Q2 2019 Earnings Call
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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 SEC.
The discussion in this conference call will also include certain financial measures that were not prepared in accordance with us GAAP.
Reconciliation of these non us GAAP financial measures to the most directly comparable us GAAP financial measure 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 Investor Relations section and on the Fccs Web site.
I will now turn the conference over to Dennis Bertolotti Dennis.
Thank you Mr and good morning, everyone.
During today's call, we will give you an update on mistresses business performance.
Financial results for the second quarter and first half of 2019.
As well as provide our outlook for the remainder of the year.
Second quarter results were solid across the board from the top to bottom line.
Revenues margins net income, earning per share cash flow and adjusted EBITDA, all achieved our expectations with significant improvement both year over year and sequentially.
It is worth mentioning that our second quarter of 2018 was a very strong quarter for us.
Making our achievement this quarter, even more noteworthy given the challenging comparable period, we maintained a strong momentum into the third quarter and we continue to feel good about where we are and our outlook for the year. Consequently, we are reiterating our existing fiscal 2019 guidance, our underlying business remains robust with revenues up almost 5% from a year ago.
Through a combination of both organic growth and expected contributions from our most recent acquisition.
On a constant currency basis revenues were up almost 6.5%.
Results were once again led by strong performance in the oil and gas market, which is primarily reflected in our services segment.
For organic revenue growth was nearly 4% on a constant currency basis.
Although we did get off to a slow start in the first quarter.
The second quarter returned to a more normalized level activity such that the overall market over the first half of the year puts us on track for a solid growth we anticipated for the full year 2019.
And our recent wins and market share gains and we feel very confident in our outlook for this sector.
With nearly 50% of our oil and gas business being evergreen contracts and the addition of Onstream and the less cyclical midstream segment, we continued to structure, our operations to better balance of market risk.
While oil and gas was the largest contributor it was complemented by growth in other verticals.
For instance products and systems recently won a $4 million bridge monitoring contract.
We've also had several other new wins across multiple customers spanning several of our end market verticals.
And we continue to bid on new opportunities on a global basis.
Our recent acquisitions continue to perform well.
What's been had a good 2018 and that has continued into 2019.
Growth in the aerospace market is one of our corporate objectives and the outlook for the industry continues to be strong in 2019 and beyond.
Onstream, which was acquired in December 2018 is also having a good year.
They are doing particularly well under you us where we have been able to leverage existing mistrust midstream relationships.
We are excited about the recent commercialization over 20 inch tool.
And the progress being achieved with their larger 24 inch tool, which is expected to be ready later this year.
On stream will be a strong pillar of our overall growth strategy focused on pipeline integrity.
The various initiatives, we have undertaken from product divestitures to pricing discipline.
Is leading to margins that have been consistently expanding over the last several quarters.
In the second quarter, we extended this trend with a 120 basis points expansion of gross margins to 29.9% from 28.7%.
On our key corporate initiatives is to achieve appropriate value for our services.
And this year our goal is to maintain gross margins at this level throughout the remainder of 2019.
The company has historically always generated attractive cash flow.
And our cash flows from operations are on track so far 2019, improving over the first half of last year to $21.1 million.
Free cash flow of $9.1 million is also up on a year over year basis.
And we'll go through our detailed financial results in a few minutes, which evidenced our strong execution, thus far in 2019.
For the longer term view.
We have been steadily, albeit somewhat quietly transforming mistrust to become the supplier of choice to position ourselves for additional wins in the future by maintaining our focus on the following.
Hey, delivering value, we capture relevant data and quantify the value we deliver be meeting our promises regardless of any hardships this might entail.
See working on the same side of the table as our customers.
Innovating to drive productivity for them.
A great example is mistrust digital where we include customer feedback and developing a solution and lastly, D developing industry, leading productivity tools like our advanced radiographic testing color.
With this innovative technology covered by IP protection.
Each of these areas are key differentiators, enabling those to change the conversation with our customers create demand and gain market share.
Our core business is solid and growing organically and this speaks volumes to our strong product offering and the demand for our services as fostered by our excellent industry relationships.
We are also investing in and preparing for the future by developing technology oriented growth channels.
Onstream stream view data analytics facility.
Our Pcms software and more recent field tablets are just some of the technology, we are using to build a platform that anticipates the impending growth and the demand for more predictive analytics.
Mistrust digital is an important part of our long term vision.
We are focused on building it both organically as well as through strategic acquisitions that complement our existing technology.
We are on track with our expected progress or mistress digital for the rest of 2019, we expect to keep standing up new beta sites within our customer base.
As we ensure our customers are getting the information and value that they expect from the program.
In early 2020, we should be creating new fulltime sites using our digital solution.
And what will be an early version of the full benefits that can be achieved by utilizing real time smart data tools.
I will now turn over the call to Ed for a detailed review of the financials for the quarter.
Thank you Dennis.
To reiterate Dennis his comments second quarter results have us on pace to achieve our financial performance objectives for the full year.
As reflected in our original outlook for 2019.
Looking at results for the second quarter consolidated revenues were up nearly 5% to 200.6 million, but up closer to 6.5% on a constant currency basis.
Organic growth was 2% with acquisitions contributing 5% offset by an approximate 2% decline due to unfavorable currency translation.
Consolidated gross profit for the quarter was approximately 60 million, a 9% increase over the year ago quarter.
Consolidated gross margins improved significantly to 29.9% for the second quarter compared with 28.7% in the prior year, an increase of 120 basis points.
Margin expansion reflects a more favorable service and product mix, which in turn reflects a more disciplined growth strategy.
Selective pruning of underperforming operations and contracts and an acquisition strategy focused on higher margin businesses.
Operating income improved 50% for the second quarter to $15.4 million compared with $10.3 million in the comparable period last year.
As Dennis mentioned, our second quarter last year was a strong period to compare against making our performance this quarter all the more remarkable.
Net income improved in the second quarter and was up 24% and diluted earnings per share were up 30%.
Both on a GAAP basis.
These increases substantially outpaced topline growth and are indicative of the leverage inherent in our model.
Second quarter results included a net bad debt recovery of $2.7 million on a pre tax basis.
This was comprised of a current period $1.7 million cash collection.
Related to a customer originally reserved in 2017.
And a $1 million or partial reversal of a customer reserve recorded earlier in 2019.
Adjusted EBITDA was up 14% to $24 million for the second quarter of 2019, compared with $21.1 million in the same period last year.
As a percentage of revenue adjusted EBITDA expanded nearly a full point to 12% for the second quarter compared to same period last year, which demonstrates that our focus on both organic and acquisitive growth being margin accretive is achievable.
As Dennis mentioned earlier the company is a strong cash generator.
Second quarter cash flows from operating activities were $12.9 million and free cash flow was $9.1 million.
On a per share basis free cash flow was 32 cents per share for the second quarter.
We anticipate continued strengthening of our cash flow generation over the remainder of the year.
Attributable to our renewed focus on working capital management.
Looking more closely at our segments.
Services revenue increased by 9% in the second quarter.
Organic revenue grew 4% and Onstream incrementally added 6% to revenue growth.
Unfavorable currency translation reduced services revenue growth by approximately 1%.
The services segment generated a gross profit margin of 29.3% for the quarter.
A significant improvement of 210 basis points compared to the year ago period of 27.2%.
Margin expansion is a key corporate strategy and we are pleased to see our margins continue to expand in our largest segment driven by pruning lower margin operations and growing higher margin operations, including acquisitions, such as west Penn and Onstream.
Very strong operating leverage in this segment.
With significant contribution margins were in we can see a significant portion of incremental revenue drop straight to operating income.
This is one reason we are confident we can sustain margins at the current level over the course of this year.
International revenues in the second quarter were down nearly 10% from a year ago with about 6% of that attributable to unfavorable currency rates and 4% due primarily to the run off of the low margin German staff leasing business.
For the second quarter International reported a 29.8% gross margin compared to a 30.9% margin a year ago, largely due to lower labor utilization.
Products and systems revenues were down $1.1 million in the second quarter.
With this decline being largely attributable to the product line that was divested in 2018.
Gross profit margin increased slightly for this segment at 43% compared with about 41% in the prior year.
As Dennis mentioned products and systems.
Up only modestly over the same quarter prior year.
Keep in mind that we achieved these results despite the inclusion of overhead assumed with on stream.
And the ongoing investment, we are making in sales and marketing as well as with developing and launching mistrust digital.
We are confident that the first half of 2019 spending level is a reasonable run rate for the full year.
We continue to review and rationalize our companywide overheads for savings to make sure we maintain an efficient footprint to support and invest in our growing business.
Operating income was up nearly 50% for the second quarter to $15.4 million compared to $10.3 million in the prior year.
non-GAAP operating income was $13.5 million for the second quarter of 2019 compared to $10.5 million in the prior year.
Net income was $7.4 million or 26 cents per diluted share for the second quarter of 2019.
Compared with $6 million or 20 cents per diluted share respectively. In the same period last year.
non-GAAP net income was $6.2 million or 22 cents per diluted share for the second quarter of 2019, compared with $6.1 million or 20 cents per diluted share for the prior period.
This was a 10% increase in non-GAAP EPS.
Adjusted EBITDA was $24 million for the second quarter compared with $21.1 million in the same quarter last year, an increase of $2.9 million year over year.
As a percentage of revenue second quarter adjusted EBITDA was 12% nearly one full point improvement over the same period in the prior year.
The company generated 12.9 million of cash flows from operating activities and $9.1 million of free cash flow for the second quarter of 2019 due to strong earnings a positive reduction in working capital and better utilization of cash on hand.
The company's net debt defined as total debt less cash and cash equivalents was $257.9 million at June 32019.
Compared to $265.1 million at December 31, 2018.
The company paid down $17 million of debt during the second quarter of 2019 alone and has reduced total debt by over $20 million. So far this year.
As defined in our credit agreement our leverage ratio was approximately 3.75 times as of June 32019.
It is our goal to reduce this ratio to around three times leverage by the end of this fiscal year and to get below three times leverage early in fiscal 2020.
Given our cash flow annual interest expense and net debt. We believe our balance sheet is strong and will support the funding of both our organic growth objectives as well as any selective tuck in acquisitions.
Our effective tax rate was 37% for the second quarter of 2019, we project our effective tax rate to be approximately 35% for the full fiscal year.
And with that I will now turn the call back over to Dennis.
Thank you Ed.
Heading into this year, we had anticipated a challenging first quarter, but a return to a more normalized level of activity beginning with the second quarter and extending through the balance of the year.
And that outlook is proving out to be the case.
Recent organic wins, which together with some remaining opportunities only strengthen our conviction about the full year outlook.
Macro level economic drivers also remain positive.
So we are confident in maintaining our forward momentum.
And are reiterating our guidance for the full year 2019 that being.
Total revenues are expected to be between 765 million to $785 million.
Adjusted EBITDA is expected to be between 90 million and $93 million.
Capital expenditures are expected to be up to $25 million.
And free cash flow is expected to be between $42 million to $45 million.
The company is very please with a significant level of organic revenue wins that we have booked in 2019.
We are successfully winning this new business due to a number of factors, including our solid reputation and brand.
Our consistently strong execution.
Including an ability to quickly staff up with qualified certified personnel to meet customer requirements.
And our ongoing investment in digital and go forward operating systems.
We are focused on differentiating ourselves in the market, particularly through our spanning service lines, which solve for customers needs have reduced overall labor to accomplish a given project.
And evolving digital solutions as I mentioned earlier.
We also remain firmly committed to maintaining our position at the forefront of leading the development of advanced inspection tools utilizing proprietary technology.
We add value and this enables us to price at market and generate solid operating profit was predictable attractive cash flow.
In the process, we serve our customers with an exceptional return on their investment by delivering top quality results with superior economic value.
I am confident that we're on the right path executing on our strategy and creating value over the short mid and long term for Mistral shareholders.
We will now take your questions operator, please open up the phone lines.
Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered or you wish removed himself from the queue. Please press the pound key again, that's star then one to ask a question to prevent any background noise. We ask that you. Please place your line on mute. What's your question has been stated.
Our first question comes from Tahira Afzal with Keybanc. Your line is now open.
Thank you.
Dennis and team congrats on a great quarter.
Thanks, Sarah Sarah.
I guess first question.
If I look at your top line guidance.
Essentially yes, Ben it's assuming a flat revenue profile.
This is what you saw this quarter.
So I would love to get a sense of what.
Do the bottom end.
Your revenue guidance then.
That's a few being conservative.
You're asking what's our bottom end of our revenue guidance is what you're saying well I mean, the bottom end would assume thats revenue fall off.
And the second half.
So I was just trying to get an idea what scenario would lead to that.
Yes.
Well I've said, we're not we don't believe we're going to hit the bottom end, but I mean, we're still we're still thinking we're coming closer to our our midpoint.
All right now we have done enough really to analyze and we've got as I was trying to make up for Q1, we believe Q3 and four will be on track with what we thought.
Late spring and others, possibly you could have a late fall, but we believe by the time the year as doctors should be we should be comfortably flows through our midpoint.
Okay, and then as you know mid point.
Threed.
Revenue growth good.
I guess.
Is that what you see going on.
Talk about next year.
But assuming sort of a low to mid single digit revenue growth line.
Some more margin expansion.
It seems like you should be in a position to comfortably crossed the 100 million and EBITDA.
Yes, I got it.
We don't like keep talking about the headwinds of the past, but we still do have for a full year 11 million from the one big customer and now we're losing the fall off from the German portion of the manpower, which is full year going to be somewhere around another 15 in euro also about 17 or 18 or more so you're talking close to $30 million that we've got and we're still trying to put behind us when you throw that into where we're at for the full year thats. Another almost 3.5% so you're talking mid to high single digits, you know you're talking six or seven we believe we can outperform the market. We believe the markets in that 3% range. Maybe this year were closer to market, but next year. We believe we can be debt.
Got it very helpful that asked the last question I think my site, but that.
Dan and thank you for arranging for that.
Ready brought into sharper focus importance.
Yes digital initiative seems that the initial traction has been encouraging how much do you expect those to help as you look out or yellow so devin.
Yes, Hi, Tahira as John .
Thanks for the question. So we're very excited about mistrust digital.
We have our first beta site just convert it to a paying customer in Q3.
And.
They they are talking to other.
Refineries within their fleets and it looks like we'll have a second order fairly soon within that same customer.
We have a number of sites lined up in our Q and right now it's just a question of trying to logistically.
We'll get to as many as we can in the second half of this year. So as we look out to next year I think.
There are several million dollars in revenues that will be incremental to to our top line and we expect the margin profile to be pretty accretive.
Got it understood.
So then I will hop back in the queue.
Thanks, Thanks, Sarah Thanks for coming out into the site.
Thank you and our next question comes from Andrew Obin with Bank of America. Your line is now open.
Thank you this is David Ridley Lane on for Andrew Obin.
Wondering how the bidding activity has been outside of the oil and gas sector in Twoq.
Bidding activity and meeting with what the rest of the year will look like you say.
New deal wins and.
Just if you're seeing any hesitation.
From your clients.
You know, it's hard to break it out by aerospace I would say thats fit and strong we haven't seen any deflection, but those are more annualized programs.
In the power sector for US a lot of the power sector is based on land and while those things don't go as far out we're still seeing the bids coming in so it's a strong spring and we expect to fall to be strong, but it's a little bit early for those kind of bids come to become an end, but we havent seen anything that would reflect the strong that portion of the power and we have been getting some wins inside a traditional fossil and nuclear.
Here in the us as well and I think Thats just.
More of market share gain so much then differences and where the market's going for us, but it's a reflection of customers coming back to look at first stability and their provider.
Understood and then on the Labor continued labor market tightness here in the us.
Have you seen any change in wage inflation for field staff.
Any a downtick in your retention rate.
For for the staff and.
Any pressure is wage pressure I.
A risk on your gross margin.
Goals.
Thank you Thats a good question I mean, what we've been seeing is pretty consistent there are areas in the west in the Gulf and areas where in industrial.
Starting to grow quite a bit on your activity, where they knew this was happening for a while so those customers have been talking to us about cost of living increases that don't increase the margins per se, but increase it to spend so that the passage right through to make sure that they have enough skilled employees because it is not just signing take it all the trades that are becoming an issue and they see that long enough, particularly in the Gulf and glassware, They plan and in talking to us for six months to a year in some cases about the large turnarounds. They would have in 2019 and how to make sure that were staffed up. So the answer is we don't believe it will hurt gross margins.
We believe.
It'll bump a little bit on revenue, but the bottom line margins will stay the same as wells gross.
All right. Thank you very much.
Thank you David.
Thank you.
And our next question comes from Chip Moore with Canaccord. Your line is now open.
Hey, guys. Thanks.
Jeff maybe.
Maybe you could expand on on stream a little bit how things are going in the us.
On some of those midstream.
Relationships and then.
The launch of the new tool how receptions been.
Yes, Hi, chip it's John .
We feel extremely positively about onstream uptick and and introductions into the mistrust customer base in the United States. The Great thing is that we have master service agreements with many of these midstream customers and it's actually shortening the sales cycle from stream because typically there is a lengthy process just to get those master service agreements.
Onstream has had nice traction.
We had some of our us customers on a limited basis so far.
In this market you have to earn your Spurs and.
And as they like to see a land and expand you get that those first couple of brands get great results and then keep going with those customers on stream into as many benefits.
In terms of service times turnaround time report turnaround time et cetera.
And in terms of the new tools.
Great reception, so far it's a 20 inch tool and very shortly 24 inch tool as Dennis alluded to in his comments, we'll be launching as well. So so far so good feel very very excited about it and ship it sent us. The other thing we really haven't gotten into yet is getting onstream integrated with more of our.
Our other services Pbms and some of the things we can do we we feel there is still lot there that that can be done and we're working on it and we think we'll see those benefits as the year progresses and into 2020 as well.
That's great color.
Maybe another one on more on the modeling side on international just remind us.
The exit of the German leasing business is that pretty much done now and how do we think about that.
Business in the back half of that segment in the back half of the year.
Yes, actually the anticipated start was for us in April and what surprised us a little bit as it started a little bit sooner employers are trying to get used to these new regulations, so they're hiring and moving and moving bodies around more than we expected it will progress through the year, we anticipate.
Maybe 90% of it being done by the end of 2019, there will be a little bit that.
That falls through 2020, but it probably won't be enough that we really went after mentioned in our talk about it.
It's just a matter of how fast do these customers. These large diffuse large employers take on these folks because they've always been integral to their business and they knew they couldn't just let them go and start over and I'm just trying to figure out.
When you bring them on and all that so it's it's that $15 million and euros. We believe is a pretty good number for the full year. So you are talking about somewhere in the next two quarters somewhere around the three and a half or $4 million a year.
Loss of revenue from that German segment, but we believe by the euro it will be behind us.
Perfect Thats helpful. Appreciate it maybe last one for me just on the guidance in the back half.
Similarly.
Sequential movement anything to consider on seasonality or anything you are seeing in Q3 on how we should think about that trajectory.
You know like any year. There is there seasonality in two and four are always are typically are better quarters, one and three are the weaker of the two when we change to calendar versus fiscal it.
And reduce that seasonality a little bit, but it's still there. So I mean, there's always the potential for a late spring in the late fall and if Thats. The case at four could pop out stronger and three but we expect them to both be being pretty good. This year, we're hoping that.
A lot of our customers stick to their schedule, if they move it a little bit and push off.
Q4 could be a little bit stronger.
Got it okay. Appreciate it thanks a lot.
You got it.
Thank you and our next question comes from Gerry Sweeney with Roth Capital. Your line is now open.
Hey, good morning, guys. Thanks for taking my call.
Just a quick question and obviously getting up the speed a little bit here, but what portion of your oil and gas revenue is recurring.
And then.
The follow up to that would be.
Any changes on that in the future and then how much visibility do you have into potential changes or customers changing weather.
Well thanks.
Hi, three questions, let's say oil and gas I would say of our oil and gas revenue, we're probably in that 40% to 50% debt re occurring so that helps us to not be as as.
Much of a seasonality in two and four but.
You're always going to have growth in the various market sectors. Fortunately for us this year a lot of our contracts were good contracts entering gas and oil.
So while we try to diversify into the power contracts that we've gotten some of the aerospace gas an iOS always bigger so we're probably going to be still holding in that and that met or high 50 range for the next couple of years or the percentage of our total but the percentage of the re occurring even by some of the contracts. We got this year were recurring type contracts. So we're trying to make them more and more part of what our profile is and I'm, sorry, I didn't get a chance write down was the third part of question I know so sorry, I didn't mean it I was just making sure your stand on your tears towards the end of the call, but you guys have.
How much visibility I mean, do you happen to be changes, obviously their contracts but.
Are they staggered multiyear so.
Sounds like.
Recurring should become a higher percentage of revenue for the next several years is that what I'm hearing.
Yeah, you're right I mean, what we've got and visibility is these are applies an RFP seasonality and things and they can they can go anywhere from a few months to six months to 12 too.
To complete the cycle, we don't have an idea of how many of those exactly will win or lose but we can what we can tell you is we're starting to see a lot more activity in those types of contracts I think a lot of customers are looking for.
Couple of years ago, there are chasing after the lowest price regardless of consequence, and I think that's changed not at the oil market has changed for them and they become more stable, they're looking for more stable provider. So there is a lot of changes in all the contracts and what we can say is we're seeing a lot more bidding activity and a lot more things going on.
What we can say Algeria is how many exactly will land, but we feel good about all the activity that's out there and Jerry that's it.
Just to add to Dennis is answer that's really one of the key reasons why we're focused on some of the things that Dennis alluded to in the call mistrust digital with the RNC color.
If anything those two additions to the portfolio really generate a lot of interest within the existing customer base and within prospects out there. So as Dennis talks about increasing the amount of recurring revenue those two will be kind of the anchors that we use to to make that increase occur.
Great I appreciate it thanks for the.
For the answer and I apologize for hitting three in a row no no problem, it's could keep them monetize.
Thank you as a reminder, ladies and gentlemen that Star then one to ask a question. Our next question comes from Edward Marshall with Sidoti. Your line is now.
Good morning, guys how are you.
Great. Thanks, So I wanted to ask if we could drill down on the services margin just a bit and I wanted to get a sense from you is how much of that improvement was maybe topline volume driven.
Maybe the acquisition of of Onstream is that pulls through.
Price driven wage inflation and the cost initiatives, if you can kind of parse out.
What kind of.
What kind of occurred.
In Q2 with services.
Hey, guys here, you've got a combination of factors, helping us there certainly the sales mix. This healthy the contribution of on screen being higher than the base average certainly helps there is efficiencies in our base business definitely helping.
As Dennis said, the called the cost pressures on labor or kind of a push we're getting some pass through so maybe that that may be flattish or or potentially even flattening out the margin a little bit, but you've got a combination from all fronts. There sequentially you have good leverage good contribution margin dropping down from what you saw in Q1 versus Q2 now. So you really have kind of all all levels contributing they're bringing us up to that pretty close to 30% gross margin and then expanding on down to the operating margin line. So we've kind of got all four components you mentioned, they're sort of helping the case at this that if I really believe it's kind of our plan is coming together some quarters, a little better than others, but we've been trying to push to get food contracts, we've been trying to push the good acquisitions and customers that see the value in us and not just trying to go after revenues and I think what you're seeing is a reflection of that in our margins going up from contribution through gross down to.
Operating and EBITDA, So I think.
You know what you're saying is that's hopefully a trend and we will keep pushing quarter after quarter.
Obviously, there's going to be some variation quarter over quarter, while we believe that we can to push the margins often keep growing our business hitting some organic growth getting acquisitive growth, while maintaining margin growth as well. We believe this is part of what we can do as our future.
It's good to hear.
We talked about on stream a bit in the call I'm curious if.
Can you talk about maybe the contribution of revenue and profits and confirm for me that you said that you saw very little in the us right now.
So that would have been a Canadian driven kind of revenue component.
Yes, it's John .
The.
Our net quoted the.
Business and revenue related to acquisition that was really the onstream.
Impacts and I think that was about.
5% of our financial centre of growth year over year, So were 5% of total I'm sorry.
In terms of the it's primarily a Canadian story, so far because thats really where they started and that's where the lion's share of the revenues are but the the growth that they've seen this year has been in the United States primarily.
And we expect that to continue in the future.
Now if I just think through how the whole of the holistic view of of trial runs with customers.
My sense is you're probably seeing a minor.
Drag on the profitability of that business, especially in the United States.
Is that measurable I mean is that something that when I look at your services business, we could see upside from here in the future as you kind of build that segment out go from a maybe a cost Steven revenues cost even kind of scenario to maybe a more profitable scenario that that that onstream could normally run im just trying to think through as you're investing in that and that both geographic and.
Product market within the United States.
Absolutely there is upside the great thing about a line of business that Onstream sand is that there were very few competitors, who do what they do and so margins tend to be healthier than what we have in our typical season. This is because theres just fewer competitors theres a high technology content to what they do buy software intelligence context, what they do.
So.
Their margins.
On their incremental revenue are very nice and even in the trial runs that we're doing now those tend to be pain.
But to your point its really utilization story no more loans that we can get.
Works here of customers that we can we can gain and add value to the better for us in the better for the bottom line.
So since you brought it up could you kind of talk about the incremental margin that business, maybe the contribution margin.
Well for competitive purposes, we'd rather not go into that kind of asked about any particular product line, but it's positive.
I thought so.
Well, we look into the fall and the impact from IMO 2020, I mean do you get a sense there might have been a pull forward and maybe maintenance inspection into the spring crude versus kind of what would it be anticipated into the fall.
And so I'm, just trying to get a sense about.
So Q2 versus the balance of the year and how that might play out ahead of IMO 2020.
Yes, I mean, we get this question asked a lot of truthfully is we don't track what the turnarounds are caused by but I got to see one based on just trying to do to sulfur content.
Unchanged for the diesel so what we're seeing is weather accounted for our cat cracker catalyst change or something or whatever the nature is.
I know that there is some.
Portion of the contract that center part of the work that's in there as for that but we don't track particular to what part of it is for that.
Our Gulf locations, our west coast locations might be seeing a little bit more of that obviously, our Midwest and all those arent seeing it but we haven't seen one area of getting more turnaround so much more than the other based on just running low.
I've seen that a little bit in Europe , we've seen a little bit in the Gulf, but we haven't like I say, we don't track it specifically to.
Those reasons for extending the term or causing them.
Great. Thanks, guys appreciate the time.
No problem. Thank you.
Thank you and our next question comes from Tahira Afzal.
With Keybanc your line is now open.
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Yes, sorry about that guys I had you on mute I guess I'm just kind of one question and that is in regards to your business on the aerospace side can you talk a bit about whether there have been some positive trickled crews now that we are not too far away from Boeing have been had its issues.
[noise] you don't care, what we've seen is immediately right now no we haven't seen any changes or what.
And again the problems with the Max or more software, but what's a bigger problem was that we see is boring is having some issues from government oversight and how much is internal versus external inspection.
So if anything I think in the long run long run there is a possibility that more of these inspections, regardless of what type of material. You are talking about are going to go to third party companies, if something like that changes, we absolutely see that being an upside for us because.
Our locations that we have have a very high mountain certification and our things that prohibit other people from jumping into it. So if the market does see an inflection from third party inspections going out there.
Companies like mistrust would definitely benefit but it does in this quarter no there hasn't been any immediate impact.
Got it Okay and then.
This might be a long shot but.
We've been watching all the design of banks, but not send the Luna program.
Any part.
And how you could leverage your expertise so do you feel that.
Not an area of focus for potential opportunities for yourself.
It's great question, absolutely I think probably more on the private side and on the government side, because you've got a lot of private companies doing asset.
They are signing up rockets and satellites and all that on a very regular basis. So we definitely are looking at that and we're working with those companies as well, we see as they ramp up there.
There are a lot of lift off and all of that has to do with three inspections. All that has to do with new material going through so we actually do see that as a potential for us and for the market at all.
Got it thank you very much.
You got it.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Dennis Bertolotti for any further remarks.
Okay I'd like to say that we appreciate everyone's interest in mistress, we look forward to updating you on our next scheduled call I'd like to thank everyone for listening today's call have a safe productive day.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may all disconnect everyone have a wonderful day.