Mistras Group Inc

Thank you for joining Mistress Group conference call for its first quarter ended March 31, 2020. My name is Gigi, and I'll be your event manager today. We'll be accepting questions after management's prepared remarks. Participating on the call for Mistress will be Dennis Bertolotti, the company's president and chief executive officer, Ed Prajzner, executive vice president, chief financial officer and treasurer, and John Wach, senior executive vice president and chief operating officer. I want to remind everyone that remarks made during this conference call will include forward-looking statements. The company's actual results could differ materially from those projected. 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 U.S. GAAP Thank you, Gigi. Good morning, everyone.

As with last quarter, let me first begin with some comments on the current state of the market and what we've seen so far and briefly update you on the actions that Mistrust has taken to keep our employees, customers, and partners safe while simultaneously mitigating these challenging conditions. First, let me say that I'm extremely proud of how our team has responded to current conditions. They have remained focused on the safety and well-being of our associates, clients, and partners. They are continuing to deliver outstanding services, which is helping our clients best manage through these unprecedented times, all the while positioning mistrust to emerge from this global pandemic stronger and better prepared to further our industry leadership. In the first quarter, we posted solid operating results with revenues better than forecasted, and our asset-like business model is continuing to generate the positive cash flow for which we have become well-known. We have achieved this despite a quarter that experienced the dual impacts of a weak energy market continuing from late last year and the global pandemic that began to take root towards the end of the first quarter. As it became clear that we were entering a period of incredible uncertainty, we took immediate action to adjust to these new realities. The immediate focus was on things that we could control, with our goal being to preserve and protect our reputation and to reinforce our position as our customers' preferred partner. So we doubled down our efforts to provide our customers with the high-quality service on which they have come to rely upon from Mistrust. We found innovative new uses for our technology, Mistrust Digital, to help customers lower their costs, and this is currently getting a high level of interest. We believe that dedication to the needs of our clients not only enhances our franchise today, but establishes a solid foundation on which to build upon the market's eventual recovery. At the same time, we took decisive actions in response to this new business environment. We have significantly reduced costs. We have cut CapEx in line with revenue expectations and are more effectively managing working capital to maintain and enhance our positive cash flow. We have accelerated some of the structural changes to improve margins while deploying technology to further improve productivity. I and other members of the executive team along with nearly all salaried employees have taken pay cuts and our board has also foregone some of their compensation. Additionally, we have made adjustments to our variable headcount and broadly rationalized our assets to align with anticipated future levels of activity. We are taking these actions while maintaining our commitment to delivering superior services which help our customers increase their efficiency, reduce their costs, and improve their outcomes. Consequently, we continue to forge ahead in areas that offer the greatest returns. For instance, customers are anxious to adapt digital technology that will help them improve efficiencies, as well as transition to more predictive solutions. In this respect, we continue to work with our customers to leverage our Mistrust Digital solution that helps reduce non-productive time and improve labor and asset efficiency. Complementary to Mistrust Digital, is our industrial Internet of Things offerings, such as remote sensor monitoring, where we are having great success as our MISRUS digital ruggedized tablets are that are revolutionizing field reporting. We are seeing a steady increase in our mechanical work. All of these actions and initiatives are helping diversify our revenue streams and significantly strengthen our foundation for long-term growth and profitability. and while our customers in the energy industry are trying to stretch their dollars just like everyone else is, they nevertheless have an obligation to keep their facilities in compliance with regulations and operating at top efficiency. So we are sensing new opportunities in even this environment of demand contraction. We do acknowledge that some work is either being pushed out or canceled. We believe the second quarter should represent the largest deviation with our revenues potentially down as much as the high 30% range from a year ago. April looks like it should be a peak revenue decline as we are already sensing that May will be better and June could potentially see further improvement if oil prices continue to recover and states continue to relax shelter in place orders. The third and fourth quarter would then be expected to rebound nicely. Given the impact of COVID-19 to our business, We did perform an assessment of the carrying value of Goodwill and other intangibles in the first quarter of 2020. And the result was that we recorded non-cash impairment charges of $106 million. Ed will go through the details. With our expectation of positive operating cash flow each quarter this year, limited capital expenditure needs, and our amended credit agreement, we have sufficient liquidity to support our operations. and this would be while simultaneously reducing outstanding debt by the end of the year including $4.5 million already paid down in the second quarter. Our job is to build on the legacy Mistrust has created over the years and it is our vision to take Mistrust to the next level through more integrated programs and more predictive intelligence that will define our industry in the future. Let me now turn the call over to Ed for a detailed review of the financials.

Thank you, Dennis. First quarter revenues were somewhat better than expected, down a little less than 10% from a year ago. As anticipated, our oil and gas revenues in our services segment saw the largest decline, which was somewhat offset by a nearly $2 million improvement in domestic aerospace and defense. Conversely, revenues in our international segment were impacted by a decline in European aerospace revenues, where production at our large facility in France was hampered by that country's complete shutdown, as well as a continued runoff of the staff leasing business in Germany. Gross profit for the quarter was $40.6 million, or 25.5%, with margins down from a year ago, mostly due to underutilization resulting from the decrease in revenues. To a much lesser extent, margins reflected a somewhat tighter pricing environment. On a segment basis, both services and international revenues were down. Services primarily due to the weakness in energy markets, while international experienced a decrease in aerospace revenues, driven by the wind-down of staff leasing and a foreign currency, adverse foreign currency translation impact. First margins were also down from a year ago, consistent with the decrease in revenues. Selling general and administrative expenses decreased from a year ago, despite the addition of New Century's overhead to this year's cost. Early in the second quarter of 2020, we initiated a cost reduction and efficiency program which should reduce the run rate of overhead by approximately 10% beginning in the second quarter, a reduction we believe is consistent with our outlook for the year. This program includes temporary adjustments to capital spend, reduction of travel and certain R&D, limiting of new hires, and the scaled reduction of salary expense for essentially all overhead positions. Also note that all non-employee members of our board also took a reduction in their compensation during the second quarter. We typically review goodwill for impairment each October 1st or whenever events or changes in circumstances indicate that the carrying value of goodwill and intangibles may not be recoverable. COVID-19 and the related impact of crude oil prices was deemed to be a triggering event requiring us to perform an interim assessment. As a result, we recorded a non-cash charge of $106.1 million for impairments in the first quarter of 2020, comprised of $77.1 million related to goodwill and $29 million related to primarily intangible assets. On an after-tax basis, this was $92.1 million, or $3.19 per diluted share, exclusive of a $0.02 per diluted share benefit from other special items, or $3.16 per diluted share on a net basis for all special items. Although we were in compliance with our bank covenants as of March 31, 2020, we nevertheless executed an amendment effective May 15, 2020, to gain additional covenant flexibility. We maintained the remaining maturity of our existing credit agreement through December 2023, including a $93.75 million term loan, but we reduced our revolving credit line to a maximum of $175 million to save costs related to the unused commitment while ensuring a sufficient level of liquidity to fund our business. We additionally maintain a $100 million uncommitted accordion within the amended credit agreement for potential expansion in the future. Our net debt, total debt less cash and cash equivalents, was $241 million at March 31, 2020, compared to $239.7 million at December 31, 2019. Gross debt increased by $3.3 million during the first quarter of 2020, from $254.7 million at the end of the year to $258 million at March 31, 2020. As Dennis mentioned, we have already paid down an additional $4.5 million of debt in the second quarter of 2020. Reiterating one of our key themes, our business has historically generated strong cash flow. In the first quarter of 2020, we further enhanced that reputation with cash from operating activities of $6.1 million. We did utilize a little over $4 million for capital expenditures in the first quarter, in line with our goal to reduce total capex this year from our typical run rate, in line with revenue expectations. We recorded a net loss of $98.5 million for the first quarter of 2020, Thank you very much. Given the continuing economic uncertainty, we are not providing guidance for the full year 2020. We do anticipate revenues for the second quarter of 2020 to decrease up to a high 30% range from the prior year period level, although cash from operations and adjusted EBITDA are expected to remain positive. While it is extremely difficult to forecast with any degree of certainty at this time, we are optimistic that consolidated revenue in the second half of 2020 will be higher than that of the first half of 2020 with corresponding improvements in both cash flow and adjusted EBITDA. This outlook is contingent on continuing macroeconomic improvements, including stabilization in crude oil prices and the relaxing of certain stay-at-home mandates. We are confident in our sustainable business model, and we remain firmly committed to carrying out our strategy today and over the long term. And with that, I will now turn the call back over to Dennis.

Thank you, Ed. Mistress is essential to global energy infrastructure as well as to the aerospace, alternative energy, and other industries. Whether at our facilities or those of our customers, our teams are hard at work ensuring the safety and security of valuable assets while observing today's coronavirus-inspired rules of engagement. We are far from out of the woods. We intend to keep a consistent eye on our expected revenues and be sure we match our resources accordingly. The crude oil prices have recently stabilized and are beginning to improve, and more states around the country are beginning to relax some stay-at-home restrictions. Conversations with our customers have become more constructive. These are all positive signs and much different than the signals we were hearing in mid to late March. MISRUS intends to emerge from this pandemic stronger, determined and prepared to capitalize on the opportunities which we believe exist within our industry. customers know they can count on MISRIS to be there when they need us. We have deep relationships built over years of dedicated service, delivering on time and on budget. And we are developing new age tools that customers know they're going to need as budgets shrink and we all have to learn how to do more with less. We are excited about MISRIS' future and are committed to our success. Our industry is under intense pressure to optimize the efficiency of their assets and the many other MISRUS associates. Let me again state my deep appreciation for the hard work all the mistrust technicians and professionals are doing to keep our customers' assets safe while facing all the challenges they must endure to get the work done. Let me also commend all the administrative and management mistrust folks for finding a way to make this new normal work for us. Our focus on cash generation, collection, and normal administrative processes has not diminished one bit. and we are as strong and nimble as we ever have been. I also want to sincerely recognize the patience for our long-term shareholders who continue to support us through this journey. Thank you. Now with that, we'll now take your questions. Gigi, please open up the phone lines.

As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Everett Marshall from Sidoti & Company. Your line is now open.

Hi, guys. How are you? Dennis, Ed, John. Hope you and your families are doing well.

Good. Thank you. Same to you, Ed. Morning, Ed. Thank you.

Thank you. So I wanted to talk about the operating expense reduction of 10%. First, I wanted to understand, is that the corporate level? It sounds like a lot of it might be versus maybe what runs through the segments. and I want to understand, are you through or do you anticipate additional revisions? And then finally, as I look at these revisions, are they additive to the bottom line or are they just simply offsetting the top line reduction? Just wanted to get a sense as to where you are there.

Sure, I'll take that, Ed. This is Ed. Yeah, so that total, that 10% run rate that we're referring to, that's total overhead savings. So, of course, that's referring to SG&A as well as the indirect Overheads up in SG&A. It's about an equal number, actually. There's about as much of a fixed overheads up in SG&A as there is SG&A below. So it's spread across both of those. So it is a run rate. We did announce the nature of those charges earlier. It's salary reductions. It's combining facilities. It's lease savings, you name it. Some of that's temporary in the form of the salary reductions. Others are more permanent. It is additive and incremental. CapEx is a big piece of that, as well as minimizing the overhead from that. Travel, you name it, all the activity that happens relative to the revenue stream goes in unison with it as revenue comes back, some of that would come back. That is a run rate. It's virtually equally split between SG&A and the other piece up in the indirect COGS line is where you'll see that savings come through We did mention earlier in the year we had some savings initially contemplated. We've doubled down on that to a higher level at this point, but you'll see it really hitting FD&A as well as up in the indirect POS line. Got it.

Understanding that maybe it's a difficult environment, especially just coming out of April, maybe the beginnings of May, but as you talk to customers, I'm wondering what they're telling you and give you an opportunity to kind of talk about maybe some direct conversations, but When I think about the embedded personnel that you have at the sites, I assume that the kind of order of progression would be emergency call-out work would probably come first. Secondly would be your embedded solutions or your embedded people in the facilities. And third, maybe project work. Where are you in the discussion? I'm assuming the call-out is probably pretty sound, but I wanted to get a sense of maybe how the embed is working and ultimately your outlook for the project work.

Thanks, Ed. I'll start. I'll probably let John add to my thoughts, but our projects have basically kept folks at every site. For the most part, we've had reductions of zero to a large percent of people due to the COVID. Our customers are trying to get the work done, but they're really reducing the amount of outside people that are coming in. They're reducing the amount of hours. So while we do have a large group of about 18% of our billable employees are on a furlough because of this, the other 80-some percent, 81-2% are actually still out there doing work. They're just doing it at a much lower percentage of hours a week. Typically, you'd be working six or seven days a week at 10- or 12-hour days, where now they're working three and four and sometimes five days at eight or less, right? So the customers are all trying to get the work done. They've just kind of not been in a rush to get themselves offline and come back online, if that answers part of it. John, is there anything else you think you could add?

Yeah, the other thing, Dennis, I agree with everything you said, but it depends which continent you're on to. So I think Dennis' comments ring true really everywhere. But, you know, if I think about some of our shop-based businesses, We've been very steady on shop-based businesses here in the United States and in Canada. But then again, in Europe, it's been spotty depending upon the degree to which countries shut in. So, for instance, in France, the shut-in was much more severe, you know, throughout that whole economy. So only just now are we sort of getting some of those personnel back to speed. So it really depends, and it's a little bit choppy.

Got it. Got it. The final one for me is kind of future-looking. When I think about your digital, and I think about maybe how that might impact a reduced staff across, not just at MISDROPS, but at your customer level, too, because of the efficiencies and the productivity enhancements it may bring. I want to get a sense as to, is the current environment helping your customers embrace this digital platform easier? and have you seen more implementation of the digital platform into your day-to-day work?

So a couple things. Not even just the mistrust digital, but we're getting a lot more inquiries about bridges and online monitoring of things like that. In one of our instances where we had the digital standing up already in an aggressive beta version, we started out small, but they added more people to it. One of our customers was working from home and made the comment that they've seen more data now than they usually see when they're at site trying to do it the old-fashioned way with paper and pen. So I think a lot of customers are doing what we're doing. They're working from home and trying to find ways to be more involved in the business and thinking about anything from online single points of data to multiple networks of data and everything else and then these data gatherings at the Mistrust Digital where you can go out and whatever you're doing, you get it by the end of the day. We've got turnarounds that are getting data in much quicker now as they're playing with this, but we haven't gotten turnarounds using it completely across the board. So we see signs that there's a lot of activity getting ready and thinking about it. It's just in this COVID environment, not a lot of people are ready to be able to get with IT and make all those things work together. John, any other thoughts?

Thanks, Dennis. I agree with what you said. Ed, it's a great question. It's something we're actually in discussions with several customers precisely for the reasons that you described and for what Dennis just said. It's an opportunity to increase productivity to either do an additional amount of work with the same size staff or to reduce the size of the staff and do the same amount of work. But we see tremendous opportunities here. and we are in discussions with several customers to do precisely that, to bring them more productivity. They need it. We need to deliver it to them and we're, I think, uniquely positioned to really deliver it.

So I guess if there's silver lining in all of this, it may be assistance into your growth within digital. So good job, guys. I appreciate all the time and thanks for the response.

Thanks, Ed. You know, it's funny. We've been touting online for how long. It only took a global pandemic to get people to think about it. Have a great one. Thanks. Great. Thank you. Thank you.

Thank you. Our next question comes from the line of Andrew Obin from Bank of America. Your line is now open.

Thank you. This is David Ridley laying on for Andrew. What do you expect from your aerospace defense business in the second quarter? And we've also heard anecdotally that the air framers are being helpful to the supply chain on working capital. So would you expect any above average free cash flow benefit in 2020 from that?

This is John. I can take that. Good question. It's interesting. For instance, during the first quarter, our aerospace business held up remarkably well. It was just about even with last year, even as the effects of shutdowns were beginning to be felt. Aerospace for us is an essential business. It's deemed an essential business, and we as a service provider to that industry are deemed essential as well. For the second quarter, I think we'll be down modestly in aerospace in North America. We'll be down to a larger extent, as Ed alluded to, in Europe. and so forth. But in general, the aerospace business is down by a lower percentage than we expect the company will be overall. In terms of a free cash flow benefit, I'm not aware of anything specific that we're expecting there unless you are, Ed. No.

Other vendors in the oil and gas space have argued that refineries perhaps cut too deeply into maintenance spending back in 2015, 2016, and now have a more cautious stance around cutting those budgets now. Are you seeing any differences among your refinery clients versus how they acted in 2015? Thank you.

Sure, this is John. I'll start with that. Go ahead. Yeah, absolutely. Back in 2015-2016, I think that the decline in the price of oil caught everyone by surprise. I think it was kind of a new playbook as customers and suppliers tried to grapple with that. This time around, we've seen this movie once or twice before, so I think that the impact has been much more coordinated. I think that scopes have been reduced because people just weren't out of their homes. Sorry, they were literally at home and they weren't at work. So scopes have necessarily come down. Certainly we're expecting a bounce back in the second half from first half levels because of that impact. There has been work that has absolutely been deferred because of people not being on the job, and we do see that recovering somewhat. Yeah, David, it's Dennis.

I'll add. When this first started, I don't remember the exact days, but everyone remembers the different days when they thought this was a real lock-in. I remember that one weekend, I spent the whole weekend talking to folks. We were getting letters together to let authorities, whoever that may have been, know that we were essential workers because we weren't sure if our employees were going to be even able to go out there and travel. There was all these internet rumors of the National Guard doing lockdowns at highways and all that. So I think initially, John's right. This hit. and no one knew what was essential. We were having a look up the references that they were using the national standards CISA for what made us essential and after a while people learned to get used to what it was and what it was like. But at the beginning I think a lot of work just fell off because nobody knew what was going to happen the next week or the next day, right? I do see right now as an early indicator and I don't know how much, I can't guarantee how much work will be confirmed. Our bidding activity for the fall has been surprisingly normal. And I say that in midstream and some of the other things we're seeing now. Again, it's somewhat anecdotal from what we're seeing across the business, but I sort of expected a bidding activity that was much more subdued for the fall than what we're seeing. So that's a good sign. Now, you know, oil prices can change dramatically and people can expect to pull off capital if that's the case or keep it where it's at. But right now it seems like I think people are and the energy industry are getting used to what this is and trying to figure out a way to spend less, work it slower, but keep it going. So, I mean, it's kind of strange in how fast it fell off and how now it's trying to get back to a normal. By June, we're thinking we're going to get back close to what we were expecting when COVID first started hitting, not when it really got going.

Good to hear it. Thank you very much.

You got it.

Thank you. Our next question comes from the line of Tate Sullivan from Maxim Group. Your line is now open.

Hi. Thank you. And a couple of follow-up on 1Q22. Can you break down gross profit by services international and products and systems? I think the gross profit margin product and systems decline meaningfully year over year. Was there a one-time factor in that? that may help that bounce back in the current quarter?

No, this is Ed Tate. No one-time factors, but again, we really got the overheads out effective April 1 and forward, so we didn't have enough time to react in Q1 to get some of the costs out. As I mentioned, there's a big piece of sort of relatively fixed overheads up in indirect costs affecting services, so we did get those costs out effective April 1 and forward, so you'll see that positive run rate going forward. Now that we've kind of scaled the overheads to the revenue level, there's a lagging effect of that where that wasn't quite in place for the first Q1 entirely, whereas it is in place fully for Q2 and forward. Okay. Thanks, Ed.

And on that, I mean, on your earlier comment on 10% reduction in SGMA, can you give more background on arriving at the minimum EBITDA requirement for this current quarter and I mean, does it come down to a confidence where a baseline can be based on where you cut costs already in the quarter in a period of limited visibility too?

Yeah, we began due to with, you know, the full run rate in place across the board. Again, it was delaying hirings. It was freezing merit increases, salary reductions, you know, suspending the 401K match. You know, obviously we're minimizing hours for the hourly technicians. Their rates were not adjusted. So there's a whole series of things that were put in place. And, of course, we stress test, you know, the outlook, the forecast, you know, to a low scenario as you went through the bag process. You know, so, yes, I'm very comfortable we hit that, you know, a minimum hit the floor of the minimum need of the requirement because all those cost outs were in place beginning of Q2. And there's more levers to pull. You know, we'll continue to, you know, sort of constantly recalibrate Thank you for joining us.

and all that started essentially I think the first payroll of April so like April we caught maybe one day of March but most of April. We've even gone back to our landlords and talking to our landlords at a lot of locations where we're getting some reductions who are graciously taking off for the quarter almost to the end of the year. We've gone back to our just to our top 20 and top 30 spending AP and looking at all of our costs for coming in and sending them letters and asking for what they can do. So, I mean, we're trying to do a lot of this, and most of it started close to April 1st, and some of it's been coming in now in May and such with the landlords and all that. So we're continuing to adjust to whatever we have to do to make this right. We're watching our revenue. We keep re-forecasting all the time, making sure that the re-forecast is as accurate as possible, and then looking at what resources and costs we have to do to match it up.

Thanks, Dennis. And one more follow-up for me is, can you give some more comments on, I mean, on-stream, where their exposure was when you bought it, and an update on the mid-stream market in Canada? I mean, COVID can impact different countries differently, so just can you give more comments on the mid-stream market currently as well, too, please?

Yeah, sure. about 85% of their business was in Canada at the time we purchased the company. The Canadian economy has been hit hard by this and by the volatile oil and gas prices as well. So the impacts on midstream companies I think are pretty well known. Onstream's business continues to grow in the United States. It's had... It grew in the first quarter in Canada. It'll contract in the second quarter as a lot of things have contracted in the second quarter or will contract in the second quarter. But we expect them on balance to have a good year. Okay.

Thank you for all those follow-up details. Have a good rest of the day. Thanks, Dave. Sure.

Thank you. Our next question comes in the line of Sean Eastman from KeyBank Capital. Your line is now open.

Good morning, guys. This is Alex on for Sean. Thanks for taking my questions. Morning. So, sorry, I got disconnected. I apologize if these questions have come up already. But my first one is, I guess, on the comments about the cost reduction steps you guys are planning on taking, I'm just curious how and how you're thinking about labor and anticipation for the work coming back in the second half of 2020. I guess, overall, how you guys plan to balance your cost control while still best positioning yourself for the recovery that could come about in this year.

Yes, John, I'll take that. So from a labor perspective, we've let very, very few technicians leave the company. We've had extremely high retention of our technicians. Hours, of course, have been reduced as workloads have necessarily been reduced. And in some cases, some pay rates have been adjusted as well. But what we expect for the second half is that as the workload comes back, which we've got very good indications that it is, these people are still employees. They're raring to go. They're looking to get those hours and looking to get back on the job to the fullest extent possible. So we feel very good about our capability to deliver to customer demand in the second half.

Thank you. My next question, I just wanted to try to understand what you're seeing internationally versus domestically a little bit better. It seems like the services segment in the U.S. held out a little bit better than international. I know we talked about the France and aerospace last quarter with the headwind there. Maybe just talking 3Q and on and assuming the continued relaxation of stay-at-home orders and oil prices stabilize, I just want to get a sense of which end markets are subsectors. should recover relatively quickly and which ones might take a little bit longer to recover?

Sure. It's John. I'll start. So oil and gas obviously has been the heaviest impacted in the end of first quarter and certainly in the second quarter. It's also the one that we think will ramp back up the quickest in the third quarter and beyond. and of course with the oil price trending better too, as Dennis said in his comments, this morning it's up over $32 for WTI. That's a very good benchmark in terms of our customers' willingness and ability to resume normal activities, especially as that price continues to trend back up to where we would all expect it to be. Aerospace is a little bit of a tricky call. Certainly Boeing has had its challenges with the 737 MAX program. That impacted us early in the start of the calendar year, but not to the extent that perhaps others might have expected because we have a pretty diverse portfolio within aerospace. Certainly for Airbus has also had a number of cutbacks and plane deliveries are expected to be lower. So I think that the aerospace sector will definitely snap back, but it may take some more time for it to reach pre- Thank you.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Our next question comes from the line of Mitch Pinheiro from Stewart Avant & Company. Your line is now open.

Hi. Good morning. Hope everybody's well. Hello, Mitch. Most of my questions have been asked and answered, but I do have a couple to throw at you. One, in terms of your confidence level for the second half, so what's that based on? You know, is there any, you know, do you think about, Perhaps in the fall, if there's a second wave, a second shutdown, is that sort of factored into your thinking at all? I'm just curious, you know, how you build your confidence for the second half.

It's a great question, Mitch. It's Dennis here. You know, we don't build our second half forecast with a huge increase in the barrel price. But at the same time, if it were to cave from the $30 back down to $20 or below or something like that, that could affect it. We're expecting it to be a $25, $30 or better barrel price. You hear about much better later in the year. But we think at this rate, like I was saying earlier, we're still seeing a lot of bidding activity, a lot of work that means that the purchasing side of our customers are still saying put it out there. It doesn't mean that capital may not get pulled back later, but Right now we see it being out there. We see the customers still talking about a lot of this, although it's still dampened because of worrying about spacing and all the health risks that come with the virus out there. COVID is still going to have an effect on the second half because I don't see it being the high-density populations coming onto the refineries working shoulder to shoulder and doing all those things like that. So I do think there's still going to be some effect on that. But As far as what we have is a barrel price is being steady. We believe that there could be some bounces here and there. We didn't build into another 50 statewide type of shelter-in-place scenario for sure, but we do think that even if there is some small changes to the freedoms that some of these states are enjoying, we believe that our fall forecast is fairly close within the realm of There's nothing out there that we need to happen that isn't going on now to make our fall look like it should be, I guess, is the short answer.

Within the energy segment, how much of the business would you describe that's been lost here in the first half or anticipated for the second quarter as well. How much of that is simply work that is deferred that's going to have to get made up within the next six to 12 months versus how much is lost sort of permanently? Any feel for that?

It's John. Let me try. Well, first I'd say permanent is a long time. So I don't know that I'd say that work that was not performed or is not being performed now in the second quarter is perfectly lost. These are all facilities that have to be maintained, that have inspection requirements that are ongoing. So something that was deferred now is going to have to be done. The question is when and to what degree. And pacing, as we've seen during the second quarter, during emergency situations, can be moved. And so for that reason, you always want to You always want to gauge your response with that context in mind. You almost feel like you want to hedge your bets even though you're not doing that. You're just trying to be cognizant of the fact that schedules move all the time and for various reasons. But I think having said all that, our expectation is that, as we've said, is that the second half should be a decent second half. We see a pretty good rebound. Thank you very much. Thank you.

Could it get pushed again? Possibly, but more probably you might have some fall things, you know, go further out each quarter. There was a smaller percent, you know, probably less than 25% to be sure. I don't know if we categorize it, but it was a small percent that pushed out of the spring into 2021. So for the most part at the time customers were just reacting to we can't get people to come in and worked together closely so we had to push out. They're small like in Europe and other places where they still have these countrywide lockdowns. That's where a lot of the things even happened in the spring because you had vendors that were not just the entire turnaround couldn't be done within the country. And then they had to find ways to either find someone within the country to do the work that they had planned for somebody else or find a way to bring them in. So as long as the borders are opened up both here and internationally, Canada as well doing that same type of thing, I think fall is probably going to have less chance of having this huge lockdown like you've seen in the spring. Okay.

And then one last question is sort of from an intermediate term and longer term perspective. Has your thinking changed about the business, whether it's Capital Allocation, the way you're going to focus on various end markets, or even the way you're working capital usage and CapEx needs. Has anything changed from an intermediate term, a year or two, to a three- to five-year outlook? Have you learned anything? I was just curious.

Yeah, it's a good question. I mean, while we try to be insightful right now, we're reacting to what's going on. We do see the advantages of increasing our diversity in our end markets. We do see the advantages of increasing our ability to do things remotely. You know, while working from home, everyone's trying to figure out how to do things remotely. So like I said earlier, I see customers, many more bridge quotes and all these other things where customers are starting to see The advantages of doing, and it's not going to replace bodies completely, but it will definitely supplement the inspection programs you have so that you can be doing things with people out there with their eyes on equipment, knowing what they're looking at, as well as always having some online data coming in. So I do think what we're going to be doing is really redoubling our efforts on our diversification and on our digitization on those things that we knew was a good idea. But I think what we're starting to realize now when you see times like this and they create all this need for invention and innovation, it's going the way we were talking about. I think we've got to start trying to push it, and I think customers will see it. So outside of that capital and things like that, basically that's just every time we re-forecast, we look at it and say, what do we have? We don't see anything different that the gas and oil market is going to need because of this other than they're always going to need online stable customers and vendors. And I'll tell you, you know, you hear about all the possibilities of bankruptcies in the oil and gas space from the customers. The service folks are going to have that too. So there isn't probably going to be a lot of companies that are affected by this. And we see ourselves coming out the other side of this and being strong and I think our customers are going to look at who's going to be a long-term vendor for them and what is the right way to go price versus stability as well. So that might play into it as well. Okay. Thank you. That's all for me. Thanks, Mitch. Thank you.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Dennis Bertolotti for closing remarks.

Great, Gigi. Thank you. I'd like to once again thank all the Mistrust employees for your service and dedication. I'd also like to thank our investors for understanding that while the energy market suffered a setback in the second quarter here, and it will take some time, but it will get back to a new normal, the entity industry continues to provide great value to the world's economies, and Mistrust will continue to not only serve the energy market, but increasingly a number of other industries as well, as we adapt to this new landscape. and the whole MISRS team would like to thank everyone for joining a call today and we wish everyone a safe, prosperous and healthy future. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.