Mistras Group Inc. Q1 2023 Earnings Call
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Yeah.
<unk> Senior Executive Vice President and Chief Financial Officer, I want to remind everyone that remarks made during this conference call will include forward looking statements. The company's actual results could differ materially from those projected some of those factors that can cause actual results to differ are discussed in the company's most recent annual report on Form 10-K and <unk>.
Our reports filed with the SEC.
This discussion is this conference call.
We will also include certain financial measures that were not prepared in accordance with U S. GAAP's reconciliation of these non USDA AAP financial measures to the most directly comparable USG AAP 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's website I will now turn the conference over to Dennis Bertolotti.
Thank you Tara.
We continue to make significant progress capitalizing on our strong market position and innovative new technologies to grow mistrust and improve profitability.
As evidence of this in the first quarter, our revenue grew five 5% in constant currency.
Our gross margin expanded 270 basis points.
And we drove SG&A as a percentage of revenue down by over 40 basis points.
And our overall financial condition.
Also continued to improve with our bank defined leverage ratio reduced to just under three to five as of quarter end and we are well on our way to achieving our goal of being below three <unk> by year end.
We saw strength in our energy business in Q1.
Which is benefiting from the rapid growth of our data solution revenues.
Boost our gross profit margin by 270 basis points from the year ago quarter.
While reported SG&A was up on an absolute basis due to a few infrequent items during the quarter.
We are working hard and making progress in fundamentally lowered our overhead towards our longer term aspirational target of 20% of revenue.
The first quarter represented a very solid start to our year, and which we expect to drive growth improve profitability and continue to invest across the organization to unlock the hidden value of our strong brand products service line capabilities and innovation.
I'm, particularly pleased with the growth of data solutions.
Which you can now see in the supplemental schedules included in our earnings release.
Data solutions includes our flagship once we <unk>.
New century online monitoring.
And the majority of our upstream business.
Along with various other data monitoring services, including sensorial.
We were early to invest in this exciting area and data solutions permeates throughout all of this across geographies and industries.
Data solutions revenue grew by over 35% in the quarter.
And now represents 10% of our total revenue as compared to about seven 7%.
Total consolidated revenue for the first quarter of 2022.
We believe that data solutions will grow quicker than other service offerings during 'twenty three and over the longer term.
Note that data solutions revenue is higher than we previously described it which is due to the current inclusion of upstream customer reporting.
<unk> software within the data solutions rollout.
Nevertheless.
And as a substantial reason why we are confident that we can achieve a significant bottom line increases were expected and.
And our full year guidance.
We are continuing to see customers recognize the need to integrate data more fully to optimize their performance.
Whether that involves getting data quicker.
Net income the insights and data analytics the markets have continued to increase 30 to better capture and utilize data generated better facilities.
Similarly, our strategy to take on more of the machine.
Brian <unk> and other activities complimentary to our testing and inspection services.
Fly chain issues continue to challenge the industry.
Forcing customers to seek new ways to move faster and simplified our logistics.
For instance in the aerospace market, we are opening a new 20000 square foot facility adjacent to our teeth, Ohio operations to accommodate the increased demand for our solutions.
To expand capacity and increase the throughput for their products.
We believe our continued ability to provide unique solutions will help alleviate some of the supply chain issues that our customers face.
Enabling us to grow and expand our solutions and aerospace as.
No there are still some isolated project delays in the defense sector.
Which offset the progress being achieved in our overall aerospace and defense vertical. Nevertheless, we believe defense is a large and growing opportunity over the long term.
And we are aggressively seeking market share gains in this industry via our established relationships utilizing our technical solutions consultants.
Our onstream inline inspection testing business has continued its record growth of 2022.
Onstream generates a considerable proportion of its revenues from data solutions.
With our leverage ratio at the lowest level since immediately prior to the Onstream acquisition in December of 2018.
I would now like to turn the call over to Ed to give you more detail on our financial results for the first quarter.
Revenue growth was five 5% on a constant currency basis in the quarter.
Improving demand in commercial aerospace.
We are also benefiting from pricing actions initiated last year, which are now which are now balanced with employee wage rate increases, whereas we had been lagging last year with a more pronounced inflationary pressure than we anticipate this year.
Cost containment remains a focus and just wanted to main reasons. We are confident that we can increase the operating leverage in our business model.
Free cash flow was essentially flat in Q1 compared to a negative $8 6 million in the prior year period, which was a significant improvement.
Yes.
Easy answer as much as that.
I guess down four.
Our normal there is a little bit less work in some areas and theres more than others. So on balance we.
Inside that a lot of the growth from Onstream is going like I say to bulk so.
There's a little bit a little bit of timing that you do in Q1, we had some permitting delays in the U S. In midstream and we actually had we exited some some midstream in Canada at some lower margin midstream. So theres a few other timely matters there, but now we feel we feel confident for the whole year in midstream.
Yes, it looks like you have a tough comp I mean, the second quarter in midstream.
Last year was the highest quarter.
And youre coming up against that.
I guess, we could see another down quarter in midstream.
For Q2, it's the Capex as Dennis mentioned, you've got some lumpy capex on the new stuff that happens over time that can distort any given quarter, but over the longer term, we like that midstream ili inline inspection testing and midstream, we like that niche and its a good one.
Okay.
And then.
As you know we're we're.
Maybe five weeks.
Into the quarter, what's the prognosis for.
Yeah.
The downstream.
Turnarounds and things, what's what's the outlook for that for the upcoming quarter.
Well I guess I'd point it is always the most volatile of the three segments of our gas and oil.
But this year, we haven't seen any reason that these.
Really come off of anything plan that much and certainly people that are moving around and there's a couple that had changes from.
Two to three weeks on start times and things like that but we haven't seen any major delays us. Unlike if you go back to the years of 2021 or 'twenty two.
Come up high priced barrel because they didn't have access to folks we don't say anything on that so I think there into a more normal.
Okay Joel.
And planning.
But we'll see how the full year goals, but we don't see any disruptions that we've seen in the past.
Okay and then.
The other.
Another revenue.
Question on aerospace and defense.
I guess the aerospace was up in defense was down is that is that what happened in the quarter.
It is our aerospace is really.
And seen a lot of growth for us as long as the individual apps that back in the call today and a year or two after that we're still suppressed.
Also we are still seeing.
Supply chain issues, we've got customers, who have tens of millions of dollars more of orders and they have the capacity to get it done through the supply chain.
<unk> all these are things.
The other customers that are always trying to get more through so I think the demand.
Especially in the commercial in this space side of aerospace.
I think the demand is really starting to climb I think.
<unk> and what the industry can get out from forgings and castings through all of the other processes that it takes to get you there but.
But I think as far as.
<unk>.
The need for things to get done I think it's all there.
Okay.
And then I guess.
Our final question is.
As you look at.
Margins the gross margin.
I jumped on the call just a touch late so I apologize if you Dennis.
And if you've talked about this but in the gross margin side.
<unk>.
You talked about your cost being.
Where your pricing is now sort of matched your labor increases.
So should we see the gross margins start to.
Kind of normalize in that.
Maybe 30% area.
For the rest of the year.
Okay.
I'll take that.
Thank you Mitch.
That's about right, yes, it does vacillate, a little bit with volume I mean, Q1 is normally a little lower than the other three quarters Q2, and three it can be a little higher and then it might level back out in Q4, but 30 for the full year, yes feels about right you've got mix, helping us now data solution strength of growth is certainly helping.
We had some lower healthcare costs in the quarter, certainly helped as well, but yeah. That's bigger topic you just raised though this lagging effect last year, we saw inflationary pressure of the pay rates going up faster than the bill rates that Dave kind of normalized did kind of level off so thankfully, thus far and for the remainder of the year, we're not sensing that inflation.
Larry pressure, we dealt with all last year, we kind of caught up in that kind of crossed over so yes, it should be.
A very normal year, and a solid year and gross profit margin, we might not go up 100 bps year over year as we have done.
Years ago, but we should definitely hold solid maybe ever so slightly bring it up but yeah. We feel very confident that there's not any real headwinds there hitting us and maybe a little bit of tailwind helps us from balancing out pay rates and bill rates at this point. So we feel pretty good on gross profit and certainly sales mix is going to help us too.
Is there anything at Walmart question, just on SG&A is there anything unusual going on SG&A for the full year.
No there should be pretty much again same as gross profit nor.
Normal year, no real headwind no tailwind all of our cost out.
Were recovered last year I remember placed so yes, you have a pretty comparable year normal year of year over year, nothing nothing unusually good or bad should be very comparable and again as we said earlier in Q1 and Q4, we'll say it again working very hard to keep overheads flat if not lower so we fully expect that for 2003.
In Europe , our energy costs and rock, we budgeted for and it's exceeding a little bit over what we budgeted for.
For instance, in some countries. They went back to the previous year and charged in pattern to what happened in 2002, so there's a little bit there, but it's not so much that we called it out per se.
Okay. Thank you for your <unk> for taking the questions.
Got it thank you.
One moment our next question please.
Okay.
Okay.
Our next question comes from Brian Russo with Sidoti. Your line is now open.
Yes, hi, good morning, good morning, Brian .
Sorry, if I missed this because I know.
On the call.
A little late but just on an <unk>.
The oil and gas year over year revenue.
Downstream refining showed a nice.
3 million pickup.
In in revenue.
Does that.
I'm trying to recall I believe that sector was somewhat depressed in first quarter 'twenty, two but is that kind of.
Italy year over year revenue.
Run rate increase we might expect because I assume the turnaround season, probably didn't start and.
Until.
Late in the first quarter it doesn't pick up until Didnt pick up until April and into May.
So.
You may want to talk a little bit about the.
The restatement of some of the yes.
Yes, there were just yet.
One quick note there Brian if you noticed on the press release, there's a footnote one on that table, we had a small.
Well re class last year between up and downstream we had an account that was misclassified. There. So we did restate the prior year breakdown of those three subsectors. So downstream was not as down as we thought it was last year that benefit went.
Into downstream from us.
And.
Youll see that your comparisons right it is up $3 million quarter over quarter.
We did restate the prior year number there just to be compare comparative so it wasn't down as much as we thought but but yes that rate at that now is ordinary that increase youre seeing there just under 10% nine three.
Is is a good comparison and we are seeing.
Very kind of solid stable market there in the downstream with some good growth to it and add a little color to that Brian There was more work in the January February period. This year than there was last.
Typically customers trying to get a whole host.
A lot of the resources that are available in the market and the colder times because you don't have as many northern older facilities to try to take turnarounds than.
So there was a little bit more work this year in January and February , which also helped the quarter quarter over quarter per year.
Okay, Great and then on aerospace and defense it's down.
Year over year.
Would you discuss but if I recall there was one single defense project that was delayed in the fourth quarter of 2022 and it was supposed to resume in the first quarter of 'twenty three did that actually occur.
So I still vacillating as though we're still there we're still working but there has been.
<unk>, we're still working on that I'm, leaving today go onto something.
Some.
Confidence in those funds from the defense sector. So theres still a lot of activity in there and we still believe it's right, but you know how it is with.
Materials and government spending sometimes things go up and down but overall, we still see a huge potential in there, but it's still kind of bouncing around longer than what we expected. Although we are still there.
Okay, so that that might be a contributor.
Later in the year, yes, absolutely.
We didn't do anything for us per se in the quarter, but we still believe it will come back up.
Okay, Great and then.
Just trying to triangulate your topline revenue guidance rate of low end is three to maybe the high end of seven plus percent.
Where do you see the kind of the the end market mix will it be comparable to where it was at year end of 'twenty two.
Or are you expecting.
A high single digit growth in OMG.
No.
Slower growth in aerospace and defense, just trying to get a better feel for what that mix.
It might look like and then as it compares to say pre pandemic levels to kind of feel comfortable that things have normalized.
Yes, I would say the oil and gas probably is more of a.
Solid mid single digit rate.
I would think the aerospace and aerospace defense.
We should be looking at from the aerospace side alone we should be looking at double digit growth through most of the year.
Aerospace and defense it can bounce around a little bit by that one site and how all of these but across the aerospace itself is going to we believe that segment of it will grow by double a lot of times when we're working on aerospace components, we're not sure how much is military and absolutely throw into that same market.
But the aerospace itself will be double digit growth in data solutions will be double digit growth, which is PCM asset onstream.
And so look for those.
Although the oil and gas one to all be in double digits in apparel.
Dana.
<unk>.
The three different segments, that's just customer dependent if you get a big project.
And up mid or down or something like that I would say.
For us.
While they're all going to have a chance of growing at different rates.
Probably see maybe a little bit more growth in the upstream side and the other two this year.
Depending on the.
The contracts, we have up now that will be coming through.
Of the three in private is a little bit more on the upstream and those are nice because the upstream is a lot more of us.
It's a less volatile revenue side.
Cycle that really don't go up and down the facilities are larger and they try to keep on staff.
Our rate is constant partly because of a bad space and capabilities. We don't have a lot of room to go up and down anyway. So.
And that sector is good for us because it becomes a lot more baseload type of sales.
Another important feature Brian is the balance that you have there this year, yes oil and gas is strong yes aerospace.
We'll have another good year, not maybe not quite as good as last year. The growth in data obviously is affecting all the end market census, I would thing, but the other good element here is that all the other end markets, putting aside the couple of larger ones, although mostly up this year. They were all mostly down last year. So I think this better balance we have across the bigger end market portfolio.
Is it real goods.
Strong point for Us this year, we're all geographies are doing very well all service lines are doing well with our guests and all the non core markets are actually doing very well right now that was not true last year. So that's where I think Mike carrier today. This year is really the strength and balance across all the end markets all the service offerings all the geos.
<unk> all are doing fairly well and that's a really good thing for US defense will pick back up commercial aerospace is very good right now as this private space. This offense is probably the only one little sub industry sub sector.
Having some delays right now, but it will as Dennis said, it'll get back and things, but I think it is really a year of balanced cost any way you want to sort of bifurcate or our revenue stream.
Giving you more ways to view it I think they'll all be relatively balanced and robust this year and thats, we like that.
Alright, Great and then just one last question on SG&A.
Flat or down I guess, you mean flat or down on a full year basis.
Relative to 2022, which was $166 5 million.
Yes.
Good morning.
Flat yes.
Okay. So.
So it's basically a $42 million.
Or less run rate.
Regardless, what the percentage is.
It is a revenue is that how we should look at it or are you still targeting kind of low 20%.
20% to a longer term aspiration.
It's not it's not particularly sensitive to revenue volume the SG&A, but yes, it'll level back out.
Q1 will be the high number for the year at a level back out throughout the year and yes. We have every intention and I believe we will keep it flat to slightly down with last year's number absolutely and it'll be it'll be relatively flattish the rest of the year, it's not particularly sensitive to revenue volumes.
Got it one last question I apologize, but when you are at $3 two five times leverage now well on your way to three maybe can you just.
Remind us.
What's the priorities and use of of your sustainable excess cash might be once that.
That three times leverage is comfortably intact.
Sure I'll start with that and Dennis can expand upon that but obviously job. One right. Now is continue to to knock back down the leverage below a three so we will do that thats, where residual free cash flow is going to go until then at that point as we've said the last couple of quarters, we'll have some optionality we will.
Our other investment options one as <unk>.
Dennis mentioned in his prepared remarks is investing in some of our shop labs on the aerospace side additional attitude mechanical things expanded capabilities for customers. That's a place I'd like to put like put some more capital investment around shop labs.
No.
Keeping overheads calibrated and we can invest selectively in our own capabilities organically is where we're really where we're focused right now but at some point not not in 'twenty three but some pointed out in the future acquisitions may become railroad relevant again, but right now we're really focusing internally on what we're building and investing on for for future growth.
And Brian to the things that we're doing in that data across all of our segments to shop, where we're adding another smaller facility and we're adding more shooting at all either.
Really.
Very good long term baseball kind of investments that we're making.
We'll continue to look at.
And so I guess in oil we have some very strong connections with some of our customers and some of the things we want to do they're growing so we're below <unk>.
We'll selectively making sure what we're doing.
Things that we've seen others can themselves in trouble with and all of that but I don't see any reason why we do want to give them all three because we do believe.
As a tranche of investors out there that believe that magic number we need to get back into the twos, so until we get below that.
Pretty much stay focus on paying.
Paying it back down but like you said sometime this year will go below that three is our is our belief.
And then we'll have a lot more optionality.
Make it a little bit more fun to see where the market's at what else, we can do with them.
Okay.
Okay, great. Thank you very much.
Hi, Thanks, Brian .
I would now like to pass it back to Dennis.
<unk> for closing remarks.
Alright, Thanks Judah.
I'd like to thank everyone for joining the call today and for your continued interest in restaurants, everyone. Please have a safe and prosperous day. Thank you.
Sure.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Okay.
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Yes.
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Thank you for joining Mistras group's conference call for its first quarter ended March 31st 2023, My name is Jada and I'll be here that manager will.
We'll be accepting questions. After management's prepared remarks participating on the call for Mistras will be Dennis Petro body, the company's President and Chief Executive Officer, and Ed Pathmark, Senior Executive Vice President and Chief Financial Officer.
Want to remind everyone that remarks made during this conference call will include forward looking statements the company's actual results could differ materially from those projected.
Factors that can cause actual results to differ are discussed in the company's loves recent annual report on Form 10-K, and other reports filed with the SEC.
This discussion is this conference call.
We will also include certain financial measures that were not prepared in accordance with U S. G. AAP reconciliation of these non USDA AAP financial measures to the most directly comparable U S. GAAP's 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's website I will now turn the conference over to Dennis Bertolotti.
Thank you, Jeff Good morning, everyone and thanks for joining us today.
We continue to make significant progress capitalizing on our strong market position in <unk>.
Innovative new technologies to grow <unk> and improved profitability.
As evidence of this in the first quarter, our revenue grew five 5% in constant currency.
Our gross margin expanded 270 basis points.
And we drove SG&A as a percentage of revenue down by over 40 basis points.
<unk> adjusted EBIT up 88% increase.
These financial results were in line with our most recent outlook for the full year, which we are reaffirming today.
And our overall financial condition.
Also continued to improve with our bank defined leverage ratio reduced to just under three to five as of quarter end and we are well on our way to achieving our goal of being below three <unk> by year end.
We saw strength in our energy business in Q1.
Which is benefiting from the rapid growth of our data solution revenues.
Your organic growth in our business. In addition to lower health care expenses in the quarter helped boost our gross profit margin by 270 basis points from the year ago quarter.
While reported SG&A was up on an absolute basis due to a few infrequent items during the quarter.
We are working hard and making progress in fundamentally lowered our overhead towards our longer term aspirational target of 20% of revenue.
The first quarter represented a very solid start to our year, and which we expect to drive growth improve profitability and cash.
To invest across the organization to unlock the hidden value of our strong brand products service line capabilities and innovation.
I'm, particularly pleased with the growth of data solutions.
But you can now see in the supplemental schedules included in our earnings release.
Data solutions includes our flagship once week PCM as.
New century online monitoring and.
And the majority of our upstream business.
Various other data monitoring services, including in Sarnia.
We were early to invest in its exciting area and data solutions permeates throughout all of this trust geographies and industries.
Data solutions revenue grew by over 35% in the quarter.
Now represent 10% of our total revenue as compared to about seven 7% of our total.
Total consolidated revenue for the first quarter of 2022.
We believe that data solutions will grow quicker than other service offerings during 'twenty three and over the longer term.
Note that data solutions revenue is higher than we previously described it which is due to the inclusion of <unk> customer reporting.
Strength, you software within the data solutions rollout.
Yes.
Nevertheless.
What level of data solutions AD Creatives and.
And as a substantial reason why we are confident that we can achieve the significant bottom line increases were expected.
Our full year guidance.
We are continuing to see customers recognized the need to integrate data more fully to optimize their performance.
Whether that involves getting data quicker are benefiting from the insights and data analytics. The markets have continued to increase their need to better capture and utilize data generated better facilities.
In order for them to stay competitive.
We expect to see us continuing our investment in this area responding to market demand and creating new growth opportunities.
Expanding within customers as.
As well as.
Now add existing customers.
Similarly, our strategy to take on more of the machine.
Brian and other activities complimentary to our testing and inspection services.
Particularly in aerospace is driving growth.
As we address unmet customer needs.
Ply chain issues continue to challenge the industry.
Forcing customers to seek new ways to move faster and simplified our logistics.
For instance in the aerospace market, we are opening a new 20000 square foot facility adjacent to our Ohio operations to accommodate the increased demand for our solutions.
In addition, other customers are supporting the installation of four new CNC machines in our Georgia location.
To expand capacity and increase the throughput for their products.
We believe our continued ability to provide unique solutions will help alleviate some of the supply chain issues that our customers face.
Enable us to grow and expand our solutions and aerospace as.
As well as other end markets.
No there are still some isolated project delays in the defense sector.
Which offset the progress being achieved in our overall aerospace and defense vertical. Nevertheless, we believe defense is a large and growing opportunity over the long term.
And we are aggressively seeking market share gains in this industry via our established relationships utilizing our technical solutions consultants.
Our onstream in line inspection testing business has continued its record growth of 2022 and.
And to the first quarter of 'twenty three.
Onstream generates a considerable portion of its revenues from data solutions.
And it serves both the upstream and midstream markets.
Its versatility is helping to generate robust.
And margins, which we expect to continue in 'twenty three.
Yeah.
There was also a significant progress achieved during the quarter preparing for future growth towards improving operating leverage and profitability.
Such as investing in technology to digitize standardize our processes.
Finally, I would like to emphasize that our financial condition continues to improve.
With our leverage ratio at the lowest level since immediately prior to the Onstream acquisition in December of 2018.
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 and good morning, everyone.
Results for the quarter met or exceeded our financial expectations.
We continue to string together a record of consistent growth. Despite operating markets that continue to closely approach, but have not yet fully returned to pre pandemic levels. While also working through significant foreign currency headwinds.
Okay.
Revenue growth was five 5% on a constant currency basis in the quarter.
This is the result of a combination of a stable and Brazilian oil and gas market.
Improving demand in commercial aerospace.
Strong growth in private space.
In addition to significant growth of data solutions.
Results across all markets.
We are also benefiting from pricing actions initiated last year, which are now which are now balanced with employee wage rate increases, whereas we had been lagging last year with a more pronounced inflationary pressure that we anticipate this year.
Gross profit margin for the quarter increased 270 basis points.
Compared to the prior year.
Due to lower healthcare expenses, and an improved sales mix.
Data solutions.
Selling general and administrative expenses in the first quarter were up 900000.
As compared to the prior year period due to a few infrequent items, but more importantly down 40 basis points as a percentage of revenue.
Cost containment remains a focus and it's one of the main reasons. We are confident that we can increase the operating leverage in our business model.
Our North American segment, which was formerly called services.
Generated significant operating income in the first quarter of $9 4 million up from $3 8 billion a year ago.
With the operating margin expanding 400 basis points.
As Dennis mentioned earlier in addition to the absolute revenue growth.
North America's operating margin is also benefiting from the rapid growth in data solutions.
Adjusted EBIT for the quarter was $10 4 million compared to $5 5 million a year ago, an increase of 88%.
Due to the aforementioned gross profit expansion and this was consistent with our most recent expectations.
Our effective income tax rate actually a benefit for the quarter was 15, 6%.
For modeling purposes, we would anticipate an effective income tax rate of approximately 30% for the full year 2023.
In an encouraging change from our historical trends, we saw positive operating cash flow in the first quarter, primarily due to an improvement in DSO.
Free cash flow was essentially flat in Q1 compared to a negative $8 6 million in the prior year period, which was a significant improvement.
Year over year, despite incremental capex spending of $1 5 billion for new projects commencing in the year.
For the full year, we still expect capex of less than $20 million.
Okay.
We paid down almost $2 million of debt during the first quarter.
Lowering gross debt to $189 3 million.
Net debt of $172 $6 million.
As Dennis stated earlier this is a milestone event as we haven't been operating cash flow positive or pay down debt in the first quarter since pre pandemic levels, specifically back to Q1 of 2019.
Keep in mind as well that our bank group consists of some of the largest U S banks.
This provides us comfort regarding both availability and access to liquidity and we have ample access under our existing credit agreement, which does not mature until July of 2027.
Despite the recent increase in reference rates, we still expect total interest expense of around $13 million for the full year.
Due to the recent step down in leverage and continually deleveraging throughout the remainder of the year.
Okay.
Given the solid results in the first quarter, we are reaffirming guidance for the full year 2023 that being revenue of between 710 and $740 million adjusted EBITDA between 70% to $75 million and free cash flow between 30% to $35 million.
Given stable and resilient energy markets.
Proving aerospace demand and continued data solutions growth, 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.
While 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.
Okay.
And with that I will now turn the call back over to Dennis for his wrap up before we move on to take your questions.
Okay. Thanks, Ed to summarize we had a strong first quarter to kick off the year.
And we continue to be optimistic about <unk> future in 'twenty three and beyond.
Data solutions now represents 10% of our business.
This will continue to provide top and bottom line growth.
We're making tremendous progress preparing <unk> to improve productivity and efficiency to better leverage our inherent strengths.
Capitalized in the sectors of our markets that are the fastest growing.
So we can serve our customers in this ever changing environment.
Before taking your questions.
I would like to sincerely. Thank all the talented dedicated mistras employees out there for their continued focus on delivering a safe and superior service offering.
Meeting our customers' highest demands.
And with that data.
Please open up the lines for questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question.
Sorry, one one on your telephone and wait for your name to be announced.
Jay Your question. Please press star one again.
Please standby, while we compile the Q&A.
Yeah.
Our first question comes from Chris Sakai of singular research. Your line is now open.
Yes, hi, good morning.
Good morning, Chris.
Can you talk about.
The growth into <unk>.
2023 of Onstream and data solutions.
Or will we see something similar to this quarter.
So we believe that both.
I assume itself specifically in the larger data solutions are going to have a good growth year, we would think bulk of those.
Should be in the double digit range for the full year quarter to quarter things will change obviously as projects move in and out.
There is a lot wrapped up in data solutions to PCM, and new century, and Onstream and all those other ones. The online monitoring. So we believe there is enough.
Different service line offerings that as one goes up and down the other more than make up for it. So yes, we see a good year for <unk>.
Everything in their specific downstream.
<unk> had a great first quarter.
Our growth.
As planned since the acquisition they were a Canadian based company and had a fairly strong representation in Canada before we acquired them.
They are still doing well and growing in Canada.
But the bulk of their growth has been in the U S. As we had anticipated by leveraging off of our customers.
Things that we have as far as connections that we just didn't have that service line offerings.
Okay.
Sounds good and can you talk about some story of this quarter.
What would be what's the adoption rate there.
The adoption rate hasnt been where we expected, but we had as many if not more inquiries.
And we're still doing tests, we still believe for the full year will be doing fine it gets a little up and down on that quarter by quarter, just because there is.
So some proof of concepts out there, but we're not only do a much better on the proof of concept.
On shore facilities or a piece of equipment. We're also getting the questions and inquiries about offshore as well. So we believe it's still in a very good trajectory.
Full year for that should be good.
If I can add to that Chris.
Some of this just needs a little one time like we did.
Promise last year, we did the installations.
Yes.
A little run time now some of the conditions that the jewelry declined on a bleed.
Just some time to have that happen now in the field, but remember this is all the installed on real working wind farms with real turbines, where you have to just have the conditions happened mother nature has to kind of just caused the event that we can now see on the blade and help the customer through so we need some of that mine. So yes. So so that will happen lots of quotes are happening out there it's similar.
Once week, we gave you last year lots of numbers on how many customers how many sites how many how many subscription same thing this year, we need some run time for all those eyeballs to see things and learn things and expand things can get user groups going and then we'll go on another.
Full court press on expanding further but.
But again they are both sensorial once it both rolled into data solutions now the bigger envelope will be offering which is moving forward in aggregate and by digital pieces here, but some of it will be a little as Dennis said ebb and flow there, where you need to kind of let the customer absorbed what you just gave them learn from it worked with them to figure out how do they get to a higher use of that going forward.
We'll work through some of that this year, but instead is that data solutions will be growing in double digit. Please don't model, 35% all year. It may modulate a little bit, but it will definitely be in.
A nice solid double digit territory.
Low double digit.
Okay. Thanks for your answers.
Thank you.
Thanks, Chris.
Our next question.
Okay.
Our next question comes from Mitchell Pinheiro from <unk>.
And company your line is now open.
Yes, hi, good morning good.
Good morning, Mitch.
Just a clarification you talked about on stream.
I think having a good quarter, but im looking at the overall midstream revenue being down.
How does that.
The easy answer is missed is that it.
Two parts of that one is that streaming participates with its customers both mid and upstream depending on the customer if it is coming from the gathering or gone into larger diameter. It could be a mid or an upstream. So while the third quarter was good it doesn't always flow only into midstream.
And the rest of the midstream for US is a lot of project related things that just kind of vacillate with with where to spend it. So for the rest of it there's nothing really to be read there that other than just capital projects coming in and out.
But <unk> revenue isn't just tied to one or the other of the two gas and oil is tied to the first two.
I don't see upstream and refining it's only the other two.
Got it.
And then.
So as you look throughout the year in midstream.
Has been.