We’re not fully there yet. We’re still working through all of that, but it was an offshoot of Project Phoenix, this whole commercial pricing strategy that we’re bringing into place. But it is across all industries, but we kind of went from smaller to larger customer as a process. And we’re still kind of working through the complete process. To have a true new strategic pricing plan in place across the board, is the ultimate goal.
Mitchell Pinheiro: Okay, that was very helpful. And then when you look at your gross margin, can you like just talk us through why you wouldn’t see more leverage on such a nice growth in your upstream and downstream revenue this quarter? I would’ve expected maybe some type of leverage, but I’m curious what I’m missing.
Ed Prajzner: You’re talking on the gross margin side,. Yes, gross margin, the mix advantage wasn’t necessarily helping us a whole lot there. That Oil & Gas business, which was up, would have lower margins than average, and especially turnarounds and whatnot. So, you did pick up a large sector of the business growing not at the best of margins. Data solutions, as we mentioned, lagged a little bit in the quarter. That would’ve been relatively higher margins, but in a lower proportion for the quarter. I mean, EBITDA is up significantly, up 5x the revenue increase. So, it trickles down into operating leverage at the OI and EBITDA line significantly greater. But gross profit margin itself did not have a great favorable sales mix.
It was more unfavorable, quite frankly. Aerospace helped. That helped the mix a little bit. Obviously, they were up higher than average. So, that helped gross profit margin. But yes, the mix there is going to be more sensitive – gross profit is going to be very sensitive to the mix that’s happening, and we had less than ideal mix there. So, your gross profit margin didn’t go up a whole lot of bps there, but clearly your EBITDA was up many, many multiples of the top-line revenue.
Mitchell Pinheiro: Great. And within Aerospace & Defense, it’s nice to see a strong quarter. Within that, the private space business you talked about – you’ve always talked about, is growing. I mean, how – I don’t know if you’ve ever given like a size within the category, but I mean, how fast is private space growing, or how fast did it grow in the quarter and what should we expect for the remainder of this year?
Ed Prajzner: Good question, Mitch. The Commercial Aerospace is bigger and growing faster. So, the private space is more of a sub-story to that, but it is up single-digit kind of growth. It is a nice piece of the business. It’s not as large, obviously, as Commercial Aerospace is. So, yes, we keep those aggregated together. It is very consistent and it’s growing, and it is a piece of portfolio. It is in the same Shop Labs. Our NADCAP-certified facilities would – many of them focus on the Commercial Aerospace and private space. So, it’s good leveraging there. They’re both through the same footprint at the Shop Labs perspective. So, we like that aspect. It’s bundled together. But no, it’s an attractive market. It keeps growing and it’ll continue to do so.
It’s just – thankfully, the Commercial Aerospace is kind of bigger and larger and taking the spotlight for the moment. It had more room to recover and it is back to pre-COVID levels now in North America and growing fast. So, yes, it’s there. It’s just a lesser spotlight for the moment, private space, only because private space – or commercial space is doing so good right now. But both are attractive markets. We like them and they’re coming through – leveraging one another through the same Shop Labs footprint is where that offering is there to support the customers.
Mitchell Pinheiro: Okay. And in terms of visibility for the Aerospace & Defense segment, what are you seeing for the remainder of this year?
Ed Prajzner: We like that sector. The supply and demand is in a great place. They’re catching back up. You’ve got good production needs there for our customers and more demands on us. So, yes, we feel very confident, very comfortable that Aerospace – Commercial Aerospace had a great year in 2023. We see more of the same in 2024. So, that is one of our high growth markets. Again, we mentioned earlier, we’re investing some CapEx there to keep the growth going. We do like that sector and we see it growing – continuing to grow this year much the same way as it did in 2023.
Mitchell Pinheiro: Okay. And then I guess just two more questions. First is on the Data Analytical Solutions business. I was always sort of under the impression that most of that sort of bundled within your broader set of services. Are you selling Data Analytical Solutions – is it like billed separately? And do you have accounts that do nothing but buy your data analytical solution software and program?
Manny Stamatakis: That is a larger part of the business, Mitch. Most of our Data Analytical Solutions customers and business are outside of our inspection customers. We do offer that for our own customers, and one of our goals is to continue to expand that within our customer base. But the majority of our business is business that we – that’s all we do for those customers. We analyze their data. We work on a risk-based process methodology and help them identify which assets to focus on and when. It saves them enormous amounts of money, and that’s why we’ve had good growth in there. But I don’t feel we scratched the surface on that yet. Our plan for the next couple of years is to really scale that portion of our business because it is the future. That, along with the digitization of the data is really where everybody wants to be.
Mitchell Pinheiro: Doesn’t the Data Analytical Solutions product become sort of a source of new customer, new business for your full service testing and things? Isn’t that like a sort of a feeder or potential feeder?
Manny Stamatakis: That’s an interesting question. It can be a feeder. That business, however, focuses on looking at the data that’s been collected, and sometimes it can help us get more inspection business of our own. Clearly, when we do the inspection and the analytics, it’s much more efficient for the customer, and it’s much more effective in the long run. But we can still do analytics on – no matter who has collected the data, as long as we can get it in an electronic format. And that’s what we’ve been doing for the past several years. A lot of our business is coming from customers that primarily provide us with their data, and we can collect that data for them electronically, which is the most efficient way to work in that space.
