Mistras Group, Inc. (NYSE:MG) Q2 2023 Earnings Call Transcript

Mistras Group, Inc. (NYSE:MG) Q2 2023 Earnings Call Transcript August 7, 2023

Operator: Good day. And thank you for standing by. Welcome to the Mistras Group’ Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Dennis Bertolotti, CEO. Please go ahead.

Dennis Bertolotti: Okay. Thank you, Brittany. And good morning, everyone. Thank you for joining us today. During the second quarter of 2023, Mistras progressed further towards our strategic efforts to streamline the organization and fine tune our strategy to unlock the inherent value of our business. Although we continue to generate revenue growth in many of our key markets, the impact of decreased activity with one of our defense contracts offset these games at a consolidated level. Consequently, total revenue was down marginally adjusted for the effect of FX exchange. There were several bright spots related to revenue growth drivers in the second quarter of 2023, including certain key markets which achieved record revenue performance.

In particular, our West Penn acquisition, a key shop facility which specializes in aerospace projects reported a record revenue quarter. Additionally, OnStream achieved its second best quarter revenue in its history, which performs inline inspection testing of pipelines. The OnStream growth was driven by a record quarter for its US segment, which has achieved revenue growth by over 75% for the first half of 2023 compared to that prior year period. Within Data Solutions, our PCMS/New Century business also experienced growth in the quarter, driven by continued customer adoption of its predictive analytics. There was also progress achieved in strengthening our financial position, with strong cash flow and a significant reduction in days sales outstanding contributing to a further reduction in our outstanding debt.

Selling, general and administrative expenses also declined sequentially, reflecting our ongoing cost controls and our objective to improve operating leverage. In the second half of this year, we will seek additional cost savings opportunities, expanding upon what we have already implemented during the first half of 2023. As we improve operating efficiency, it will contribute to improved bottom line result. I will provide more details on these initiatives later. We also anticipate that the second half revenue will be stable with modest growth over the comparable prior-year period, but with an expanded improvement in adjusted EBITDA due to a favorable sales mix shift and continuing reductions in overhead, particularly SG&A spending. Our cash flow remained strong and I’m very pleased with the investment that we have made in 2023 related to our higher growth businesses via increased capital expenditures, which will further our expansion in key growth markets.

First, just a few comments on performance in our end markets during Q2. In our growth areas, we achieved outstanding performance in the second quarter, which we expect will continue through 2023. As I previously said, West Penn, which reported its all-time highest quarterly revenue, had growth fueled by adding complementary offerings to our capabilities to help alleviate some of our customers’ supply chain constraints by taking on additional steps in the standard price of finishing the components for our customers. This growth is a byproduct of investments in the business, such as prior announcement of the opening of a new facility adjacent to our Heath, Ohio operations to accommodate the increased demand for our solution, as well as the installation of additional customer financed CNC machines to expand machining capabilities to increase the throughput of our Georgia facility.

These are growth end markets where we anticipate continued success. We also anticipate that our defense related revenue will improve from the first half of the year as our customer ramps back up our workload associated with this work later in the year. Longer term, we are focused on finding new ways to park participate in servicing the overall backlog currently experienced in this industry. Because of these actions, we expect to see continued growth in the aggregate aerospace and defense sector. As mentioned, OnStream achieved the second best quarter in their history and their second highest all time revenue quarter, driven by record results in their US portion of the business. That business is up over 75% from the first half of 2023 compared to last year, where it is well positioned in the midstream ILI market sector and provides optimism about our future growth.

And last, but certainly not least, our portfolio of Data Solutions offerings centered around our PCMS/New Century and OnStream business lines continues to expand, as evidenced by their year-over-year growth of 22% and comprising now over 10% of our total revenue. We are working to sustain this level of growth and performance. Each of these initiatives are in growth markets, and are expanding faster than our other end markets. Our strategy is to continue to foster investments in these capabilities to expand our solutions and penetrate new markets. The second half of the year to see even more progress across the various initiatives implemented, which should enable us to achieve greater margin and a significant improvement in bottom line. I would now like to turn the call over to Ed to give you more information on our financial position and further detail on our cost savings initiatives.

Edward Prajzner : Thank you, Dennis. And good morning, everyone. Before I can start, just a quick rewind here. We omitted the Safe Harbor statement upfront. I’ll just quickly go over that. Just simply reminding everyone that remarks made during this conference call will include forward-looking statements. Our actual results could materially differ from those projected. Some of those factors that can cause the results are discussed in our most recent Form 10-K and other reports filed with the SEC. The conversation discussion in this conference hall will also include certain measures, which were not prepared in accordance with US GAAP, a reconciliation of such measures to the most directly comparable US GAAP measures can be found in the tables contained in yesterday’s press release and in our related current report on Form 8-K.

These reports are all available on our website as well as at the investors section at the SEC website. With that, it was truly another meaningful progress quarter for Mistras. Our legacy end markets are very stable, and our key growth markets are expanding per plan, as Dennis elaborated. We are making steady progress preparing Mistras to improve productivity and efficiency and better leveraging our inherent strengths to capitalize on the sectors of our market, which are growing the fastest, wherein we can service customers on that need. As announced in February 2023, we have been exploring ways to improve profitability and adjusted EBITDA and meaningful margin improvement and steps to achieve sustained cost savings. We have completed the initial phase of this project, which we refer to as Project Phoenix, wherein initial opportunities were identified.

We are now undertaking the next phase of validating actionable initiatives, which can then be implemented prospectively. We will update at the end of the third quarter of 2023 after further progress is made towards achievement of such opportunities. We have already taken certain actions in 2023, which are expected to yield annualized cost savings of approximately $6.2 million, of which approximately $5.1 million are expected to be realized during 2023. Most of these cost savings are related to our North American operations and are related to a reduction in overhead functions classified within the SG&A line. Approximately, $4.5 million of the $5.1 million of savings anticipated to be achieved in 2023 were budgeted for and hence were included in our original adjusted EBITDA guidance for 2023.

Second quarter SG&A was down sequentially from the first quarter of 2023 by $1.3 million or 3.1% as a result of the ongoing budgeted cost control initiatives. For the second quarter of 2023, we recorded $1.2 million of reorganization costs related to our ongoing efficiency and productivity initiatives, primarily related to the overhead cost savings initiatives. For the second quarter, these charges included professional fees and certain restructuring charges associated with changes made within our organizational structure. For the six months ended June 30, 2023, we recorded total reorganization costs of $3 million. Again, actions taken in the first half of this year are expected to contribute $5.1 million to adjusted EBITDA over the course of the full year 2023, of which $4.5 million was expected and budgeted for in our original outlook for the year.

Interest expense was up for the second quarter, although down sequentially. The year-over-year increase in benchmark rates, despite our continued commitment to reducing outstanding debt, led to the quarterly and year-to-date increases over the respective prior-year periods. With benchmark rates now expected to remain higher for a longer duration, we now believe full-year interest expense will be in the range of $15 million to $16 million. Our net cash provided by operating activities was $18.3 million for the first six months of 2023 compared to $7.8 million in the prior year, an increase of nearly 135% year-over-year. Free cash flow of $0.7 million for the first six months of 2023 compared to $0.7 million in the prior year, again a significant improvement.

Our improved cash flow performance was primarily attributable to an improved days sales outstanding during the year. Capital expenditures increased by $3.5 million versus the first six months of 2022 as we are increasing investments to foster growth. Our gross debt was $183.7 million as of June 30, 2023 compared to $91.3 million as of December 31, 2022. Gross debt decreased by $5.6 million during the quarter ended June 30, 2023 from $189.3 million as of March 31, 2023 to $187.7 million as of June 30, 2023. Our net debt was $165.7 million as of June 30, 2023. There was, in fact, a significant improvement in working capital during the quarter, as I said, especially due to the days sales outstanding improvement, wherein we reduced to about 60 days outstanding through aggressive, proactive actions, keeping that that cash flow as strong as we can make it.

It’s contributed to free cash flow of $8 million for the quarter, which did in turn lead to further debt reduction levels to under $184 million as of June 30. We continue to prioritize debt reduction as our primary use of free cash flow, and we can expect to reduce our debt leverage ratio to below 3 times by the end of 2023. Once that level is achieved, we intend to evaluate our capital allocation strategy and investigate other uses of cash flow as a means to accelerate growth and build shareholder value. Capital expenditures were $5.9 million for the quarter, up $2.1 million compared to the year ago quarter and up $3.5 million for the year, again, reflecting our ongoing investments in our growth initiatives. As noted in yesterday’s press release, we are updating our guidance ranges to reflect current market conditions and our focus on profitable growth and cost savings.

Revenue for the full year 2023 is now expected to be between $700 million and $720 million, due primarily to reductions in legacy oil and gas revenue, particularly downstream. Adjusted EBITDA is now expected to be between $68 million to $71 million. And as I stated earlier, we have already taken certain actions in 2023, which are expected to yield annual cost savings of approximately $6.2 million, of which $5.1 million is expected to be realized in 2023 and it had been budgeted for and hence was included in our original guidance for the year. Operating cash flow will be adversely impacted by certain cash expenses required to achieve the cost savings. The company’s free cash flow guidance is being adjusted to between $23 million to $25 million due to the reduction in the adjusted EBITDA guidance in addition to the higher anticipated capital expenditures of being over $20 million for the year now.

Free cash flow guidance excludes the aforementioned impact of certain cash expenses to achieve the cost savings. Despite the reduction in our EBITDA outlook, the midpoint of revised guidance represents a nearly 20% increase versus the prior year on an anticipated revenue increase of 3.5%, displaying our continued cost controls and illustrating the effectiveness of our operating leverage. One editorial note, you’ll notice that included in the supplemental unaudited revenue by category tables that you will see in the press release, we have retrospectively reclassified certain oil and gas subcategory revenues for each quarterly period in 2022. Specifically, we looked at certain integrated providers, further analyzed them in the current year, and their classifications within oil and gas subcategories were reclassified between up, mid and downstream respectively for comparability year-over-year.

So we adjusted all the quarters within 2022 in order to conform with the classification being presented in the current year. Mistras is committed to creating value for our shareholders by improving productivity and efficiency and achieving return for our services commensurate with the value that we provide, unlocking and aggressively investing in our growth initiatives and leveraging these key actions to significantly drive better bottom line performance. The results of these actions are expected to lead the second half performance that is appreciably improved in the first half without the benefit of meaningful consolidated revenue growth. I will now turn the call back over to Dennis for his wrap up as we move on to take your questions.

Dennis Bertolotti : All right. Tthanks, Ed. Our oil and gas business is stable, up nearly 5% year-over-year for both the second quarter and the first half due to strength in both OnStream and the Data Solution offerings. Commercial aerospace revenue is nearly fully recovered to pre-COVID levels, and we expect aerospace and defense to benefit from growth in our commercial aerospace shop business, where we saw record revenues, as previously discussed at West Penn this quarter, on the strength of an expansion of services with our customers to help alleviate their constraints in the supply chain. This has reflected in the 44% increase in shop revenues for the quarter. Aerospace and defense remains a focus area where we believe there are significant growth opportunities.

Data Solutions recorded revenue growth of almost 12% in the quarter, and has now experienced 22% growth for the year-to-date. Data Solutions now represents a full 10.1% of our total consolidated revenue for the first half of 2023 as compared to 8.4% of our total consolidated revenue for the same period in 2022. Data Solutions revenue is being generated in virtually all of our vertical industry segments, including leveraging our core legacy in oil and gas. As Ed elaborated, we are making steady progress, preparing Mistras to improve productivity and efficiency and better leverage in our inherent strengths to capitalize on the sectors of our markets. Our expectation is that this should create positive momentum to increase our margins headed into next year, which will also benefit from continuing cost controls, all contributing towards building shareholder value.

As a result of our cost savings initiatives and the growth in our high margin business, I am optimistic that Mistras is positioned to capitalize on the growing demand for our offerings, accelerating our transition into more profitable growth. But before taking your questions, I’d like to emphasize that our current focus on Project Phoenix is designed to calibrate our overhead costs with our expected short term revenue level. This in turn will allow us to continue investing in our strong technician base, providing them with improved tools and technology to better serve our customers in their respective industries. I acknowledge that this process we are going through forces some difficult decisions, but is well worth the effort and the company will become much stronger and more resilient going forward as a result of it.

Moreover, we are keenly focused on growth areas and finding new ways to expand revenue in our current portfolio of businesses. I also want to sincerely thank all of our employees who have kept their focus on the safe operation of our work. Example of this is in the significant reduction of our vehicle incidents this year. This shows we know how to stay focused and what is important. Lastly, I’m looking forward to our eminent project managers meeting later this month, where I can catch up with many of our dedicated project leads and share with them as well as learn from them how we are moving the industry forward. To every Mistras employee out there, please stay focused on safety as we move forward. And thank you for your dedication. And with that, Brittany, please open up the lines for questions.

Operator: [Operator Instructions]. First comes from the line of Mitchell Pinheiro from Sturdivant.

Q&A Session

Mitchell Pinheiro: I was curious. You called out downstream as having sort of like a negative impact on the quarter. I looked at the numbers and it was basically flat. Were you expecting a lot more? And what are the issues with downstream? Anything new? Or is this the typical, lumpy, unpredictable type of business?

Dennis Bertolotti: Well, you’re exactly right, Mitch. The numbers were flat. A little bit up, as we stated, but we were expecting more out of the quarter. Sometimes, like in this year, things got pulled into the first quarter faster than we expected, and you didn’t see them in the second. Other times, the customers are just coming off of spend. Or with the heat and the other things, they are keeping up with productivity and throughput at their facilities. So it’s still a very difficult business. I’m with customers all the time at refineries. Not as much as I want, but I’m out there and talking to them. And they too have a hard time understanding what it’s going to be and what it’s going to look like, for different reasons. They try to plan trying to run activities at a certain time without knowing what their neighbors are doing and then they find out that there’s too much lumped in, so they end up having to move it and change it because of labor restrictions in the trade.

Things like that make them move things around more than they anticipated they would. And sometimes they’re still just coming off their spend and trying to reap what they can off it. So you’re right on that.

Edward Prajzner: To clarify, the comment we made was relative to the outlook. You’re right, downstream was actually up modestly for the quarter and up nicely for six months. We just expected it to do a little, as Dennis said. So the context we gave is the reason for the outlook being adjusted. Revenue for the year is a little lower than we thought for the full year. But it is up for the year at this point both for the quarter and the first half.

Mitchell Pinheiro: Is this being conservative on the downstream side? Or based on sort of specific conversations with customers?

Dennis Bertolotti: You talking about the second half protections?

Mitchell Pinheiro: Yeah.

Dennis Bertolotti: I don’t know what’s conservative or aggressive anymore when they’re not even sure where it’s at. So we’re certainly not going to lean into it too hard if our customers have the same questions we do. But can you always win more? Can you go longer? Can they have a discovery that they didn’t anticipate? Certainly. But at the same point, it could play the other way too, right?

Mitchell Pinheiro: Just last thing on this, since pre-COVID, I’ve sort of been waiting for, like, pent up demand from delayed projects and the sort. Are you seeing some of the delayed or pent up demand for new equipment services, bigger projects, are you seeing that flow through? Is there still a backlog that you think these companies have yet to get around to?

Dennis Bertolotti: Mitch, if I break that into the aerospace side, huge backlog, huge amount of undercapacity and over-demand, right? So in the aerospace sector, it’s there. It’s dragging a little bit on our international side of it. Domestically, US and Canada for North America, the backlog is there and that’s all these things were trying to do to basically push things through by taking on the same processes and do more of them in one facility as opposed to many. In the field side, specifically, it really didn’t change that much in COVID for mid and up because those facilities are bigger, harder, or just don’t have the density of population in people, like, at a refinery. So, on the upstream, certainly, there are smaller camps and stuff, but you still had to get the work done.

So, they’re doing what they could. The refinery is mostly where you’re probably referring that to. It’s a mix. Sometimes there’s customers who are trying to play catch up on things. There’s certainly CUI programs. There’s corrosion under insulation and things like that that are biting customers and they’re spending money now, but it’s very heavily watched and the spend is very scrutinized. So there isn’t a lot of people with a lot of excess money to catch up on for a bunch of the things that happened in the past.

Mitchell Pinheiro: On to Project Phoenix, I know it’s still early. Ed, maybe you can give an example or two of the sort of type of cost savings that you’re doing here in 2023. I know you said it’s part of some G&A overhead reduction. But if you can give me some examples of like sort of things you’re doing. And then maybe what we should expect out of Project Phoenix from a percentage and EBITDA margin change?! How significant do you think this can be, knowing this is still early stages?

Edward Prajzner: Again, all the actions we’ve taken, you’re seeing them in the run rate. We still have some work to do to complete our study. And we’ve done the study now. We’re more or less validating actions going forward. And we’ll have a lot more to share this time end of Q3. But essentially, it’s really just looking at how we operate the business, how we service the customer. Much of the impact now has been headcount. It’s been combining roles, reducing roles, combining some facilities here and there, just getting this back office footprint, just tightened up, more efficient. We’re looking at systems and workflow and automation to really leverage things together and how we support the business. It’s really a combination of that.

It’s just really making sure that we’re really focusing differently. And we’re looking at overheads whether they’re up in the cost of goods sold line or down in the SG&A line agnostically. But still some work to do. But it’s going to come from really a combination of things. It’s just lowering this cost to serve the customer, really what we’re going after, to just enhance that. We do it typically all the time. This is a much deeper dive, more holistic look at how we’re doing is really the difference here. Again, we’ll have a lot more to say, I think, 90 days from now because we’re kind of in the final steps of really validating and going a little bit further. But all actions taken thus far, you’re seeing them in the run rates that I kind of mentioned during the call, the $6 million of what we have right now.

We’re not done. We’re going to go for more, but we’re not quite at that stage yet where we’ve completed the final actions here. Again, that’ll be in front of us to get that wrapped up.

Mitchell Pinheiro: Just last question, what happened in the power generation and transmission business in the quarter? It’s been a weaker – it was down a lot last year. I’m just curious what’s going on in that business that would cause…?

Dennis Bertolotti: Mitch, it’s fairly straightforward. We had a long project for a new construction that is just basically starting to see its end of life. We’re still there in a very modest compared to previous. When you’re looking at the comps for the first two quarters of 2022 to 2023, we weren’t really paring down that much yet. So they’re tough comps for us now in that one project. We’re out there aggressively looking for more. And we’re looking to find other projects. We’re looking to like – may not be power, but LNG and all these other things that are going on for getting energy from one part of the world to the other. We’re getting some looks at that. And there’ll be offsets. So, this is just timing of one coming off that’s been there and been a nice been for many, many years. And we’ll find ways to replace it.

Operator: Our next question comes from the line of Chris Sakai with Singular Research.

Chris Sakai: I just wanted to ask more about Project Phoenix. And you mentioned there’s some headcount declines. Can you give us the percentage of that decline?

Edward Prajzner: It’s fairly minor. We’ve not disclosed the actual number of heads in that number, but that that is the significant piece of what we’ve done thus far. Again, some facility consolidations. Some reductions in professional fees as well. There’s a number of things that we’ve gone after. So, again, we’re at the point now of still looking forward, there’s still more we’re going to do. We are looking to actionize or putting into action some of the study we’ve done, but we’ve not disclosed the number of heads just yet in that number. It was not a significant number. Again, $6 million is the run rate of savings we’ve achieved at this point, $5 million of which will be into the 2023 results. Again, we don’t want to harm the business, obviously. We want to support the footprint we have and be able to just more efficiently support it from the back office is really what we’re looking to do.

Chris Sakai: As far as gross profit is concerned, would Project Phoenix have any – would that have any effect on gross profit?

Edward Prajzner: You’d have a modest impact to the indirect overheads up in cost of goods sold. Yes, there’ll be some savings there. Much more of it will fall into the SG&A line versus COGS line. But, yeah, you’ll have some benefit in the cost of goods sold. A very modest uplift in margins attributable to it, but primarily more in SG&A.

Dennis Bertolotti: For capital expenditures, how should we be looking at them going for the rest of the year and into 2024?

Edward Prajzner: We’re just up over $10 million now through mid-year. We had said we would do $20 million for the full year. We’re now saying that we’ll probably break through that number, $21 million, $22 million. And it’s all good incremental expense. It’s the things Dennis talked about on the call, investing particularly in our aerospace shop labs where there’s new specialized equipment going on, it’s expansion capital, it’s new work for the customer we’re taking on, new steps to help accelerate OEM parts through the supply chain for final assembly in the aerospace side. There is a nice backlog there of work that has to get done, we’re happy to do it. So, yeah, I think our CapEx will stay up at that level. That’s sort of where it was back pre-pandemic.

You had it in that low $20 million range. So don’t be surprised if we want to bring it up to $25 million next year, but by leaning into some of this additional investment in our shop labs where there’s real good business and at good margin to go after, and it’s all incremental for the customer. So, yeah, we’ll be I think elevating that number just for good reasons. Because there’s good immediate payback on it with real work that the customer is clamoring for us to help them with here and now. So that’s where that CapEx is coming from. It’s not delayed things that we didn’t do the last couple of years. It’s brand new, expansive work that we’re looking to do for customers.

Operator: Our next question comes from line of Brian Russo with Sidoti.

Brian Russo: Thanks for all the detail on Project Phoenix. I’m just curious. Bigger picture, what are you doing on the top line side to avoid all these unabsorbed costs when revenue fluctuates given the uncertainty and project driven nature of the refinery or downstream in oil and gas?

Dennis Bertolotti: Typically, the peaks of our spring and fall are absorbed by more people coming into the system, but certainly by a much greater amount of density of work during that week. So they go from 40 to 60 to 80 hour weeks, right? So a lot of it isn’t that I have all the excess body sitting around waiting for work. In fact, what we do is, every week on Fridays, we have a domestic and international call. We talk to the management and where’s our surpluses and where do we have resources in equipment, people, skill sets that we can move from one to the other. So we’re always moving people around to try to balance that off. And the trick is, really, we watch our unbillable and try to keep it down to 2% on the unbillable, an additional 1% to 2% at the most for training.

And what we try to do is just move folks and skills within that to keep. But we try not to keep a very heavy load of people waiting for spring and fall in the offseason because it really upsets you on your costs. That being said, I will say about this last 12 months because of just trying to access the folks and getting people to work. And the biggest problem is bringing in apprentice and getting customers to move the numbers on the apprentice to the numbers we need and there are now more and more understanding of that, not just because of us, because many other vendors are saying we need to bring in fresh new people into the market and we’re competing with food, retail, used cars and everything else. And people aren’t going to work in an industrial setting if you can get a similar somewhere else as a starting wage.

So by doing that, we we’ve been working to build it up. But we certainly do miss more of the peaks now than we had in the past just because of the spikes and trying to get labor out into the market is more difficult than usually it’s been over the years.

Edward Prajzner: If I can just add to that, Brian, I think your question was more in the context, I think, of what’s Project Kleenex doing to help this area. And I would say, it’s what Dennis is saying, it’s really help leveling things out. As an example, we’re looking at utilization and, hey, what more data can our CRM give us? Like, we’re looking top to bottom. Phoenix is more than – an EBITDA enabler, not just a cost out thing. So we are looking at better ways to even the load out and better utilize our resources, our footprint to go after more diversifying work and kind of level the load out there amongst the existing resources we have, as well as going after different niches and whatnot. So it is looking at those things and it will help, I think, address what you’re getting at there, some of the lumpiness of the business.

It is what it is. It’s inherent to the business. It is cyclical. So let’s just be smarter about how we kind of stage and set up our resources and then target what we’re going after in the ebbs and flows. That is the big part of Project Phoenix is looking at as well. Hence why it’s taking us some time to kind of think it through and really look bigger picture.

Brian Russo: On the $15 million reduction in revenue at the midpoint, is that primarily due to the power generation project that’s winding down? Or is that the result of legacy downstream work that’s being completed? Is it just a shift from that defense contract that is slow to resume? I’m just trying to get a sense, if the $15 million is lost forever and you’re rebasing your revenue midpoint to work off of going forward or can you recoup some of the $15 million going forward and into 2024.

Dennis Bertolotti: I’ll take the first half and let Ed kind of if he wishes. It’s not a structural change as far as – we don’t think it’ll last forever. It’s certainly the project that’s weighing off is going to go into decline. And we’ll stay onsite as a run and maintain kind of thing, but nowhere near what you do during construction. So that’ll fall off, but that’s just normal project activity, and we’ll find replacements for it. Like I say, the timing wasn’t perfect and we didn’t get it as it came off, but we’ll find replacements for that. The legacy part of the refining is more of the concentration of the changes came from. We expected more out of – even though we grew this year, like we said earlier in oil and gas, especially downstream, we didn’t grow to the extent that we had original forecast for and discussions about. So, we believe that’s just normal changes that we’ll be able to get back into these upcoming years.

Edward Prajzner: Just to reiterate that, Brian. Exactly, the power gen contract drop off, sunsetting is budgeted for, planned, expected. That’s not affecting the outlook whatsoever. That delayed defense startup, yep, that’s slower than we thought. That’s definitely affecting the full-year outlook. But as Dennis said, it’s this legacy downstream is the bigger piece that’s not hitting the full-year expectation. That’s essentially the real reason why we bought the revenue outlook down.

Brian Russo: Just to clarify, you mentioned the strong performance of OnStream and I’m just looking at the oil and gas revenue subcategories. OnStream is all – it’s in the upstream, right? Because that’s really the only sub oil and gas category that experienced revenue growth in this June quarter versus the year-ago quarter. Am I reading that correctly?

Dennis Bertolotti: Truthfully, Brian, you would think so, but it depends on the size of the of the pipes that we’re inspecting for the customers. Sometimes they’re midstream, sometimes it’s upstream. So there’s other work inside our pipeline and other ones that you’re looking at. But probably the bulk of the time, it’s a midstream play for OnStream. So some of the things that you’re seeing in the upstream is just some of the core legacies from other previous acquisitions such as Nature [ph] and such that is also doing well. But OnStream is in both sectors. So it doesn’t always drive one or the other. It’s just a function of what’s happening with the rest of it.

Brian Russo: I know you guys don’t disclose backlog, right, because it’s just the nature of the business. But any sense of – is there like a pipeline of work out there that you’re pursuing to help mitigate when older legacy projects roll off. Just trying to get a sense of the market opportunities for growth above that $710 million midpoint.

Dennis Bertolotti: In defense, there’s a huge amount of backlog and need out there. We participate all the time in the defense with the Navy and other military folks and many contractors trying to bring in new talent from welders and 3D and machinists and NDT and all that. There’s a huge backlog there that’s needed. There’s a huge backlog in aerospace. So we see aerospace is continuing to grow in the future. As far as in the oil and gas sector, like I said earlier, there’s LNG projects out there. There’s a lot of that building up multiple trains and multiple locations trying to ship what we have in excess overseas to places where they don’t have that. So there’s a lot of capacity there built up. There are still construction projects and other things that we’re looking to get into.

So you would see it, maybe not in any one sector, but our growth in data, our growth OnStream, West Penn, aerospace, those other sectors, no issue seeing them continuing to grow. And we believe in the oil and gas, there is still obviously contracts to be won and lost at individual sites, but there’s a lot of longer term capital projects that are out there as well. We see continued growth in what we would call our upstream for, like, the Nature folks, looking at more wins in Gulf of Mexico and places like that that are in our line of sight. Sometimes customers are taking longer because of their own things they’re working on. We’ve had one we’ve been waiting out for two quarters already. It’s just whatever reason they haven’t announced anything.

So there’s a lot of that kind of things going on where they’re working on issues before they make these major changes. Maybe it’s watching their own cost changes. I don’t know. But there is a lot out there moving. It just seems to slow up a little bit this year.

Operator: All right. Thank you so much. All right. I’m showing no further questions at this time. I will now turn the conference back to Dennis for closing remarks.

Dennis Bertolotti: Okay. Thank you, Brittany. I’d like to thank everyone for joining the call today. And also for your continued interest in Mistras. I 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 day.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.