Q3 2024 Mistras Group Inc Earnings Call

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Speaker Change: We Additionally, expect as key growth industry to continue with me mid teens revenue growth in 2025.

Speaker Change: We will continue with our longer term strategy of increased investments in this industry.

Speaker Change: And we will continue to extend our service offerings to include more additive manufacturing and mechanical work beyond inspection testing.

Speaker Change: We will also continue to expand our scope of work in the private space industry. As a result of robust demand for our services in this area.

Speaker Change: As such we expect continued strong performance in this industry over the longer term.

Speaker Change: The search for a permanent CEO is on track and progressing well.

Speaker Change: And my goal is to announce our next CEO before the end of this year.

Speaker Change: Once in place I will remain active as the chairman of the board and expect to work closely with the CEO not just during a transition period, but on a recurring basis going forward.

Speaker Change: To continue on the momentum and progress developed in 2024.

Speaker Change: Yeah.

Speaker Change: Partially offset with only a very minimal impact to net income and no impact to diluted EPS.

Speaker Change: All in all our efforts are resulting in improved performance.

I am optimistic not only about this year, but about 2025 and beyond as we continue to implement initiatives that leverage the unparalleled excellence talent experience capabilities and knowledge that have made Mr wants a leader in this industry for over 40 years.

Speaker Change: We sincerely appreciate your continued support and expect to reward your patients with significantly improved results over full year 2024 and for the longer term future.

Speaker Change: At this time I would like to turn the call back over to Manny for his closing remarks before we move on to answer your questions.

Manny: Thanks, Ed.

Manny: The third quarter represented another sequential strong top and bottom line quarter for Mistras.

Manny: Providing evidence and confidence for our future performance, given our new found disciplined processes and approach.

While we are optimistic of our outlook.

We know that there is nevertheless, still work to be done to achieve our long term aspirations and goals.

As I mentioned earlier due to the short run underperformance in certain sectors due to current market conditions and project push outs.

We are revising our 2024 guidance of full year revenue.

Manny: To between $725 million and $730 million.

From $725 million to $750 million previously.

Then we will not be.

Manny: Walking away from any business, but if accounts are not profitable we just can't continue to.

Manny:

B in that in that space with the with that customer.

No. It makes sense to me one last question I'll get back into queue.

Speaker Change: You highlighted that health care hit to gross margins can you kind of quantify how much that was of an impact in the quarter.

Manny: Yeah.

Manny: Okay.

Manny: Okay.

I mean, it it's we don't exactly quantify the amount job, but it was you know not hundreds of thousands if not more like you know millions plus enough to impact you know that that gross margin dollar.

Period over period, so again, just more of a claims experience.

Impact theyre not nothing more structural than that.

Manny: Okay fair enough. Thanks, I'll get back into queue. Thank you for taking my questions. Okay. Thanks, Sean.

Thank you one moment for our next question.

Our next question comes from Chris Sakai of singular research. Your line is now open.

Hi, Good morning, Ed.

To get back to that the higher healthcare claims expense.

Was this more of a onetime thing what happened there to really increase that.

We had we had a couple of very high cost claimants.

Today high cost claimants are much more likely.

Likely than they've been in the past we had a couple of very high cost claimants and that and that did impact the overall claim activity.

But when you remove those high cost claimants out of the equation.

Manny: Things are relatively normal.

Speaker Change: Okay great.

Can you talk about the the power generation and transmission revenue increase.

Speaker Change: Same with other process industries.

In defense in there as well and other very stable sector, and we can balance the load amongst the three to a certain extent as well.

Speaker Change: Do you want to address the data side. Many are I can I can explain that one too.

The data business is a little bit flat this year, primarily scheduled primarily due to.

Speaker Change:

[noise] unanticipated delays with.

Some implementations, but primarily due to push outs by our customers extending when they want to start with various projects, but we're very.

Confident and comfortable that next year, we'll be back into the mid teen growth rates in 2025.

This high margin business so.

This is a temporary situation, it's more of a timing issue.

We are comfortable that next year will be back on track.

Speaker Change: Okay.

Speaker Change: So.

Just hearing push outs and then seeing the account receivable.

Speaker Change: They stubbornly high this isn't a function of your customers having.

Speaker Change: Having any you know.

I don't say financial difficulties, but just starting to see some pressure on their own.

Cash flows.

Is there any any of that happening or is it does it vary.

Speaker Change: Just some.

Random and audit and.

Speaker Change: Push outs that just sort of all come together here.

Over the last quarter or two.

I would not connect those niche our customers are all blue chip good payers, we've had virtually no write offs knock on wood for quite some time, so it's not their ability to pay its just their desire to pay which we have to get better.

Speaker Change: And pushing and driving as I said on the.

I think that the.

Speaker Change: Speaking of interest rates I do think that's a relevant the last.

Couple of years, you get a real yield on overnight money that was not the case a couple of years before that so I think that is a factor, but that's on US we have to work harder to pull that money in but no. There's no cause and effect there there's no issues on our customers and its just their desire to pay does not their ability to pay that theres not a credit concern.

That that you should be implying there whatsoever that that's not the issue.

Okay Fantastic and then a couple of other questions.

Speaker Change: As you looked at the.

Speaker Change: The 2020 for outlook.

Speaker Change: Bottom end of your revenue range remains.

At $725 million, but you did lower the bottom end of the adjusted EBITDA range by $4 million down to the $80 million Mark.

Speaker Change: Is that a is that a function of maybe higher margin.

Speaker Change: Just.

Speaker Change: Is that a function of a higher margin aerospace revenue being delayed why would the bottom end of that adjusted EBITDA falls.

At the same revenue level.

Speaker Change: It is exactly that mentioned as Manny said the data the data business is also.

A little more flat year over year, Youre too high Flyers with higher margin profiles attached to them are later in the mix. There. So you have an unfavorable sales mix affecting it affecting you there on the EBIT side, where the EBIT gap opened up a little more than the revenue side because you lost.

The more attractive piece of the portfolio, they're underperformed. So that's why that EBITDA number is a little lower in.

In impact there when we lowered the scale up of revenue.

Speaker Change: Okay. That's helpful and then I guess.

Speaker Change: I guess final question here.

Speaker Change: For many.

Speaker Change: <unk>.

Youre re organizational costs continue to be there I think it's.

Speaker Change: I can't remember, but 5 million year to date and you did about $12 million last year.

Linda when do we see the reward costs.

Speaker Change: Stopped.

Speaker Change: And and what has the current reward costs been centered around.

Speaker Change: And where are we.

In your.

In the in the reorganization efforts are we in the eighth inning ninth inning. If you could talk about that that would be helpful.

Speaker Change: Yeah.

Speaker Change: I can tell you that we are constantly evaluating where we are and where we should be and.

And we will continue to make changes that are necessary.

I wouldn't say, we're in the ninth inning, but maybe the sixth or seventh inning, because we have plans for 25 and beyond.

Speaker Change: To continue to improve.

Speaker Change: Where we are how we operate and how efficient we are.

We have areas that we've identified for 25 that we're going to be looking at to improve profitability and.

And some of those cases, we will have to make.

Make some investments and there will be some costs associated to them, but the return on those investments will be.

Speaker Change: More than.

Adequate to justify the cost expense.

Speaker Change: Yeah.

Speaker Change: Okay.

Alright, well, that's all I have thanks for the time.

Thanks Mitch.

Speaker Change: Yeah.

Speaker Change: Thank you I'm now showing no further questions at this time I would like to turn the conference back to Manny standard package.

Speaker Change: For closing remarks.

Speaker Change: Yeah.

Thank you operator, and thank you everyone for joining this important call today and also for your continued interest in Mistras.

Manny Standard: We look forward to providing you with an update on our business and progress achieved towards our ongoing initiatives on our next call.

Everyone. Please have a safe and prosperous state.

This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: Yeah.

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Speaker Change: Okay.

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