MG - Earnings call transcript Q3 2018

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, ladies and gentlemen, and welcome to the MISTRAS Group Earnings Conference Call for its Third Quarter ended September 30, 2018. My name is Kevin, and I'll be your event manager today. [Operator Instructions] Participating on the call for MISTRAS will be Dennis Bertolotti, the Company's President and Chief Executive Officer; Ed Prajzner, Senior Vice President, Chief Financial Officer and Treasurer; as well as Dr.

Sotirios Vahaviolos, Executive Chairman; and Jon Wolk, Senior Executive Vice President and Chief Operating Officer who will be available for questions. I want to remind everyone that remarks made during this conference call will include forward-looking statements. could from results projected. actual company's differ those materially The

Form US comparable actual that differ the in directly X-K. with Please conference the financial most of most Some I financial yesterday's this reports conference on measure certain discussion factors release accordance also Investors measures at SEC. cause the Mr. with to are recent to and results company's the over Form non-US the found these be GAAP in website. measures the filed Report call will company's of report section those tables press now in in the Reconciliation that can available GAAP were to can website These proceed. Bertolotti. US The reports on prepared other in and turn contained GAAP. in company's are Annual include will XX-K SEC's related on financial and discussed the current not the

Dennis Bertolotti

Thank you, morning, good operator, everyone. and

an pleased MISTRAS review executional with ended we as performance well and as During today's results as outlook, period and results our expanding I give margins as drive becoming business MISTRAS' well update expanding Group's XXXX. am XX, the and will period. and third predictable on September for continues financial quarter excellence, to consistent with as MISTRAS call, improvements you operating more over

and a high reached For margins profitability. the quarter, were revenues two-year up,

As also XX%. a actions. implemented was strategic measured At the by adjusted by number EBITDA, time, we it same up than of more

market core certain charge will positive impacted core you that in in peripheral are into our Product so third these Strategically, continued of XXXX. sale our on shortly. have margins, our add a in GAAP did XXXX mid specific low The detail importantly, will began operating operations all segment, net trend subsidiary record results. walk recognized we Although in actions that gain more through should our services has noncore the a respectively. on end positive we the they and a to that also of impact special actions Ed taken quarter margin a

revenues customer previously last better. that As the organic even loss up growth year quarter overcoming large we disclosed result, were quarter. ago, from Margins the contract achieved than such more a modest a in did

Our consolidated in over XXX level basis third the a our was quarter. was margin gross This in the point years. XX%, improvement year-ago highest gross quarter margin two

and XX% our result discipline, nearly $XX continued strong million EBITDA As margin was quarter XX.X%. to and a the cost EBITDA third adjusted margins adjusted increased of XXXX

best best believe Our the margin of EBITDA the adjusted our in year-over-year operations. two We improvement core years. in provides measure

consistent pricing So in continuing it lower-margin our and of midstream, significant technologies is broader contracts digital while oil our a and long-term the new diversify to discipline improving third of with achieved maintaining progress markets aerospace in capabilities. clear mechanical in focus, into we service incorporating the quarter, and complementary business core our our services, vision, more gas, toward

we where pleased and at well we and $XX quarter, saw and our aerospace. oil revenue oil of with the we continued the from segment that the million complementary effectively results into particularly as segment earlier lost our mechanical as gas in more market and year demand overall gas closely are growth. able were in third strong in Looking Services services Service segments, and stability revenue to The with replace generate

we which more revenue in of better our also as any as segment integral from not market Profitability higher-margin the also the have increased of loss mix have operating over reflecting add that The and consummated I remarkable, to results this well contracts promise We of in the delivered our the a acquisitions. greater. quarter. makes also performance acquisitions stronger, even all efficiency. overcome improved, International and Consequently, the benefited future would this gains course an ability share year, the a segment strong for XXXX, historically business. Services part in been also April

in share in power gas particularly market the is and strong, operation aerospace, Our gaining and France markets. oil generation

XXXX, business German from the the suggested our turnaround second against last strong half activity, was rebounded what and our has a Our and weak International the benefited that quarter and corner with year. turned significant improvement up We fiscal half that has UK is showing back segment a has was in business compared of second second XXXX.

from profit In third our in modest basis achieved million in $X.X operating to the Systems income the had Products revenue in million quarter out backlog margins increased quarter. bore disposition several this noncore for sales in remained improvement and the of non-GAAP a Adjusting XXX for system operating gross the segment, segment. point and strong margin and basis as subsidiary, segment growth with quarter this large $X.X reflecting XXX The that improvement. point we

had with performance we our core continued a overall, EBITDA. increase than revenue solid a in operations and margins strong adjusted So growth, XX% in better

in to we market potential as our efforts. made noncore we to contribute continued we criteria, accelerate the operations near selection the which exiting profile demonstrate in In prudent and diversification steady market. we will low divesting improved oil opportunities to performance. future believe in term, of believe we our acquisition our addition, which remain end we'll actively And although several progress and margin grow contracts engaged gas ability increasingly to the fit have our In

towards However, MISTRAS third achieved more a and our existing long-term serving progress In business, we the into grow to markets. objectives. both strategy diversified both is quarter, emerging

the leverage strength us more funding gas take will QX our expectations. expansion new engine in continue fueling financials our our into now I detail. as will future will growth for areas. which, oil the Ed market our and through update After and We in to

Ed Prajzner

you, Dennis. Thank

to earlier. current summarize referred operating Dennis more recorded provide third on I I quarter, special will items Before our results, as detail the during the

items segment. a I the earnings per our income income reiterate non-GAAP the not discussion, basis. operating but and reconciliation in back this non-GAAP to such GAAP in in analyzing reconciliation will tables refer have special when on to reconciled separately non-GAAP As operating release, please added these our been

to pretax employee in relatively contract due the reorganizational German In we to a on segment, change. any, million XXXX. This consisted million of share. staff $X.X at staff-leasing margins recorded approximately segment attributable the the recorded quarter these the in as a addressed to net XXXX, in previously includes increase have on International The an they certain margin for share. three beginning the when segment, these items April is recorded or additional an income in to The approximately segments. Brazil. operating In several Products April, exit a XXXX. or positive XXXX, quarter of charge $X.X subsidiary, also a large not number issues related effect in will business of in pension of following, of to across operating or tax International segment, $X.X $X.X on segment, obligations a we been an million reduction $XXX,XXX per of which million services basis. of we we In we all of impending International services a prune expire also made our the a recorded gain charge segment. legislative of noncore, pretax the Products impact special impact reorganization The having subsidiary International in Germany. change, $XX the a to had all the commenced During $X.XX legislative $X.X as company segment We expense little, had which beginning of XXXX underlying million sale of majority after-tax leasing segment, of diluted basis The cessation its services items in resulted and recorded sold the XXXX marketed of a additional on Act of either we an low-margin, on Reform low the relatively XXXX. third primarily which company margin commence sale. provisions Tax a contracts $X.X services will to in the special income. activities the a million disclosed in related anticipated which company a liability Systems we and of and if earnings of adjustment recorded case Services million in second The Due already diluted exited renew low items to reduction our in in the third the quarter the of has of the withdrawal decided $X.XX settlement our charge per the The have primarily for related Systems

reflected overhead or anticipate not as revenue reductions. annualized of income second and As We fourth $XX bad are the of early Separately relatively on the margins a do requirements partially be reduction our either expecting XXXX. a of low any of million we through million the debt XXXX segment's in nonrenewal expect XXXX, the result, charges. quarter this to $X approximately range the impact quarter recovered $X of recovery offsetting not we funding were aforementioned the can in to but have financials, of in beginning million the we feel in operating

revenues roughly our up QX XXXX from ago. for to Consolidated a were core million, year Turning results. X% $XXX

approximately the revenue revenues would've large loss. acquisitions. X% excluding segment grew Services to $XXX.X contract attributable Services quarter million, Third primarily up to been X%

$XX.X $X.X International was compared to X% sales improvement, and period, mix. Excluding million basis ago. approximately special year a declined an margin operating million a in third point Services or quarter strong income the the XXX to $XX.X year a million by of prior or XX% operating compared items, leverage non-GAAP revenues in favorable segment increase reflecting

Reform the to period Systems $X.X revenue operating continue improve income especially the in this a diluted $X.X XXXX prior from subsidiary our items evidencing of as focus margin both and for approximately However, continues an cost we non-GAAP to tax last efficiencies and to reduction implemented additional launch this was in the was impacting operating was compared to the or significantly revenues a in On to XXXX. changes and was to prior XXXX a non-GAAP loss breakeven a million profit On ago $X primarily Backlog year was been had period. Exclusive XXXX XX%. which company operating $X.XX. the from third income non-GAAP the in X.X% basis $X.X Products after net XXXX would $X million SG&A of GAAP non-GAAP resulted from in scale. the million increased an year year $XX a compared attributable loss Adjusted XX% containment $XXX,XXX the a item, basis, approximately quarter execution third income have excluding of as in million strong effect is from quarter a reorganizational outlook compared year Tax segment prior decreased the on increase compared to as of segment business improve earnings segment segment XX%. this to of quarter to million. quarter an Act years, share. quarter improved $XX.X revenue special operating compared reduction third to of this recorded per a of $X.X to an for for net and percentage which period, X.X% million income improvement Products in third of cost International This EBITDA year net the Systems a modest fully our $X.X to per in third the we did $X the prior in attributable the due by XXX quarter. million in segment million, excluding divested of million grow technologies point also $X.XX was The diluted $X the increase XXXX and in million million reflects which non-GAAP adjustment operating was period. a to basis, consolidated $XX.X year income of million increase of of of new year. share both ago.

in level net of to of XX.X%, $XX.X cash Our obligations the anticipated. decline not net anticipate receivable. on Total This is the XXXX. was operations will at million free Dennis as over our highest to our flow compared back prior margin flows attributable million although equivalents, with million to flows the flow fourth Nevertheless, that, $X.X enable year. was was approximately EBITDA net performance were of We call in was the cash quarter lease the capital $XX.X and our XX, balance debt, which timing strong turn now said, to primarily $XX.X compared years. compared prior Year-to-date in sheet collections adjusted cash year to two cash $XXX.X And to September XXXX extent and debt as million our XX, the from improving cash and cash accounts we in significantly XXXX, and to million the funding I refer million at will December $XXX growth originally Dennis. of objectives. in

Dennis Bertolotti

Thank you, I'll conclude our with on Ed. outlook update guidance. and an

present for that for fourth of to against and we'll spend that demand pent range up finish a the start the the work. foreseeable stable quarter causing and be earlier relatively expect customer XXXX. future, prices benefited comparing we persist services We XXXX will gas look for up year quarter, be In release the towards deferred from from petroleum inspection to ago as oil

that than of site. be segment Services quarter large included our from addition, revenue lapping customer the more ago former the million year $XX In will

comparable So share that segment. market aerospace will driven in a we we expansion by In year-on-year, results Services market our mechanical of combination confident conditions are decline and be complementary although continuing our continued by our growth, revenue service favorable led could lines, expect margin and QX gains. Services

vision for ability having driven QX whole, improved improvement we both extremely confident and new strategy that be year, mix. manage path and in results the on cycles. strong our by we and strong economic and am in we grow are conviction levels in I up above the to our down and will an therefore, On and profitability sales cost believe reductions will prior

business year-to-date we performance, to We XXXX. that built our am into oil a in earnings for momentum gains. forward fiscal actions, by we provides GAAP capital no quarters. know-how. mechanical adjusted long-term, growth various And gas will financial further the the performance. revenue, grow drivers we impact our of expect have confident we and we are over technical past expenditures strategic are and several our about plans Based and indication reaffirming in meaningful remain I metrics, Due macro industry and the new innovation Total our EBITDA revenues on believe level guidance key expand guidance is to now $XX and growing of million. in between market pipeline our services $XX excited take expected Operator, optimistic believe expenditures product the expected to between through the aerospace be and be share approximately Adjusted economic will leveraging achieved to we $XX we $XXX are to our maintaining million. to million your that, complementary are strong business experience expected integrity the Over $XXX positive. EBITDA With be the please Capital questions. and phone million. to million open lines. progress longer

Operator

comes Edward question from first Marshall Instructions]Our Sidoti. with [Operator

Edward Marshall

for about So stable the I about comments wanted talk made demand of to steady and the year. the remainder

a Looking at the it's quarter, fourth sequential slowdown.

slowing Looking as you like loss. the it's looks contract it comp, well that back add if at year-over-year even

fourth guidance there's dynamics the walk fourth in what want just can the of to from, the the and coming guidance quarter. I is as talk decline for maybe a quarter, range maybe So through maybe think me about segment, you that. the your drop about where I considerable

Dennis Bertolotti

Yes, Ed, because quarter I to But I think a we work seen with couple believe of from a it's if XXXX. we we're on. in keep months. it's seeing a really going catchup of that bit know much We it's the that in that there's last was believe going drop had strong the what don't comp what Dennis. XXXX little just going we've of is in consistent

is par. different be versus that. will see right sure and that don't how spend, we anything will just capital maintenance, believe customers, now, on the expectations in the not We're last turnarounds So long the everything really We quarter strong. all the

all. So we're see bit as maybe it a we being little conservative. at a don't But cycle downward

Edward Marshall

Got even it. some on that to $XX math the least at have $XX in at it little thought, it it the the could businesses. high suggests turnaround would've fall $XXX of million with - lower with be par million the Because any this if about do be is I especially it of I than the of million remainder million end a work quarter might year. could range, which revenue, $XX the bit

I'm that's understand. trying to I'm So to with what what trying that's get or

Dennis Bertolotti

are last guess a drop think going will close because it it's We're be year I drops always going to going again, just if to last have We off, to from that was year the fast to numbers year, But about you we're Yes, off, little just December really. exceptional. how worried it at November think continue. look last was a maybe was we what and under. that

Edward Marshall

to Got it. at etcetera, at can discussions looking talk get customers XXXX the if going kind mind, are what a I around guess the are you maybe Maybe are can just XXXX? you that of they what what curious compare budget we heard XXXX, in about as certain projects context with like. cycle? What looks you that into that sense I'm of saying so their

Dennis Bertolotti

Yes.

We pretty haven't a yet. year. for our customer over XXXX, expectations same budget XXXX's the completed maybe previous grow are as seen we've bit over to what little going the the But as not much much

what So we seeing. we've consistent think been with it's

of the turnaround a just As talking you're very matter loans, far at of some no this point. as some large who are to softening There's to. it's or have real customers expectation shortening going growth,

see same. is So we that continue the growing. turnaround to Aerospace, activity

enough be XXXX. and strong say just don't segments, we casting The about see a to other very just have anything everything We bit all. answer to good able That's else, in power out. a yet

Edward Marshall

can talk of through are that seeing about Any with can labor perspective? and higher a from what labor margin? you we so the kind you think And or costs

Dennis Bertolotti

because those just dealing areas the tight, that it's the all getting by where labor it's it NDT, already with. and recognize labor not The it's Yes. customers there are region, they're

So customers being about to labor certain can down what's on the of pricing there's those and maintain going manpower the and lot talk to where already areas they a and know of pushed West areas that projects is increases in Gulf that to needs. other so announced, large willing they're the their

So that, issue. be to an this point, doesn't to seem

Edward Marshall

Thanks Got it. much. very

Operator

KeyBanc comes is line Markets. Tahira, next your Afzal with The open. Tahira question Capital

Can muted. is the line. unmute line your If please you

Tahira Afzal

guess, Yes, of sorry. you. mute for apologize. was had on I'm questions couple I a I I I

in sense know I all softness are In some terms of love to BREXIT disrupted markets to underlying the if of just a would want not FX being understand get fully International, but there. some there's I the movements. the there, by

Jon Wolk

We to really Tahira, his it's Dennis in very sectors we feel In good Jon. that the our outside taken of gains UK, growth on. about swim and got bit year our good, market compared we there. the about a that We comments, as terms little said France. last France lane had feel because some and in in projects of had we we're and all deliberately the of of contracted, scope we share projects initiatives

curtailed So to, turnaround In Dennis of bit had result. a substantially fell activities an as a a that as results activity, which alluded good extent, operating this offset so we've Germany, in to things little off that year kind was there a and improved deliberately of push. we've Germany, we other couple

se. by impact we're really overall, not So per really not BREXIT there. seeing impacted We're

was it see those think the that I reflected in dynamics really we results.

Tahira Afzal

it. Got

mixed Jon, the push to out played some really turnaround per headwinds We've how And you elements side. was season, as one, love a heard folks are a Would around I those your other guess question seen Have your mechanical the some had, haven't. have get the through playing positive sense as Okay. on initiatives I some then initiative. plan?

Jon Wolk

services which we're perspective, We're of Tahira, segment. very about Canada strong very from within mechanical are our Yes, business. well we and business. doing my very good like that embedded two in areas We I'd feel are Services offshore, strong biggest we're say our in feel that

Dennis Bertolotti

a make cost the project quicker for that. Customers mechanical they conversation to and embedded see kind oil because them to still they cost The can gas are cheaper savings can quickly the find. still and Dennis, on reductions customers inspection, and them. good of easier real It's especially in any with is trying the have for to more with very importantly there's where a looking

So to the mechanical we of worked very out on is complementary or activity inspection going the has feel what's our for well. started to the that completed get having strategy

is on is So that really, course part still us. a for

Tahira Afzal

it. Got

at happen, that refined deliberations Number a really you looking folks any are we be into IMO planning some are as typically next potential for California. and happening one, seeing of there, on in movements and then ahead XXXX or how disruption And year any impact Okay. reasons? should some this potentially we turnarounds union go of couple

Dennis Bertolotti

all on. moving would West. hearing everyone's so an that Yes, affecting it there. lot We business. diesel through in for much we're a change, the Coast an The couple they as the point from that don't ones that's know now, that. keeping keeping more that's the the talking and Right Gulf East of anything refiners as seeing first West the the about now California be or is hear think, seen I if that they're does, good refineries a But of it but right we're recognize the right eye in what ships ones could responsible our XXXX, questions that now that we along. will more activity see that current, unions, than The bunker that's very going a we we've and in that that

There was at third part a to this think our going So point, either. affect I to forgot. it? was business we that don't question, Or your that's

Tahira Afzal

the see were two was I there's actually obviously, some Those to still Dennis, parts. main trying maintenance. deferred those guess, just I were

a model coming next wins given in You're in to interesting how year there's we was sense, activities some up. little still I a upbeat just trying see general. should,

Dennis Bertolotti

regional might differences those might Gulf it's where some LNG fracking there to and there I mean, Yes, like of pushing that. of be I think in or regions certain something places, in more consistent. there's point, be the your activity some

overall, I as It things XXXX mean, you've regional that gas. where the still good be oil a But XXXX and variances. consistent have XXXX. there's spring being we just be going to not So kind will from in that may to year of see some seen

Tahira Afzal

Okay, thank much. very you

Operator

Instructions]And showing Dennis. this questions any to back like turn [Operator I'm not call I'd over the to further time. at

Dennis Bertolotti

I'd everyone in your productive day. for and appreciate and today's look interest to our all to that, on With in like hearing thank We next from again Okay. MISTRAS, Wish safe call. we Thank listening you forward call. you. a you

Operator

and Ladies gentlemen concludes presentation. today's that

may You have day. a and now disconnect, wonderful

Mistras (MG) 11 Nov 182018 Q3 Earnings call transcript