level, but we believe demand is there and by us trying to play into the <unk>.
Into the supply chain mitigation that actually bodes well for us.
Okay. Thanks.
I'll leave it there and get back into queue.
Thank you.
Thank you again, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone.
Your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Our next question comes from Chris <unk> with <unk> Research. Your line is now open.
Hi, good morning.
Just.
I wanted to talk about our gross margin.
Expansion, you guys say, it's going to improve throughout the year.
Can you share what.
<unk>.
What do you guys think it'll be at the end of the year.
So I'll say Christian.
I'll go ahead go ahead.
Yeah, Hey, Chris Yeah. So basically you have got a couple of things in your favor there.
Aerospace recovery is one of them is that comes back on stream in the second half of the year that certainly improves the margins.
So Q1 is always our lowest seasonal period on the margins it'll come up kind of higher in Q2, and three and then Q4, maybe level back out. So we were targeting for to replicate last year's margins get in that ballpark, if not maybe a little bit of an improvement. The last couple of years, we've been seeing improved.
<unk> gross profit margin, we continue to focus on that.
Wanted to improve a lot of it is really a function of mix, we're going after efficiencies as well.
But we would like to get back to the next to last year's margins and hopefully expand ever so modestly from that would be our goal here for 'twenty two so.
Again, Q1 is always a very distorted period with somewhat under absorption and significantly lower than the other quarters again, two and three are the strong periods.
On the margin with Q4 kind of kind of leveling back down a little bit.
Okay, Great and then.
You mentioned.
Well SG&A sequentially decreased.
Is that going to be a trend throughout the year.
No as we said as we said in there Mark.
With that now 42 million for Q1, that's a pretty good run rate all of the cost have been restored and that number from cost out as we did in earlier periods of 'twenty to 'twenty, one and 2020. So yes 42 is a pretty good number to use going forward, it's not too sensitive to revenue volume level, so that number may ebb and flow ever so slightly but.
Current run rate is a pretty good number to use going forward for SG&A.
Chris This is Dennis we aren't going to be looking to make sure our SG&A and our cost of goods sold.
It doesn't have any any fat in there. So we are going to be looking at it as well so with that I mean it.
It should be that 42 can we take it down a little bit more thats our goal, but right now we don't have any targets to put out there yet.
As we go into this cycle last years, we'll just calibrate overhead cost to current revenue level. We've done that for a couple of years running and will continue as Dennis said, just studying and focus to keep to keep.
The balance there and keep the margins consistent if not currently.
Yes.
Okay, Great and then.
You mentioned, you add 40 wind turbines.
And in the first quarter.
<unk>.
I can't remember did you have a goal for the year for that.
China, if you want to.
Talk a little bit we had some numbers in there, but John is close to us on that.
Yes, sure hi, Thanks for the question yes.
So we feel really good about.
The recent activity with <unk>, we feel really good about.
<unk> discoveries, we're having daily.
Defects in our customers.
Wind turbine blades and these are being confirmed by inspection so.
We see pretty good momentum building.
A little bit tricky, when you're kind of starting up promote from a small base of activity, but I'd say before.
Before the year's out.
We want to be in excess of 100 wind turbines being monitored.
We're on a path to do that.
Okay, great well thanks, Thanks for the question.
Thanks, Chris Thank you.
Thank you.
Thank you.
This concludes our question and answer session I would now like to turn the conference back over to Dennis Bertolotti for closing remarks.
Okay.
I'd like to thank everyone for your continued interest in <unk> and joining our conference call. Today. Please have a safe and productive day to day and we look forward to updating you on our next earnings call.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Okay.
Uhm.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Yes.
Yes.
Okay.
Hi.
Okay.
Yes.
Okay.
Yes.
Thank you.
Sure.
Yes.
Okay.
Yes.
Yes.
[music].
Sure.
Okay.
Sure.
Sure.
Okay.
Yes.
[music].
[music].
[music].
[music].