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spk10: So look for those below the oil and gas ones to all be in double digits and arrow and in data. The three different segments, you know, that's just customer dependent. You get a big project and, you know, mid or down or something like that. I would say for us, while they're all going to have a chance of growing at different rates, you'll probably see maybe a little bit more growth in the upstream. side than the other two this year, just depending on a lot of the contracts we have out now that would be coming through. So of the three, it'd probably be a little bit more in the upstream. And those are nice because the upstream is a lot more of a, it's a less volatile revenue cycle. They really don't go up and down. The facilities are larger and they try to keep them staffed at a rate that is constant, partly because of bed space and capabilities. They don't have a lot of room to go up and down anyway. So growing in that sector is good for us because it becomes a lot more base load type of sales.
spk08: Another important feature, Brian, is the balance we have this year. Yes, oil and gas is strong. Yes, aerospace will have another good year. Maybe not quite as good as last year, the growth it had. Data obviously is affecting all end markets. That's a solid thing. But the other good element here is that all the other end markets, putting aside the couple of larger ones, of all mostly up this year, they were all mostly down last year. So I think this better balance we have across the bigger end market portfolio is a real good, you know, strong point for us this year, where all geographies are doing very well, all service lines are doing well, all markets, and all the non-core markets are actually doing very well right now. That was not true last year. So that's where I think, you know, might carry the day this year is really the strength and balance across all the end markets. All the service offerings, all the geographies, all are doing fairly well, and that's a really good thing for us. Defense will pick back up. Commercial aerospace is very good right now, as is private space. Defense is probably the only one little sub-industry, sub-sector that's having some delays right now. But as Dennis said, it'll get back in sync. But I think it's really a year of balance or cost. Any way you want to sort of bifurcate our revenue stream as we're giving you more ways to view it, I think they'll all be relatively balanced and robust this year, and we'd like that.
spk01: All right, great. And then one last question on SG&A. You said flat or down. I guess you mean flat or down on a full year basis relative to 2022, which was $166.5 million. Yes, yes, yes. We were very hard, but keep it flat, yes.
spk09: Okay, so it's basically a $42 million gap.
spk01: or less run rate, you know, regardless what the percentage it is of revenue? Is that how we should look at it? Or are you still targeting kind of low 20%?
spk08: 20% is a longer-term aspiration, yeah. It's not particularly sensitive to revenue volume, the SG&A. But, yeah, it'll level back out. Q1 will be the high number for the year. It'll level back out. throughout the year. And yeah, we, we have every intention and I believe we will keep it, you know, flat to slightly down with last year's number. Absolutely. And it'll be, it'll be relatively flattish rest of the year. It's not particularly sensitive to revenue volumes.
spk01: Got it. And one last question, I apologize, but you're at 3.25 times leverage now, well on your way to three. Maybe can you just, you know, remind us, you know, what the priorities and use of, of your sustainable excess cash, might be once that, uh, that, uh, three times leverage is, you know, it's comfortably intact.
spk08: Uh, sure. I'll start with that and Dennis can expand upon that, but obviously job one right now is continue to, to knock back down the leverage below a three. So we'll do that. That's where residual free cash flow is going to go until then. At that point, as we've said, the last couple of quarters, we'll have some optionality. We'll, um, you know, consider other investment options. One as, um, Dennis mentioned in his prepared remarks is investing in some of our shop labs on the aerospace side, additional additive mechanical things, expanded capabilities for customers. That's a place I'd like to put, you know, like put some more capital, invest on our own shop labs. You know, other direct returns to shareholders are clearly a capability as well. We can revisit down the road. Maybe at some point, you know, we would contemplate a tuck-in acquisition on the data side perhaps. But, yeah, all that's in front of us, and we'll have that optionality and consider that. But we want to keep driving organic growth. We're really leaning into that now, keeping overheads calibrated, and we can invest selectively in our own capabilities organically is really where we're focused right now. But at some point, not in 2023, but at some point out in the future, acquisitions may become relevant again. But right now, we're really focusing internally on what we're building and investing on for future growth.
spk10: Yeah, Brian, the things that we're doing in the data across all of our segments, the shop where we're adding another smaller facility, we're adding more machining and all these are, they are really very good long-term base load kind of investments that we're making now and we'll continue to look at. You know, inside gas and oil, we have some very strong connections with some of our customers and some of the things we want to do there and growing. So we're being a little selective in making sure what we're doing aren't aren't things that we've seen others get themselves in trouble with and all that. But I don't see any reason. I mean, we do want to get below three because we do believe there's a tranche of investors out there that believe that's a magic number. We need to get back into the twos. So until we get below that, we're going to pretty much stay focused on getting it and paying it back down. But like you said, sometime this year we'll go below that three is our, is our belief. And then we'll have a lot more optionality and it's, It's going to make it a little bit more fun to see where the market's at and what else we can do within there.
spk01: Okay, great. Thank you very much.
spk10: All right.
spk01: Thanks, Brian.
spk05: I will now pass it back to Dennis Bertolotti for closing remarks.
spk10: All right. Thanks, Jada. I'd like to thank everyone for joining the call today and for your continued interest in MISRA. Everyone, please have a safe and prosperous day. Thank you.
spk05: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. you Thank you. Thank you.
spk00: Thank you. you you you
spk04: Thank you for joining Ms. Jha's group's conference call for its first quarter, ended March 31st, 2023.
spk05: My name is Jada and I'll be your event manager today. will be accepting questions after management's prepared remarks. Participating on the call for mistrust will be Dennis Bertolotti, the company's president and chief executive officer, and Ed Prasner, senior executive vice president and chief financial 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. This discussion is this conference call will also include certain financial measures that were not prepared in accordance with usgaap reconciliation of these non-usgaap financial measures to the most directly comparable usgaap financial measures can be found in the tables contained in yesterday's press release and in the company's related current report on form 8k these reports are available at the company's website in the investor section and on the secc's website i will now turn the conference over to dennis bertolotti
spk10: Thank you, Jada. Good morning, everyone, and thanks for joining us today. We continue to make significant progress capitalizing on our strong market position and innovative new technologies to grow mistrust and improve profitability. As evidence of this, in the first quarter, our revenue grew 5.5% in constant currency, our gross margin expanded 270 basis points, and we drove SG&A as a percentage of revenue down by over 40 basis points resulting in an adjusted EBITDA of 88% increase. These financial results were in line with our most recent outlook for the full year, which we are reaffirming today. And our overall financial condition also continues to improve, with our bank-defined leverage ratio reduced to just under 3.25 as of quarter end, and we're well on our way to achieving our goal of being below 3.0 by year end. We saw strength in our energy business in Q1, which is benefiting from the rapid growth of our data solution revenues. The organic growth in our business, in addition to lower healthcare expenses in the quarter, helped boost our gross profit margin by 270 basis points from the year-ago quarter. While reported SG&A was up on an absolute basis due to a few infrequent items during the quarter, We are working hard and making progress in fundamentally lowering our overhead towards our longer term aspirational target of 20% of revenue. The first quarter represented a very solid start to a year in which we expect to drive growth, improve profitability, and continue to invest across the organization to unlock the hidden value of our strong brand, products, service lines, capabilities, and innovation. particularly pleased with the growth of Data Solutions, which you can now see in the supplemental schedules included in our earnings release. Data Solutions includes our flagship OneSuite, PCMS, New Century, online monitoring, and the majority of our on-stream business, along with various other data monitoring services, including Sensorium. We were early to invest in this exciting area and Data Solutions permeates throughout all Mistrust geographies and industries. Data Solutions revenue grew by over 35% in the quarter and now represents 10% of our total revenue as compared to about 7.7% of our total consolidated revenue for the first quarter of 2022. We believe that Data Solutions will grow quicker than the other service offerings during 23 and over the longer term. Note that data solutions revenue is higher than we previously described it, which is due to the current inclusion of OnStream's customer reporting via its StreamView software within the data solutions roll-up. Nevertheless, the growth level of data solutions add credence to and is a substantial reason why we are confident that we can achieve the significant bottom line increases we are expecting in our full year guidance. We are continuing to see customers recognize the need to integrate data more fully to optimize their performance. Whether that involves getting data quicker or benefiting from the insights of data analytics, the markets have continued to increase their need to better capture and utilize the data generated by their facilities in order for them to stay competitive. Expect to see us continuing our investment in this area, responding to market demands and creating new growth opportunities. by expanding within customers as well as new and existing customers. Similarly, our strategy to take on more of the machining, grinding, and other activities complementary to our testing and inspection services, particularly in aerospace, is driving growth as we address on-line customer needs. Supply chain issues continue to challenge the industry, forcing customers to seek new ways to move faster and to simplify their logistics. For instance, in the aerospace market, we are opening a new 20,000 square foot facility adjacent to our Heath Ohio operations to accommodate the increased demand for our solutions. In addition, other customers are supporting the installation of four new CNC machines in our Georgia location to expand capacity and increase the throughput for their products. We believe our continued ability to provide unique solutions will help alleviate some of the supply chain issues that our customers face, enabling us to grow and expand our solutions in aerospace as well as other end markets. Note, there are still some isolated project delays in the defense sector, which offset the progress being achieved in our overall aerospace and defense vertical. We believe defense is a large and growing opportunity over the long term, and we are aggressively seeking market share gains in this industry via our established relationships utilizing our technical solutions consultants. Our OnStream inline inspection testing business has continued its record growth of 2022 into the first quarter of 23. OnStream generates a considerable portion of its revenues from data solutions and it serves both the upstream and midstream markets. This versatility is helping to generate robust growth and margins, which we expect to continue in 23. There was also significant progress achieved during the quarter, preparing for future growth towards improving operating leverage and profitability, such as investing in technology to digitize and standardize our processes. Finally, I would like to emphasize that our financial condition continues to improve with our leverage ratio at the lowest level since immediately prior to the on-stream acquisition in December of 2018. I would now like to turn the call over to Ed to give you more detail on our financial results for the first quarter.
spk08: Thank you, Dennis, and good morning, everyone. Results for the quarter met or exceeded our financial expectations. we continue to string together a record of consistent growth despite operating markets that continue to closely approach but have not yet fully returned to pre-pandemic levels, while also working through significant foreign currency headwinds. Revenue growth was 5.5% on a constant currency basis in the quarter. This is a result of a combination of a stable and resilient oil and gas market, improving demand in commercial aerospace, and strong growth in private space, in addition to significant growth of data solutions, results across all markets. We are also benefiting from pricing actions initiated last year, which are now balanced with employee wage rate increases, whereas we had been lagging last year with a more pronounced inflationary pressure than we anticipate this year. Gross profit margin for the quarter increased 270 basis points, compared to the prior year, primarily due to lower healthcare expenses and an improved sales mix, specifically data solutions. Selling general and administrative expenses in the first quarter were up 900,000 as compared to the prior year period due to a few infrequent items, but more importantly, down 40 basis points as a percentage of revenue. Cost containment remains a focus and is one of the main reasons we are confident that we can increase the operating leverage in our business model. Our North American segment, which was formerly called services, generated significant operating income in the first quarter of $9.4 million, up from $3.8 million a year ago, with the operating margin expanding 400 basis points. As Dennis mentioned earlier, in addition to the absolute revenue growth, North America's operating margin is also benefiting from the rapid growth in data solutions. Adjusted EBITDA for the quarter was $10.4 million compared to $5.5 million a year ago, an increase of 88% due to the aforementioned gross profit expansion, and this was consistent with our most recent expectation. Our effective income tax rate, actually a benefit for the quarter, was 15.6%. For modeling purposes, we would anticipate an effective income tax rate of approximately 30% for the full year 2023. In an encouraging change from our historical trends, we saw a positive operating cash flow in the first quarter, primarily due to an improvement in DSO. Free cash flow was essentially flat in Q1 compared to a negative 8.6 million in the prior year period, which was a significant improvement. Year over year, despite incremental CapEx spending of $1.5 million for new projects commencing in the year, for the full year, we still expect CapEx of less than $20 million. We paid down almost $2 million of debt during the first quarter, lowering gross debt to $189.3 million, with net debt of $172.6 million. As Dennis stated earlier, this is a milestone event, as we haven't been operating cash flow positive or paid down debt in the first quarter since pre-pandemic levels, specifically back to Q1 of 2019. Keep in mind as well that our bank group consists of some of the largest U.S. banks. This provides us comfort regarding both availability and access to liquidity, and we have ample access under our existing credit agreement, which is not mature until July of 2027. Despite the recent increase in reference rates, we still expect total interest expense of around $13 million for the full year due to the recent step down in leverage and continuing deleveraging throughout the remainder of the year. Given the solid results in the first quarter, we are reaffirming guidance for the full year 2023, that being revenue of between $710 and $740 million, adjusted EBITDA between $70 to $75 million, and free cash flow between 30 to 35 million. Given stable and resilient energy markets, improving aerospace demand, and continued data solutions growth, we are confident in achieving our outlook projections. Our business model is robust and sustainable through extremes of economic cycles, and we remain firmly committed to executing our plans while maintaining our intense focus on cost containment while continuing to prudently invest in our business. That is our strategy both today and over the long term. And with that, I will now turn the call back over to Dennis for his wrap-up before we move on to take your questions.
spk10: Okay, thanks, Ed. To summarize, we had a strong first quarter to kick off the year, and we continue to be optimistic about Mistrust's future in 23 and beyond. Data Solutions now represents 10% of our business and this will continue to provide top and bottom line growth. We're making tremendous progress preparing Mistrust to improve productivity and efficiency to better leverage our inherent strengths to capitalize in the sectors of our markets that are the fastest growing so we can serve our customers in this ever-changing environment. Before taking your questions, I'd like to sincerely thank all the talented, dedicated MISRUS employees out there for their continued focus on delivering a safe and superior service offering while meeting our customer's highest demands. And with that, Jada, please open up the lines for questions.
spk05: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Chris Sakai of Singular Research. Your line is now open.
spk07: Yes, hi. Good morning. Good morning, Chris. Can you talk about
spk10: uh the the growth and into 2023 of on stream and data solutions can will we see some something similar to this quarter so we believe that both on stream itself specifically in the larger data solutions are going to have a good growth year we would think both of those should be in the double digit range for the full year quarter quarter things will change obviously as projects move in and out but You know, there's a lot wrapped up in data solutions, the PCMS and New Century and OnStream and all those other ones, online monitoring. So we believe there's enough of different service line offerings that as one goes up and down the other, more of them make up for it. So, yeah, we see a good year for everything in there. Specific to OnStream, they had a great first quarter. Our growth as planned since the acquisition, they were a Canadian-based company and had a fairly strong representation in Canada. before we acquired them. They're still doing well and growing in Canada, but the bulk of their growth has been in the U.S. as we had anticipated by leveraging off of our customers and things that we have as far as connections that we just didn't have that service line offering.
spk07: Okay, sounds good. And can you talk about Sensoria this quarter? What was the adoption rate there?
spk10: The adoption rate hasn't been where we expected, but we've had as many if not more inquiries, and we're still doing tests. We still believe for the full year we'll be doing fine. It gets a little up and down on that quarter by quarter just because there's still some proof of concept out there, but we're not only doing much better on the proof of concept on the onshore facilities or a piece of equipment. We're also getting questions and inquiries about offshore as well, so We believe it's still on a very good trajectory. A full year for that should be good.
spk08: And if I can add to that, Chris, some of this just needs a little run time. Like we did, as promised last year, we did the installations of Sensoria. It needs a little run time now. Some of the conditions that Sensoria can find on a blade, you need just some time to have that happen now in the field. Remember, this was all installed on real working wind farms with real turbines. where you have to just have the conditions happen. Mother Nature has to kind of just cause the event that we can now see on the blade and help the customer through. So we need some of that time. So, yeah, so that will happen. Lots of quotes are happening out there. It's similar to OneSuite. We gave you last year lots of numbers on how many customers, how many sites, how many subscriptions. Same thing this year. We need some run time for all those eyeballs to see things and learn things and expand things and get user groups going, and then we'll go on another, you know, full court press on expanding further. But, you know, but again, they're both sensorium once you've both rolled into data solutions, now the bigger envelope of the offering, uh, which is moving forward in aggregate and by single pieces here, but some of our, you know, it'll be a little, as Dennis said, ebb and flow there where you need to kind of let the customer absorb what you just gave them, learn from it, work with them to figure out how they get to a higher use of that going forward. So, you know, we'll work through some of that this year, but as Dennis said, data solutions, will be growing in double digit. Please don't model 35% all year. It may modulate a little bit, but it will definitely be in a nice solid double digit territory, low double digit.
spk07: Okay, thanks for your answers.
spk08: Thank you.
spk07: Thanks, Chris.
spk05: Thank you. One moment, we'll look for our next question.
spk04: Our next question comes from Mitchell Pinero from Sturtevant and Company.
spk05: Your line is now open.
spk06: Yeah, hi. Good morning. Morning, Mitch. Just a clarification. So you talked about on-stream, I think, having a good quarter, but I'm looking at the overall mid-stream revenue being down. How does that foot?
spk10: Yeah, and the easy answer is, Mitch, is that it's two parts to that. One is that Onstream participates with its customers both in mid and upstream, depending on the customer, if it's coming from the gathering or going into the larger diameter. It could be a mid or an upstream. So while their quarter was good, it doesn't always flow only into midstream. And the rest of midstream for us is a lot of project-related things that just kind of vacillate with where to spend it. So for the rest of it, there's nothing really to be read there other than just capital projects coming in and out. But Onstream's revenue isn't just tied to one or the other of the two gas and oils tied to the first two. We really don't see on-stream and refining. It's only the other two.
spk06: Got it. And then, so as you look throughout the year, midstream has been, I guess, down for a couple quarters here in a row, three quarters. What's the outlook for the year there? Is this Do we see a return to growth in Q2, or is there something else happening?
spk10: No, I mean, there's nothing on a macro level. There's nothing major that's happening. On the micro level, it's just the capital projects. I'm not sure. I don't have the Q2 in front of me from last year to see if we would exceed that or not, even where that's at. But I would say the projects that we have, are normal. There's a little bit less work in some areas, and there's more in others. So, on balance, we say that it's just one market that's just moving up and down. Inside that, though, a lot of the growth from on-stream is going, like I say, to bulk. So, you never know. If they get more customers in mid-stream next quarter, they could push a lot that way, too.
spk08: There's a little bit of timing that you do in Q1. We had some permitting delays in the U.S. in mid-stream, and we actually had You know, we exited some midstream in Canada at some lower margin in midstream. So there's a few other timing matters there. But, no, we feel confident for the whole year in midstream.
spk06: Yeah, it looks like you have a tough comp. I mean, the second quarter in midstream last year was the highest quarter, and you're coming up against that. So I guess we could see another, you know, down quarter in midstream.
spk08: Yeah, it's, it's the CapEx as Dennis mentioned, you've got some lumpy CapEx on the new stuff that happens over time that can distort any given quarter. But over the longer term, we like that midstream ILI, you know, inline inspection testing in midstream. We like that niche and it's a good one.
spk06: Okay. Uh, and then, um, as, as you know, we're, we're, we're, uh, maybe five weeks, um, into the quarter. How, what's the, uh, prognosis for, uh, you know, the downstream turnarounds and things. What's the outlook for that for the upcoming quarter?
spk10: Oh, I guess where I'd put it is it's always the most volatile of the three segments of our gas and oil. But this year, we haven't seen any reason that they've really come off of anything planned that much. There's certainly people that are moving around. There's a couple that had changes from two to three weeks on start times and things like that. But we haven't seen any major delays. Nothing like if you go back to the years of 2021 or 22 or because of high price and barrel or because they didn't have access to folks. We don't see anything of that. So I think they're into a more normal schedule and planning. you know, the spend, we'll see how the full year goes, but we don't see any disruptions that we've seen in the past.
spk06: Okay. And then another revenue question on aerospace and defense. I guess aerospace was up and defense was down. Is that what happened in the quarter?
spk10: It is. It is. Our aerospace has really seen a lot of growth for us in a lot of the individual labs that back in the COVID days in the year or two after that were still suppressed. I will say we're still seeing supply chain issues. We've got customers who have tens of millions of dollars more of orders than they have of capacity to get it done through the supply chains and materials and all these other things. We've got other customers that are always trying to get more through. So I think the demand especially in the commercial and the space side of aerospace. I think the demand is really starting to climb. I think there's a lagging in what the industry can get out from forgings and castings through all the other processes that it takes to get you there. But I think as far as, you know, the need for things to get done, yeah, I think it's all there.
spk06: Okay. And then I guess... Final question is, you know, as you look at margins, the gross margin, I jumped on the call just a touch late, so I apologize if Dennis or Ed, if you talked about this, but in the gross margin side, you talked about your cost being, or your pricing has now sort of, you know, matched, you know, your labor increases and So should we see the gross margin start to kind of normalize in that maybe 30% area for the rest of the year?
spk08: I'll take that, Jim. Yeah, that's about right, yeah. It does vacillate a little bit with volume. I mean, Q1 is normally a little lower than the other three quarters. Q2 and three can be a little higher, and then it might level back out in Q4. But 30 for the full year, yes, feels about right. You've got MIX helping us now. Data solution strength of growth is certainly helping. You know, we had some lower healthcare costs in the quarter. It certainly helped as well. But yeah, that bigger topic you just raised, though, this lagging effect. Last year, we saw inflationary pressure of the pay rates going up faster than the bill rates. That did kind of normalize, did kind of level off. So thankfully, thus far, and for the remainder of the year, we're not sensing that inflationary pressure we dealt with all last year. We kind of caught up, and that kind of crossed over. So, yeah, it should be a very normal year and a solid year in gross profit margin. We might not go up 100 bps here every year, as we have done a couple years ago, but we should definitely hold solid and maybe ever so slightly bring it up. But, yeah, we feel very confident that there's not any real headwinds there hitting us, and maybe a little bit of tailwind helps us from balancing out pay rates and bill rates at this point. So we feel pretty good on gross profit, and certainly sales mix is going to help us, too.
spk06: Is there anything – one more question just on SG&A. Is there anything unusual going on on SG&A for the full year?
spk08: No, there should be pretty much, again, same as gross profit. Normal year, no real headwinds, no tailwinds. All of our cost outs were recovered last year and replaced. So, yeah, you have a pretty comparable year, normal year, year over year. Nothing unusually good or bad. It should be very comparable. And, again, as we said earlier in Q4, we'll say it again, working very hard to keep overhead flat, if not lower. So we fully expect that for 23.
spk10: There is a little noise. Like in Europe, our energy costs are up. We budgeted for it. It's exceeding a little bit over what we budgeted for. For instance, in some countries, they went back to the previous year and charged an adder to what happened in 22. So there is a little bit there, but it's not so much that we called it out per se.
spk06: Okay. Thank you for taking the questions.
spk04: got it thank you one moment for our next question please our next question comes from brian russo of sudoti your line is now open yeah hi good morning good morning brian
spk01: Sorry if I missed this because I got on the call a little late, but just on the oil and gas year over year revenue, you know, downstream of refining, you know, showed a nice about 3 million pickup in revenue. I mean, is that, you know, I'm trying to recall, I believe, you know, that sector was somewhat depressed in first quarter 22, but is that kind of you know, a quarterly year-over-year revenue run rate increase we might expect, because I assume the turnaround season, you know, probably didn't start until, you know, late in the first quarter. It doesn't pick up until, it didn't pick up until April and into May.
spk10: So, you may want to talk a little bit about the restatement of some of the
spk08: Yeah, there was one quick note there, Brian. If you notice on the press release, there's a footnote one on that table. We had a small reclass last year between up and downstream. We had an account that was misclassified there. So we did restate the prior year breakdown of those three subsectors. So downstream was not as down as we thought it was last year. The benefit went into downstream from up. And you'll see that your comparison is right. It is up $3.25 million. We did, you know, restate the prior year number there just to be comparative. So it wasn't down as much as we thought. But, yeah, that rate it's at now is ordinary. That increase you're seeing there, just under 10%, 9.3, is a good comparison. And we're seeing, you know, a very kind of solid, you know, stable market there in the downstream with some good growth to it.
spk10: And to add a little color to that, Brian, there was more work in the January, February period of this year than there was last. Again, typically customers try to get a hold of a lot of the resources that are available in the market in the colder times because you don't have as many northern and colder facilities to try to take turnarounds in. So there was a little bit more work this year in January and February, which also helped quarter over quarter per year.
spk01: Okay, great. And then on aerospace and defense, it's down, year over year, which you discussed. But if I recall, there was one single defense project that was delayed in the fourth quarter of 2022, and it was supposed to resume in the first quarter of 23. Did that actually occur?
spk10: No, that's still vacillating. We're still there. We're still working, but there's been changes and such. And we're still working on that. I'm leaving today going to some some conferences and such for the defense sector. So there's still a lot of activity in there, and we still believe it's right, but you know how it is with materials and government spending, sometimes things go up and down. But overall, we still see a huge potential in there, but it's still kind of bouncing around lower than what we expected, although we're still there.
spk01: Okay, so that might be a contributor later in the year, I guess.
spk10: Yeah, absolutely. but we still believe it'll come back up.
spk01: Okay, great. And then we just trying to triangulate, you know, your top line revenue guidance, right. Of, you know, low end of three to maybe the high end of seven plus percent, you know, where do you see the, you know, kind of the, the end market mix? Will it be comparable to where it was at the year end of 22? or, you know, are you expecting, you know, say high single digit growth in O&G, you know, slower growth in aerospace and defense, just trying to get a better feel for what that mix might look like. And then as it compares to say pre-pandemic levels to kind of feel comfortable that things have normalized.
spk10: Yeah, I would say the oil and gas probably is more of a, solid mid-single digit, right? I would think the aerospace and the aerospace defense, we should be looking at, from the aerospace side alone, we should be looking at double-digit growth through most of the year. The aerospace and defense is getting bounced around a little bit by that one site and a couple others, but for us, the aerospace itself is going to, we believe that segment of it will grow by double. A lot of times when we're working on aerospace components, we're not sure how much is military or not, so we throw it into that same bucket. So look for those below the oil and gas ones to all be in double digits and arrow and in data. The three different segments, you know, that's just customer dependent. You get a big project and, you know, mid or down or something like that. I would say for us, while they're all going to have a chance of growing at different rates, you'll probably see maybe a little bit more growth in the upstream. side than the other two this year, just depending on a lot of the contracts we have out now that would be coming through. So of the three, it'd probably be a little bit more in the upstream. And those are nice because the upstream is a lot more of a, it's a less volatile revenue cycle. They really don't go up and down. The facilities are larger and they try to keep them staffed at a rate that is constant, partly because of bed space and capabilities. They don't have a lot of room to go up and down anyway. So growing in that sector is good for us because it becomes a lot more baseload type of sales.
spk08: Another important feature, Brian, is the balance we have this year. Yes, oil and gas is strong. Yes, aerospace will have another good year. Maybe not quite as good as last year, the growth it had. Data obviously is affecting all end markets. That's a solid thing. But the other good element here is that all the other end markets, putting aside the couple of larger ones, are all mostly up this year. They were all mostly down last year. So I think this better balance we have across the bigger end market portfolio is a real good, you know, strong point for us this year, where all geographies are doing very well, all service lines are doing well, all end markets, and all the non-core markets are actually doing very well right now. That was not true last year. So that's where I think, you know, might carry the day this year is really the strength and balance across all the end markets. All the service offerings, all the geographies, all are doing fairly well, and that's a really good thing for us. Defense will pick back up. Commercial aerospace is very good right now, as is private space. Defense is probably the only one little sub-industry, sub-sector that's having some delays right now. But as Dennis said, it'll get back in sync. But I think it's really a year of balance or cost. Any way you want to sort of bifurcate our revenue stream as we're giving you more ways to view it, I think they'll all be relatively balanced and robust this year, and we'd like that.
spk01: All right, great. And then one last question on SG&A. You said flat or down. I guess you mean flat or down on a full year basis relative to 2022, which was $166.5 million. Yes, yes, yes. We were very hard, but keep it flat, yes.
spk09: Okay, so it's basically a $42 million gap.
spk01: or less run rate, you know, regardless what the percentage it is of revenue? Is that how we should look at it? Or are you still targeting kind of low 20%?
spk08: 20% is a longer-term aspiration, yeah. It's not particularly sensitive to revenue volume, the SG&A. But, yeah, it'll level back out. Q1 will be the high number for the year. It'll level back out. throughout the year. And yeah, we have every intention and I believe we will keep it, you know, flat to slightly down with last year's number. Absolutely. And it'll be relatively flat as the rest of the year. It's not particularly sensitive to revenue volumes.
spk01: Got it. And one last question. I apologize, but you're at 3.25 times leverage now, well on your way to three. Maybe can you just, you know, remind us, you know, what the priorities and use of your sustainable excess cash
spk08: might be once that uh that uh three times leverage is you know is comfortably intact uh sure i'll start with that and and dennis can expand upon that but obviously job one right now is continue to to knock back down the leverage below a three so we'll do that that's where residual free cash flow is going to go until then at that point as we've said the last couple of quarters we'll have some optionality we'll um you know consider other investment options one as um Dennis mentioned in his prepared remarks is investing in some of our shop labs on the aerospace side, additional additive mechanical things, expanded capabilities for customers. That's a place I'd like to put, you know, like put some more capital, invest on our own shop labs. You know, other direct returns to shareholders are clearly a capability as well. We can revisit down the road. Maybe at some point, you know, we would contemplate a tuck-in acquisition on the data side perhaps. But, yeah, all that's in front of us, and we'll have that optionality and consider that. But we want to keep driving organic growth. We're really leaning into that now, keeping overheads calibrated, and we can invest selectively in our own capabilities organically is really where we're focused right now. But at some point, not in 2023, but at some point out in the future, acquisitions may become relevant again. But right now, we're really focusing internally on what we're building and investing on for future growth.
spk10: Yeah, Brian, the things that we're doing in the data across all of our segments, the shop where we're adding another smaller facility, we're adding more machining and all these are, they are really very good long-term base load kind of investments that we're making now and we'll continue to look at. You know, inside gas and oil, we have some very strong connections with some of our customers and some of the things we want to do there and growing. So we're being a little selective in making sure what we're doing aren't aren't things that we've seen others get themselves in trouble with and all that. But I don't see any reason. I mean, we do want to get below three because we do believe there's a tranche of investors out there that believe that's a magic number. We need to get back into the twos. So until we get below that, we're going to pretty much stay focused on getting it and paying it back down. But like you said, sometime this year we'll go below that three is our, is our belief. And then we'll have a lot more optionality and it's, It's going to make it a little bit more fun to see where the market's at and what else we can do within there.
spk01: Okay, great. Thank you very much. All right.
spk10: Thanks, Brian.
spk05: I will now pass it back to Dennis Bertolotti for closing remarks.
spk10: All right. Thanks, Jada. I'd like to thank everyone for joining the call today and for your continued interest in MISRA. Everyone, please have a safe and prosperous day.
spk05: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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