Mistras Group Inc

Thank you for joining Mistress Group conference call for its second quarter ended June 30, 2020. My name is Tequila, and I will 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 Walk, 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 SEC. The discussion in this conference call will also include certain financial measures that were not prepared in ordinance with U.S. GAAP. Reconciliation of these non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found in the table contained in yesterday's press release and in the company's related current report on Form 8-K. These reports are available at the company's website, in the Investors section, and on the SEC's website. I will now turn the conference over to Dennis Bertolotti.

Thank you, Jaquilla. Good morning, everyone. As anticipated, second quarter revenue was down 38% as compared to the year-over-year quarter. But thanks to our ability to quickly flex our organization in the face of rapidly deteriorating business conditions, and by flex, I mean make extremely fast changes to our cost structure, we were able to maintain year-to-date gross profit margin and actually improve it in the second quarter. We also delivered significant improvements across a variety of additional key financial metrics. Cash from operations was more than double the year-ago quarter, and free cash flow was up nearly 300% compared to the same period last year, which enabled us to reduce debt at a record pace. Gross margin was 33.1%, the best quarterly level in over five years despite the lower revenue. and over the first half of this year, our gross margin was approximately the same as in the first half of last year despite a 25% revenue decline. We also drove overhead down by over 10% in the quarter. The success achieved this quarter demonstrates MISRA's strong ability to adjust and pivot to sustain positive cash flow during challenging economic circumstances while maintaining the high level of service on which our franchise is built. Having succeeded one of the worst quarters in recent history, we are preparing for recovery in our end markets. We are also preparing to capitalize on the opportunities being created by the sweeping changes in the way we all work, which has been accelerated by the global pandemic. A bright spot in these difficult times is the pressure being put on our customers to condense their supply chain, to get more value from their integrated partners. Essentially, doing more with fewer, and we are quickly adapting to this change. which we have anticipated for some time. We believe the current pandemic will serve to accelerate the adoption of this strategy. The market is definitely evolving from its traditional commodity service orientation to a value-added orientation. That is why we have been actively enhancing our service offering and diversifying into new markets. In our traditional oil and gas market, we have added new capabilities that are adjacent and complementary to our traditional NDT work. such as Mechanical Services and Rope Access. We are also introducing time and cost-saving technologies such as ruggedized tablets. And we are bringing more intelligence to our customers under Mistrust's digital umbrella. Already these capabilities are contributing to our success both tangibly and intangibly. For instance, anecdotally, we have heard that some of our customers believe they get better information using Mistrust Digital at home than they did when they were on their own job site. We are also very involved in the emerging industrial in and out of things market. For instance, we have been having success with various departments of transportation where our sensors are being embedded in bridges. We are seeing this in the renewable power space as well. This represents growth opportunities where we can leverage our unique technology into market, which have tremendous potential. In aerospace, we are seeing the same trend of compression and supply chains. We are gaining valuable experience with our Airbus and similar contracts where we are consolidating the number of tasks the owners used to have to have done individually by separate vendors, greatly reducing the time it takes to move a part through the supply chain in addition to offering substantial cost savings. Again, we believe there will be a growing demand for this ability to add value to the aerospace supply chain. Our efforts to enhance our service offerings and broaden our product portfolio is one area the global pandemic has not impacted. As budgets loosen and the transition to value-added services accelerates, we believe we are ideally positioned to help customers consolidate their supply chain, reducing costs while generating their better business intelligence. Because we tracked headcount, technician hours worked, and billable hours, we saw conditions gradually improve as we went through the second quarter, and this continued into July. Reports from the field complement these trends as activity levels are improving and bidding opportunities are increasing. For example, we were just awarded a large new contract in the North American oil and gas market, which is scheduled to start soon and ramp up over the balance of the year. We entered the second half of the year in a strong position, having successfully managed through what many believe will prove to be the most challenging quarter of 2020. With our strong cash flow and reduced capex spending, we have the liquidity needed to fund our operations and remain well within the terms of our bank agreement. We are headed into the second half of the year with good momentum. Based on the activity level we have seen, the steady improvement in technician hours, and some recent new contract wins, we expect a high team up to 20% sequential improvement in revenue during the third quarter over the second quarter of 2020. This should leave the second half revenue that will be higher than the first half. We also believe this level of revenue will support an increase in adjusted EBITDA in the second half compared to the first half, as well as positive operating cash flow in the second half of 2020. This is why we believe we can further reduce total debt this year. The second quarter of 2020 was a challenging period for MISRAS, and I am extremely proud of our team and how they continue to perform in these challenging conditions. By putting the safety of our associates, clients, and partners first, while continuing to deliver outstanding services, they are strengthening the Mistrust franchise and our relationships with our customers. We are committed to continually improving the value we deliver to customers, and we are equally committed to improving the value we deliver to shareholders. I would now like to turn the call over to Ed to give you more detail on our financial results for the second quarter and the first half of 2020.

Thank you, Dennis.

Second quarter revenue was consistent with our revised outlook coming in at slightly under $125 million, which was down 38% from the year-ago quarter. We believe that the second quarter will be the low point of quarterly revenue this year, and we exited June at a run rate which was much higher than we entered April. And this trend has continued into July and early August. Hence, we believe that our third quarter revenue will improve progressively over the second quarter. For the six months ended June 30, 2020, our revenue was slightly over 75% of prior year revenue for the same period. This is evidence of the high level of recurring work from our run and maintain business despite the extreme turmoil in our TN markets. Additionally, despite a revenue decline of 22% sequentially in the second quarter from the first quarter, we generated second quarter gross profit of $41.2 million and a 33.1% gross profit margin, which represented an increase of approximately 760 basis points from the prior quarter. Our second quarter gross profit margin is the highest quarterly gross profit margin level that we have achieved over the past five years and is attributable to favorable sales mix and lower pass-through costs such as travel, as well as temporary cost reductions and government subsidies being realized. On a year-to-date basis, we have maintained our gross profit margin at approximately 29%, despite the significant decline in sales level. This is a function of our conscious effort to offset fixed costs under absorption with lower variable costs, demonstrating our ability to rapidly flex our organization, as Dennis mentioned earlier. Second quarter selling general and administrative expenses decreased by slightly over 10% as compared to the year-ago quarter. This decrease is despite the addition of new centuries overhead to this year's cost and incremental unfavorable FX translation, which combined added approximately 2.1 million or 5% to this quarter's expenses. Beginning in April 2020, we initiated a cost reduction and efficiency program in response to the global pandemic, which is reducing the run rate of overhead by approximately 10%. This reduction is expected to continue at least through the third quarter of this year. Due to the reduction in revenue volume in the second quarter of 2020, we recorded net loss of $2.7 million compared to net income of $7.4 million in the prior year period. We generated adjusted EBITDA of $11.5 million for the second quarter of 2020 compared to $24 million in the prior year. We were in compliance with all of our bank governance as of June 30, 2020. Specifically, We maintained liquidity of over $55 million versus a requirement of maintaining minimum liquidity of $20 million, with liquidity being defined as cash and cash equivalents plus unused credit on our revolving credit agreement. And secondly, we exceeded minimum EBITDA for the second quarter of 2020 by $8.1 million, as the minimum EBITDA requirement was $3.4 million, and we generated $11.5 million for the quarter. Although the maximum funded debt leverage ratio is currently suspended until the fourth quarter of 2020, wherein it resumes at a level of 5.25 times, we are on a performer basis already at 4.8 times on a rolling 12-month basis as of June 30, 2020. Our strong free cash flow, cash on hand, and cost discipline give us the necessary leverage to help achieve prospective compliance with our bank covenant. We generated $28.8 million of operating cash flow during the second quarter of 2020. And given our exceptional free cash flow conversion, we generated $25.5 million of free cash flow in the second quarter, enabling us to pay down $18.8 million of bank debt as well as build up $5.7 million of cash on hand since the end of last quarter. Free cash flow benefited from a reduction in cash paid for capital expenditures, interest expense, and income taxes. We only used $3.3 million for capital expenditures in the second quarter of 2020, a nearly 50% reduction compared to the same quarter last year. For the first six months of 2020, we have only spent a total of $7.6 million for CapEx. This is in line with our goal to significantly reduce total CapEx this year from our typical Monday. Accordingly, our net debt, defined as total debt less cash in cash equivalents, was $216.8 million at June 30, 2020, compared to $239.7 million at December 31, 2019. Broadest debt decreased by $18.6 million during the second quarter of 2020, from $258 million at March 31, 2020, to $239.4 million at June 30, 2020. On a year-to-date basis, we have paid down $15.1 million of debt. Our effective income tax rate was a 21% benefit for the second quarter of 2020 compared to 37% expense in the prior year period. Our effective income tax rate was a 14% benefit for the first six months of 2020 compared to 45% expense in the prior year period. The effective income tax rate in 2020 was lower than the statutory rate primarily due to impairments recorded earlier in the year for which we will not or do not expect to realize income tax benefits. This unfavorable impact on the effective income tax rate in 2020 was partially offset by income tax benefits of the CARES Act, whereas the effective income tax rate in 2019 was higher than statutory rates due to the impact of discrete items, the global intangible low taxes income, and other provisions from the December 17 Tax Cuts and Job Act. The effective tax rate for full year 2020 is expected to be in the low to mid teens. The ongoing COVID-19 pandemic continues to impact our two largest markets, that being oil and gas and aerospace. Nevertheless, we anticipate a high teen up to 20% sequential improvement in revenue for the third quarter of 2020 compared to the second quarter, but down from the year-ago quarter. While it is extremely difficult to forecast with any degree of certainty at this time, we believe that consolidated revenue in the second half of 2020 will be higher than the first half of 2020, with a progressive improvement in adjusted EBITDA and continuing positive free cash flows in the second half of 2020. This outlook is contingent on continuing macroeconomic stability, including the recent recovery in crude oil markets and the ongoing relaxation of certain stay-at-home mandates. We are also confident in our sustainable business model and 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.

It's been proven many times that necessity is the driver for dramatic improvements and innovation. We believe the current pandemic is one of those periods where an industrial companies will look at new and innovative ways of performing their work. This has long been at the forefront of improving technology and creating new and better instruments which can monitor important operational data generated by various equipment such as turbines, transformers and other critical machinery. With monitoring being done remotely, online and in real time across more and more assets, much more data is being collected, as well as being more thoroughly analyzed, thus providing owners with smarter and more intuitive information, which they can use to improve the efficiency and safety of their equipment. This is the path of the future. We believe that a crisis such as the current world pandemic can be a catalyst that significantly moves owners forward to adopt this transition much more rapidly as they will recognize it will allow them to more efficiently manage their assets. Mistrust believes that our customers will be looking for partners such as us with a more sophisticated approach to assisting them in condensing their vendor list and searching for better business intelligence. This is our strategy, knowing that we can apply these tenets not only into our existing customer base, but also new customers or market segments we target in the future. Before taking your questions, I would also like to thank all the MISRUS employees once again for your dedicated customer service, dedication, and attention to safety which you have shown in these extremely trying times. Your practicing of Caring Connect is working. Tequila, please open up the phone lines.

If you'd like to ask a question at this time, you may do so by pressing star 1 on your telephone keypad. Your first question comes from the line of Andrew Obin with Bank of America.

Good morning. This is David Ridley laying on for Andrew. What were the achieved cost reductions in the second quarter, and how do you plan on sort of potentially using furloughs and other temporary measures in the third quarter as you balance supply and demand?

David Hyde, this is David here. I'll take this one. Q3 is going to look a lot like Q2 in terms of the cost outs. We're continuing to calibrate the cost footprint to the revenue at hand. It's going to scale with the revenue. Travel is a good example. If we're not traveling, that goes away naturally as the work comes back. That comes back, but we've got essentially a very similar estimate in there for Q3 from Q4. And, you know, it's a decent-sized number, you know, the 10% of SG&A that's being broken out due to the cost-out measures we have in place currently.

Got it. And a quick follow-up. You know, with better visibility into clients' plans, you know, what would you say, what would you estimate the portion of planned turnarounds did shift from the first half into the second half? and what portion perhaps shifted out into 2021.

John, you want to grab that one?

John, you might still be on mute.

Yeah, sorry. Sorry about that. It's been an interesting time as we've been planning, working directly with every customer in every region. Some turnarounds have just been deferred into 2021. Some have been deferred into the second half. And some have been ongoing, but they've been ongoing without travelers. They've been elongated. They've been extended. And so it's been probably the weirdest turnaround season that we've seen in many years. I'd say it's sort of a mixed bag. It's tough to give a precise quantification. It's probably a 50-50 in terms of what got deferred into the rest of this year. and then the question will be at what scale and scope and those are open questions as well.

David, I'll add a little color to that. The turnarounds that we have seen continuing so far, to John's point, they've been going on at a very much reduced hourly impact. Typically a turnaround is six or seven day weeks and it's 10 or 12 hour days. They've been going five-day weeks. They've been going eight hours. Hummer's doing ten. We've had one that does overtime, but that's really been the uncommon one. The bulk of them are taking their turnaround schedule and doubling it. And we've even had a few customers approach us and ask us to do fitness for service on the equipment where we actually look at the major components that they have coming up for their turnarounds in the fall. And they've asked us if they had to... Thank you very much. A small percentage got pushed into 21, and only one or two that we see actually get pushed out further than that.

Understood. Thank you very much.

Your next question comes from the line of Sean Eastman with KeyBank Capital.

Hey, guys. This is Al Swire. I'm for Sean. Thanks for taking our questions, and congrats on the strong results.

Thank you. Thank you.

Yep, maybe just to piggyback off the last question, like as we look on to next year, 2021, with the revenue deferrals you've seen this year, I guess I just wanted to get a sense on what your outlook is for the potential for growth next year, and then what are the big swing factors you would call next year, and maybe what should we be tracking, whether it be like customer CapEx budgets or OpEx budgets or even some general economy metrics? Thank you.

Okay, so I'll take the first and then let's throw it to the other guys on the rest. But as far as 2021, we haven't set our budget yet. We're going to be working at much sooner than normal, which is because of the way the year is. And truthfully, we recalibrate our forecast almost monthly just to try to get a good idea of where we are for manpower and other resources. But what we're hoping to do is make 21 approximate 2019 as close as we can. We don't know about the seasonality and how it'll happen yet. The way it's trending, we see the hours creeping up. We see the bodies coming back. We tracked the amount of bodies that were taken out for COVID and we tracked the amount of billable hours week over week versus the previous year. They're on the rise. They're not coming back as fast as you'd want, but that's just part of everyone being careful about the safety practices that COVID has imposed on them. And let's face it, some of the spend reductions as well. We think that the turnarounds in the fall should be very close to what they had planned. There's no certainty that they will go the full length. Some customers may try to save a couple dollars, but right now what we see is the fall is going to get us better, and then hopefully we're going to look at more of a 2019. But again, we haven't gone that far. Ed or John, if you want to add on that.

Yes, John. Thanks. I'll tag on to that and just say Look, we believe the second half will be higher than the first half of this year. As Dennis was saying, as you go into next year, assuming a pattern that's at least fairly close to what 2019 was, you're going to see some pretty significant growth off of a very low 20 baseline, particularly in Q2.

Yeah, that's very helpful. My next question is regarding the competitive environment. Can you talk about some of the regions or sectors of gain share or see the opportunity to gain share? And is there a point at which smaller competitors become distressed and mistress market positioning becomes environmentally better?

Yeah, I'll take the first shot on that. There's definitely, you know, it's caused a lot of stress on businesses like ours, much, much bigger businesses and certainly smaller ones. And you hear about it in your communities of Small restaurants, bars, and everything else, small business are having a hard time getting through this. I think not only is it going to be stressed on smaller customers of ours, but smaller competitors of ours. I also think, to my point of talking about the technology, I think there's going to be a difference of what types of vendors customers are going to be looking for. They're going to be looking certainly for financially stable and ones that they can give a three- or five-year contract to, knowing they'll be there through this. But they're going to look at ones that can take on more types of complex situations and take on more and more of the work because, let's face it, you can only take away so much from an hourly rate or so much from a fixed rate. At some point, you just got to do it more effectively, smarter, and a lot of times that means a lot less vendors trying to do all these different steps and having more and more doing one of these steps or one whole project. So I think it's actually going to be changing the way people are looking and customers are looking at their vendor base.

Thank you so much and congrats again. Thank you. Thank you.

Your next question comes from the line of Brian Russo with Sedoti.

Hi, good morning. Morning. Morning, Brian. Hey, so the up to 20% sequential increase in the third quarter versus the second quarter still kind of implies a decrease of about 22% from the third quarter a year ago. Just curious to know, you know, what's driving the decrease? Is it what you referred to earlier, delays in the turnarounds, or is it cancellation of projects? I just want to get a little bit more color on, you know, the year-over-year revenue driver.

Yeah, I'll take first, and I'm sure John can back me up. But, you know, you're right. We're talking sequentially now because the truth is there's very – A few companies in our space, I think, that would compare a 2020 to a 2019 in these months. We're hoping to get closer to the run rate. Like I say, next year, I don't know if it'll be a flat repeat of 2019, but we're hoping to approximate it. But we haven't even gotten the budgets yet. So when we see it, truthfully, Brian, right now, aerospace in Europe got hit early and quick. It's crazy. It's going to stay a decrease for aerospace in Europe. We're starting to see a little bit more of that in the United States. We can definitely change our load in aerospace and hold our margins, but you're going to be on a lower revenue. The gas and oil spend right now for the rest of the year, customers, like I say, the turnarounds are being done at reduced levels. They may be being done at even just bare minimums sometimes. They'll make sure that the safety and compliance and They may or may not spend their whole budget on a complete turnaround. So we're being cautious when we give guidance because we know those things could happen. And the truth is our folks in the Gulf are looking at these high contact rates and all the COVID and they worry about if customers will start to impose stricter mandates. And what happens is you can only take the people that are local. You're not going to bring... Subject Matter Experts that we have around the country and bring them into those locations. The customers are not going to want to travel them. So they do things for the reduction. So we worry about that as well.

Okay, great. And just to clarify, the cost cuts in the second quarter, I think you said, can also be leveraged in the third quarter, right? Does that equate to similar type gross margins?

No, Brian said here. I would say that your year-to-date gross profit margin, the 29%, that's more what I would expect going forward. As one example, some of these cost outs such as travel, they're passed through with really very little or no margin on it. Don't expect this quarter's 33% to keep continuing. As revenue comes back, Some of your pass-throughs come back. So we believe that 29% through six months, that's more what you should be looking to expect in the back end of the year.

Okay, great. And then one more question on the oil and gas contract that you mentioned earlier. Can you provide any details on that? Is that midstream, downstream, or, you know, any other subsector of oil and gas?

Yeah, we're being... A little cagey about it because it's still not fully up and running, but we could say it's more of a, what do you call it, downstream. Or actually upstream, I'm sorry, the other way around. It's not typical, it's just a refinery sector. It's a little bit different than that.

Okay, and it looks like just your service segment, it looks like performed better on a gross margin basis than the other two, the international and the other sector. Can you just differentiate between services in terms of higher margin product offerings or ability to cut incremental costs there versus elsewhere?

I'll let John expand, but I think the quick, easy answer, Brian, is the difference in the way the country's handled the pandemic. We have the ability in the United States and to a large degree inside Canada where services get this revenue from to be able to quickly Take our utilization and fix it with the resource level very quickly. In Europe, as you know, it's handled a little bit differently. So the way they handled it is everyone stayed on employment in the various countries and inside our facilities. And then we were getting the money back very quickly. In five, six days after filing for our recovery, you get the money back very quickly. So it made it easier in that respect. But you're passing through. It's almost becoming like a pass-through kind of thing because all this money is just trading dollars. You're paying a dollar out for an employee, a dollar back, or sometimes a little bit less in the country. So it's money kind of almost being washed, you know what I mean? So your margin is going to go down just because of that. John, if you want to add anything to that.

Yeah, I agree with Dennis. You know, we have more flexibility in terms of being able to reduce hours in the United States and to reduce headcount. The other thing is that we had in the United States and Canada a very good sales mix during Q2. The mix toward higher margin pipeline work and aerospace tilted more in that favor. So that helped as well in a relative sense. And as Ed alluded to earlier, much less out-of-pocket costs, traveling costs associated with typically busy turnaround season. We certainly missed that work. But on the other hand, it did help margins by a percent or two.

Okay, great. One last question, if you don't mind. Just a bigger picture, mistrust, digital, and the industrial Internet of Things. I mean, at what point is it, you know, become a revenue driver, you know, you referenced tangible, you know, versus intangible right now. Just curious what your bigger picture and outlook is for that, you know, kind of industry innovation.

Yeah, John's running it, but I'll say one quick thing on that, Brian. I mean, we're actually looking at that as being more of a market driver for us than revenue. Certainly, it'll bring some revenue with it. But especially in the days of COVID right now, trying to show a customer how you're going to save them money by charging them up front has been a problem. You know, their budgets are slashed and they have very little flexibility to spend outside of a reduced number. So for us, we believe that we have this technology that can really show a difference of how we get work done for our customers. So we see that the most important aspect is going to be the The ability to retain and grow our market, but there is going to be some revenue in there, but truthfully, it's not our main goal. John, if you want to add on.

Yeah, thanks, Dennis. I totally agree. I'd say the two biggest benefits for customers are the enhanced visibility they get in terms of the status of what's going on in their plants and also the productivity they get both on their resource base and in ours. And I think that longer term, The streamlining of work is what drives a better experience for them, for our employees, and drives more market share for us. That's really how we're trying to win at this.

Okay, great. Thank you very much. Thank you, Brian.

Your next question comes from the line of Meet the Nero and Hero with the third event.

Yeah. Hi. Good morning. I I apologize if anything I ask is just repeats. I lost my phone battery to charge in the call. In terms of your business in this quarter, what percentage of this quarter was like a run and maintain revenue versus like an Apex revenue? And where do you see that in the second half?

Yes, John, I'll take the start. I mean, we don't typically break out those. Sometimes it's a little bit hard to tell, but I would say that anecdotally, there was a lot more typical run and maintain work than there was project work, just because projects being discretionary in timing, many customers were just not looking to spend on projects during Q2. So the revenues that we did have were much more run and maintain based than they would have been typically.

Yeah, Mitch, that's actually one of our strengths is that having as many sites as we do, we're near triple digits or at triple digits where we have more than a handful, you know, up to hundreds at a site. That's a big part of why we got through this a little bit less beat up than people would expect or others may have just because We're not as capital dependent on that. So our ability to have folks. Now, all be that said, they've reduced the number of folks at the site. They've reduced the number of hours at the site. So, I mean, you still have sites up and running. They just weren't doing the spend like John was saying that people have seen in a typical year.

I mean, do these companies think, I mean, if they can reduce

The number of bodies and hours on a run and maintain basis, is that going to play through down the road where we'll see a permanent reduction in on-site hours, etc.?

Is that a headwind, or does this come back to normal?

Mitch, I'll take the first shot on that. For the most part, what you're doing is you're just deferring costs, right? Like John was saying, they're not spending on the CapEx. They're reducing on that. So for the most part, what you're doing is you're taking maintenance and you're prioritizing as to what is most urgent and needed for safety and operation, and you're discerning the rest of it. Now, to the extent that we can show them how to operate more effectively and efficiently with digital and things like that, We're going to take on different services and everything to support it and maybe do a little bit less with each one service and get more done that way. So customers are going to be looking for how do you benefit it, but you can't really benefit by not doing the maintenance. It eventually comes back, and even on my first answer, we're telling customers how they can use engineering and online inspection and maintenance to prolong a turnaround. You've still got to get it done. It's just you're pushing it down the road a little bit.

And then I guess when you look at 2021, I know you're not giving guidance, and I'm just sort of trying to give a view into maybe how customers are looking at 2021. Are a lot of the referrals, I mean, are they all going to have to happen in 2021? Can we keep, is there a level of You know, a spend that is going to be eliminated or all these projects, you know, they have to happen at some point. I mean, where do you think your customers are in that thinking?

John, you want to take first shot on that?

Yeah, sure. Sure. Mitch, it feels like, as Dennis was saying, if work is getting deferred now, and many customers have gotten waivers in terms of having to comply with typical OSHA levels of inspection and so forth. So many customers have obtained deferrals temporarily because of COVID, but those are not indefinite. So to Dennis's point, you're deferring work now, but you're going to have to catch up on that work. So there is pent-up demand. that is building because of the dynamic that we're in right now. From a longer-term perspective, as Dennis was saying, in terms of digital, there is some amount of efficiency that's going to be coming and continue to come on an ongoing basis where we can help customers reduce non-value-added work. You're not going to reduce the amount of inspection that needs to happen, but you can reduce the amount of administrative work around that inspection. So in the net, I think there's the net deferral of work that's to come should more than outpace and should have to lead to growth next year.

Okay. In terms of, Ed, like SG&A, you know, excellent job in the quarter coming across. Is that, is this a sustainable level or, you know, have we reached, you know, you know, the right fighting weight here?

I mean, you have to go back about three years ago to find the level we're at now. So there is certainly some temporary cost outs, which will snap back when volume comes back. But we're continuing to look at the overheads, the fixed overheads, and recalibrate what we need. You know, this is a sustainable level. We will be subtracting, not adding to the fixed overheads right now going forward. So we are taking a hard look at that as we see volumes recover. and kind of continue to recalibrate that footprint. But we are very comfortable that it certainly doesn't need to grow. We can keep it at the level it is now and reduce it further and still support the business. So we are taking hard looks at that. But to answer your question, it's very sustainable, the level we're at now going forward.

Okay. That's all I have. Thank you.

Thank you, Mitch. Thank you.

and there are no further questions at this time.

Okay, so you're turning back to me then? Okay, thank you. Okay, I'd like to close up by saying our results thus far this year demonstrate our ability to quickly flex our cost footprint to maintain our gross profit margin while we generate strong cash flow to fund our operations and deleverage our balance sheet. We will believe there will be a market recovery in the second half of 2020 with resumed revenue growth and adjusted EBITDA expansion. We are prepared to capitalize on the opportunities being created by the sweeping changes in the way we all work, which has been accelerated by the global pandemic, specifically the transition of value-added services, where we believe we are ideally positioned to help customers consolidate their supply chain while generating better business intelligence. And we are bringing more and more intelligence to our customers under the Mistrust digital umbrella. Necessity is the driver for dramatic improvement and innovation, and we plan to stay at the forefront of leadership in our industry, pursuing growth opportunities where we can leverage our unique technology into markets which have tremendous potential. As always, I remain firmly resolved to the success of Mistrust, and I am extremely confident and optimistic in our long-term prospect of increasing shareholder value. On behalf of the whole Mistrust team, I would like to thank everyone for joining the call today. We wish everyone a safe, prosperous, and healthy future. Thank you.

Thank you for your participation. This does conclude today's call. You may now disconnect.