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spk01: Good day and thank you for standing by. Welcome to the MISTERS group conference call. At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dennis Bertolotti, CEO. Please go ahead.
spk03: Okay. Thank you, Brittany. And good morning, everyone. Thank you for joining us today. During the second quarter of 2023, Ms. Progressive further towards our strategic efforts to streamline the organization and fine tune our strategy to unlock the inherent value of our business. Although we continue to generate revenue growth in many of our key markets, the impact of decreased activity with one of our defense contracts offset these gains at a consolidated level. Consequently, total revenue was down marginally adjusted for the effect of FX exchange. There were several bright spots related to revenue growth drivers in the second quarter of 23, including certain key markets which achieved record revenue performance. In particular, our West Penn acquisition, a key shop facility which specializes in aerospace projects, reported a record revenue quarter. Additionally, OnStream achieved its second best quarter revenue in its history. which performs inline inspection testing of pipelines. The on-stream growth was driven by a record quarter for its US segment, which has achieved revenue by over, revenue growth by over 75% for the first half of 2023 compared to that prior year period. Within data solutions, our PCMS new century business also experienced growth in the quarter driven by continued customer adoption of its predictive analytics. There was also progress achieved in strengthening our financial position, with cash, strong cash flow and a significant reduction in day sales outstanding, contributing to a further reduction in our outstanding debt. Selling general administrative expenses also declined sequentially, reflecting our ongoing cost controls. and our objective to improve operating leverage. In the second half of this year, we will seek additional cost savings opportunities expanding upon what we have already implemented during the first half of 23. As we continue to improve operating efficiency, it will contribute to improved bottom line results. Ed will provide more details on these initiatives later. We also anticipate that the second half revenue will be stable with modest growth over the comparable prior year period, but with an expanded improvement in adjusted EBITDA due to a favorable sales mix shift and continuing reductions in overhead, particularly SG&A spending. Our cash flow remains strong, and I'm very pleased with the investment that we have made in 23 related to our higher growth businesses via increased capital expenditures, which will further our expansion in key growth markets. First, just a few comments on performance in our end markets during Q2. In our growth areas, we achieved outstanding performance in the second quarter, which we expect will continue through 23. As I previously said, Westport, West Penn, which reported its all-time highest quarterly revenue, had growth fueled by adding complimentary offerings to our capabilities to help alleviate some of our customer supply chain constraints by taking on additional steps in the standard process of finishing the components for our customers. This growth is a byproduct of investments in the business, such as prior announcement of the opening of a new facility adjacent to our Heath, Ohio operations to accommodate the increased demand for our solutions there, as well as the installation of additional customer finance CNC machines to expand machining capabilities to increase the throughput of our Georgia facility. These are growth in markets where we anticipate continued success. We also anticipate that our fence-related revenue will improve from the first half of the year as our customer ramps back up our workload associated with this work later in the year. Longer term, we are focused on finding new ways to participate in servicing the overall backlog currently experienced in this industry. Because of these actions, we expect to see continued growth in the aggregate aerospace and defense sector. As mentioned, OnStream achieved the second best quarter in their history and their second highest all-time revenue quarter driven by record results in their U.S. portion of the business. That business is up over 75% from the first half of 23 compared to last year, where it is well positioned in the midstream IOI market sector and provides optimism about our future growth. And last, but certainly not least, our portfolio of data solutions offerings centered around our PCMS new century and on-stream business lines continues to expand, as evidenced by their year-over-year growth of 22% and comprising now over 10% of our total revenue. We are working to stay in this level of growth and performance. Each of these initiatives are in growth markets, and are expanding faster than our other end markets. Our strategy is to continue to foster investments in these capabilities to expand our solutions and penetrate new markets. The second half of the year to see even more progress across the various initiatives implemented, which should enable us to achieve greater margins and a significant improvement in bottom line. I would now like to turn the call over to Ed to give you more information on our financial position and further detail on our cost savings initiatives.
spk06: Thank you, Dennis, and good morning, everyone. Before I start, just a quick rewind here. We omitted a safe harbor statement up front. I'll just quickly go over that. Just simply reminding everyone that remarks made during this conference call will include forward-looking statements. Our actual results could materially differ from those projected. Some of those factors that can cause the results are discussed in our most recent Form 10-K. and other reports filed with the SEC. The conversation discussion in this conference call will also include certain measures which were not prepared in accordance with US GAAP. A reconciliation of such measures to the most directly comparable US GAAP measures can be found in the tables contained in yesterday's press release and in our related current report on Form 8K. These reports are all available at our website as well as at the investor section at the SEC website. With that, It was truly another meaningful progress quarter for Mistras. Our legacy end markets are very stable, and our key growth markets are expanding per plan, as Dennis elaborated. We are making steady progress preparing Mistras to improve productivity and efficiency and better leveraging our inherent strengths to capitalize on the sectors of our market, which are growing the fastest, wherein we can service customers on that needs. As announced in February 2023, We have been exploring ways to improve profitability and adjusted EBITDA and meaningful margin improvement and steps to achieve sustained cost savings. We have completed the initial phase of this project, which we refer to as Project Phoenix, wherein initial opportunities were identified. We are now undertaking the next phase of validating actionable initiatives, which can then be implemented prospectively. We will provide an update at the end of the third quarter of 2023 after further progress is made towards achievement of such opportunities. We have already taken certain actions in 2023 which are expected to yield annualized cost savings of approximately 6.2 million, of which approximately 5.1 million are expected to be realized during 2023. Most of these cost savings are related to our North American operations and are related to a reduction in overhead functions classified within the SG&A line. Approximately 4.5 million of the 5.1 million of savings anticipated to be achieved in 2023 were budgeted for, and hence were included in our original adjusted EBIT guidance for 2023. Second quarter SG&A was down sequentially from the first quarter of 2023 by 1.3 million, or 3.1%, as a result of the ongoing budgeted cost control initiatives. For the second quarter of 2023, we recorded 1.2 million of reorganization cost related to our ongoing efficiency and productivity initiatives, primarily related to the overhead cost savings initiatives. For the second quarter, these charges included professional fees and certain restructuring charges associated with changes made within our organizational structure. For the six months ended June 30, 2023, we recorded total reorganization costs of 3.3 million. Again, actions taken in the first half of this year are expected to contribute 5.1 million to adjusted EBITDA over the course of the full year 2023, of which 4.5 million was expected and budgeted for in our original outlook for the year. Interest expense was up for the second quarter, although down sequentially. Year-over-year, the year-over-year increase in benchmark rates Despite our continued commitment to reducing outstanding debt led to the quarterly and year-to-date increases over the respective prior year periods. With benchmark rates now expected to remain higher for a longer duration, we now believe full-year interest expense will be in the range of 15 to 16 million. Our net cash provided by operating activities was 18.3 million for the first six months of 2023 compared to 7.8 million in the prior year. an increase of nearly 135% year-over-year. Free cash flow was $7.7 million for the first six months of 2023, compared to $0.7 million in the prior year. Again, a significant improvement. Our improved cash flow performance was primarily attributable to an improved day sales outstanding during the year. Capital expenditures increased by $3.5 million versus the first six months of 2022, as we are increasing investments to foster growth. Our gross debt was 183.7 million as of June 30, 2023 compared to 191.3 million as of December 31, 2022. Gross debt decreased by 5.6 million during the quarter ended June 30, 2023 from 189.3 million as of March 31, 2023 to 187.7 million as of June 30, 2023. Our net debt was 165.7 million as of June 30, 2023. There was, in fact, a significant improvement in working capital during the quarter, as I said, especially due to the day sales outstanding improvement, wherein we reduced to about 60 days outstanding through aggressive, proactive actions, keeping that cash flow as strong as we can make it. This contributed to free cash flow of $8 million for the quarter, which did in turn lead to further debt reduction levels to under $184 million, as of June 30. We continue to prioritize debt reduction as our primary use of free cash flow, and we continue to expect to reduce our debt leverage ratio to below three times by the end of 2023. Once that level is achieved, we intend to evaluate our capital allocation strategy and investigate other uses of cash flow as a means to accelerate growth and build shareholder value. Capital expenditures were $5.9 million for the quarter, up 2.1 million compared to the year-ago quarter, and up 3.5 million for the year, again, reflecting our ongoing investments in our growth initiatives. As noted in yesterday's press release, we are updating our guidance ranges to reflect current market conditions and our focus on profitable growth and cost savings. Revenue for the full year, 2023, is now expected to be between 700 and 720 million, due primarily to reductions in legacy oil and gas revenues, particularly downstream. Adjusted EBITDA is now expected to be between 68 to 71 million. And as I stated earlier, we have already taken certain actions in 2023, which are expected to yield annual cost savings of approximately 6.2 million, of which 5.1 million is expected to be realized in 2023. And it had been budgeted for, and hence was included in our original guidance for the year. Operating cash flow, will be adversely impacted by certain cash expenses required to achieve the cost savings. The company's free cash flow guidance is being adjusted to between $23 to $25 million due to the reduction in the adjusted EBITDA guidance in addition to the higher anticipated capital expenditures of being over $20 million for the year now. Free cash flow guidance excludes the aforementioned impact of certain cash expenses to achieve the cost savings. Despite the reduction in our EBITDA outlook, the midpoint of revised guidance represents a nearly 20% increase versus the prior year, or an anticipated revenue increase of 3.5%, displaying our continued focus on cost controls and illustrating the effectiveness of our operating leverage. One editorial note, you will notice that included in the supplemental unaudited revenue by category tables, that you will see in the press release, we have retrospectively reclassified certain oil and gas subcategory revenues for each quarterly period in 2022. Specifically, we looked at certain integrated providers, further analyzed them in the current year, and their classifications within oil and gas subcategories were reclassified between up, mid, and downstream, respectively, for comparability year over year. So, we adjusted all the quarters within 2022 in order to conform with the classification being presented in the current year. The SRAS is committed to creating value for our shareholders by improving productivity and efficiency and achieving return for our services commensurate with the value that we provide, unlocking and aggressively investing in our growth initiatives and leveraging these key actions to significantly drive better bottom line performance. The results of these actions are expected to lead to second half performance that is appreciably improved from the first half. without the benefit of meaningful consolidated revenue growth. I will now turn the call back over to Dennis for his wrap up as we move on to take your questions.
spk03: All right. Thanks, Ed. Our oil and gas business is stable, up nearly 5% year over year for both the second quarter and the first half due to strength in both on stream and the data solution offerings. Commercial aerospace revenue is nearly fully recovered to pre-COVID levels and we expect aerospace and defense to benefit from growth in our commercial aerospace shop business where we saw record revenues as previously discussed at West Penn this quarter on the strength of an expansion of services with our customers to help alleviate their constraints in the supply chain. This has reflected in a 44% increase in shop revenues for the quarter. Aerospace and defense remains a focus area where we believe there is significant growth opportunities. Data Solutions recorded revenue growth of almost 12% in the quarter and has now experienced 22% growth for the year to date. Data Solutions now represents a full 10.1% of our total consolidated revenue for the first half of 2023 as compared to 8.4% of our total consolidated revenue for the same period in 22. Data solutions revenue is being generated in virtually all of our vertical industry segments, including leveraging our core legacy in oil and gas. As Ed elaborated, we are making steady progress preparing Mesrush to improve productivity and efficiency and better leverage in our inherent strengths to capitalize in the sectors of our markets. Our expectation is that this should create positive momentum to increase our margins headed into next year, which will also benefit from continuing cost controls, all contributing towards building shareholder value. As a result of our cost savings initiatives and the growth in our high margin business, I am optimistic that Mistrust is positioned to capitalize on the growing demand for our offerings, accelerating our transition into more profitable growth. But before taking your questions, I'd like to emphasize that our current focus on Project Phoenix is designed to calibrate our overhead costs with our expected short-term revenue level. This in turn will allow us to continue investing in our strong technician base, providing them with improved tools and technology to better serve our customers in their respective industries. I acknowledge that this process we are going through forces some difficult decisions, but it is well worth the effort and the company will become much stronger and more resilient going forward as a result of it. Moreover, we are keenly focused on growth areas and finding new ways to expand revenue in our current portfolio of businesses. I also want to sincerely thank all of our employees who have kept their focus on the safe operation of our work. One example of this is in a significant reduction of our vehicle incidents this year. This shows we know how to stay focused on what is important. Lastly, I'm looking forward to our imminent project managers meeting later this month where I can catch up with many of our dedicated project leads and share with them as well as learn from them how we are moving the industry forward. To every mistrust employee out there, Please stay focused on safety as we move forward. And thank you for your dedication. And with that, Brittany, please open up the lines for questions.
spk01: All right. Thank you. We will now kick up the question and answer session. As a reminder, to ask a question, please 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 the line of Mitchell Pinera. Pinera, I'm sorry. From Sir Devon, your line is now open.
spk04: Hey, good morning. morning mitch um so um i i got on just a touch late but um i think i got what i needed um i was i was curious um you know you you called out downstream as as having you know sort of like a negative impact in the quarter i looked at numbers and it was basically flat were you expecting a lot more And what are the issues with downstream? Anything new or is this just the typical lumpy, unpredictable type of business?
spk03: You're exactly right, Mitch. The numbers were flat, a little bit up as we stated, but we were expecting more out of the quarter. Sometimes like in this year, things got pulled into the first quarter faster than we expected and you didn't see them in the second. William Newburry- Other times the customers are just coming off of spend or you know the heat and the other things they're keeping up record levels of productivity and throughput at their facilities. William Newburry- So it's it's still a very difficult business i'm with customers all the time at refineries and not as much as I want, but i'm out there and talking to them and. William Newburry- They to have a hard time understanding what it's going to be and what it's going to look like for different reasons they try to plan. Turn around activities at a certain time without knowing what their neighbors are doing and then they find out that there's too much lumped in. So they end up having to move it and change it because of. Labor restrictions and all the trades. Things like that make a move things around more than they anticipated. They would and. Sometimes they're still just coming off their spend and trying to. Reap what they can off it. So you're right on that.
spk06: To clarify the comment we made was relative to the outlook. You're right. Downstream was actually up modestly for the quarter and up nicely for six months. We just expected it to do a little more, as Dennis said. So the context we gave is the reason for the outlook being adjusted. Revenue for the year is a little lower than we thought for the full year, but it is up for the year at this point, both for the quarter and the first half.
spk04: Got it. Thank you, Dennis. I think – Are you looking, is this being conservative on the downstream side? Or based on like sort of specific conversations with customers?
spk03: You're talking about the second half projections? Yeah. So, you know, I don't know what's conservative or aggressive anymore when they're not even sure where it's at. So we're certainly not going to lean into it too hard if if our customers have the same questions we do. Okay. But, you know, can you always win more? Can you go longer? Can they have a discovery that they didn't anticipate? Certainly, but at the same point, it could play the other way too, right?
spk04: And this last thing on this is, you know, since pre-COVID, you know, I've sort of been waiting for, like, pent-up demand from delayed projects and the sort – Are we – are any – is the revenue – are you seeing, you know, some of the delayed or pent-up demand for new equipment, services, you know, bigger projects? Are you seeing that flow through, or is there still a backlog that you think these companies have yet to get around to?
spk03: So, Mitch, if I break that into the aerospace side, huge backlog, huge – amount of under capacity and over demand, right? So in the aerospace sector, it's there. It's dragging a little bit on our international side of it. Domestically, U.S. and Canada for North America. The backlog's there, and that's all these things we're trying to do to help basically push things through by taking on the same processes and do more of them in one facility as opposed to many. In the field side specifically, the It really didn't change that much in COVID for mid and up because those facilities are bigger, harder, or just don't have the density of population and people like at a refinery. So, you know, on the upstream, certainly there are smaller camps and stuff, but you still had to get the work done. So they were doing what they could. The refinery is mostly where you're probably referring that to. And, you know, it's a mix. Sometimes there's customers who are trying to play catch up on things. There's certainly CUI programs, there's corrosion under insulation and things like that that are fighting customers and they're spending money now, but it's very heavily watched and the spend is very scrutinized. So there isn't a lot of people with a lot of excess money to catch up on for a budget of things that happened in the past.
spk04: And then on to Project Phoenix, I know it's still early, but And maybe you can give an example or two of the sort of type of cost savings that you're doing here in 2023. I know you said it's part of, it's in G&A, it's overhead reduction. But if you can give me some examples of like sort of things you're doing and then maybe, you know, What we should expect out of Project Phoenix from a percentage, you know, an EBITDA margin change? I mean, how significant do you think this can be, you know, knowing this is still early stages? Thank you.
spk06: Sure. Yeah, good question, Mitch. Again, all the actions we've taken thus far, you're seeing them in the run rate. We still have some work to do. to complete our study. And we've done the study now. We're more or less validating actions going forward. And we'll have a lot more to share this time end of Q3. But essentially, it's really just looking at how we operate the business, how we service the customer. Much of the impact now has been headcount. It's been combining roles, reducing roles, combining some facilities here and there. It's really just getting this back office footprint just tightened up more efficient. We're looking at systems and workflow and automation to really leverage things together and how we support the business. It's really a combination of that. It's just really making sure that we're really focusing differently. And we're looking at overheads, whether they're up in the cost of goods sold line or down in the SGD line, agnostically. But still some work to do, but it's going to come from really a combination of things. It's just lowering this cost to serve the customer is really what we're going after to just enhance that. We do it typically all the time. This is a much just deeper dive, more holistic look at how we're doing it is really the difference here. Again, we'll have a lot more to say. I think 90 days from now, because we're kind of in the final steps of really validating and going a little bit further, but all actions taken thus far, you're seeing them in the run rates that I kind of mentioned during the call, the 6 million of what we have right now. We're not done. We're going to go for more, but we're not quite at that stage yet where we've completed the final actions here. Again, that'll be in front of us later. um, to, to get that wrapped up.
spk04: And then this last question, um, on the, uh, what, what, what happened, um, um, in the power generation and transmission, uh, business in the quarter? What was, uh, um, it's been a, it's been a weaker, um, you know, it was down a lot last year and I'm just curious what's going on in that business, uh, that would, would, would, uh, um, cause.
spk03: Yeah, it's, it's, Fairly straightforward. We had a long project for a new construction that is just basically starting to see its end of life. We're still there in a very modest compared to previous. And when you're looking at the comps for the first two quarters of 22 to 23, we weren't really tearing down that much yet. So they're tough comps for us now in that one project. We're out there aggressively looking for more, and you'll find we're looking to find other projects. We're looking at things like it may not be power, but LNG and all these other things that are going on for getting energy from one part of the world to the other. We're getting some looks at that, and there'll be offsets. So this is just timing of one coming off that's been there and been a nice one for many, many years, and we'll find ways to replace it.
spk04: All right. Thank you for the questions.
spk03: You got it. Thanks, sir.
spk01: All right, thank you so much, Mitchell. One moment for our next question. Our next question comes from the line of Chris Saki with Singular Research. Your line is now open.
spk05: Yes, hi, good morning. I just wanted to talk, ask more about Project Phoenix And you mentioned there's some headcount declines. Can you give us an idea about the percentage of that decline?
spk06: Sure, Chris. Yeah. I mean, it's fairly minor. We've not disclosed the actual number of heads in that number. But that is the significant piece of what we've done thus far. Again, some facility consolidations, some reductions in professional fees as well. There's a number of things that we've gone after. Again, we're at the point now of still looking forward. There's still more we're going to do. We are looking at, you know, actionize or putting into action some of the studies we've done. We've not disclosed the number of heads just yet in that number. It was not a significant number. Again, 6 million is the run rate of savings we've achieved at this point, 5 million of which are, you know, into the 20s, will be into the 23 results. Again, we're looking to, we don't want to harm the business, obviously. We want to support the footprint we have and be able to just more efficiently support it from the back office is really what we're, you know, looking to do.
spk05: Oh, okay. So, as far as gross profit is concerned, would Project Phoenix have any, would that be, would it have any effect on gross profit?
spk06: You'd have a modest impact to the indirect overheads up in cost to get sold. Yes, there'll be some savings there. Much more of it will fall into the SG&A line versus COGS line. But yeah, you'll have some benefit up there in the cost of goods sold, a very modest, you know, uplift in margins attributable to it, but primarily more in SG&A.
spk05: Okay, sounds good. And then for capital expenditures, how should we be looking at them going for the rest of the year and into 2024?
spk06: Great question, Chris. We're, you know, we're just up over 10 million now through mid-year. We had said, you know, we would keep it under 20 for the full year. We're now saying that we'll probably break through that number, you know, 21, 22 million. And it's all good incremental expense. It's the things Dennis talked about on the call. Investing particularly in our aerospace shop labs where there's new specialized equipment going on. It's expansion capital. It's new work for the customer we're taking on. new steps to help accelerate OEM parts through the supply chain for final assembly, you know, in the aerospace side. There is a nice backlog there of work that has to get done. We're happy to do it. So, yeah, I think our CapEx will stay up at that level. That's sort of where it was back pre-pandemic. You had it, you know, in that low $20 million range. So don't be surprised if we want to bring it up to $25 next year by leaning into some of this additional investment uh in our shop labs where there's you know real good business at a good margin to go after and it's all incremental for the customer so yeah we'll be um you know i think um elevating that number just a little bit for good reasons because there's good immediate payback on it with real work that the customer you know is clamoring for us to help them with here and now so that's where that's where that capex is coming from it's not delayed things that we didn't do the last couple years it's brand new expansive work that we're we're looking to do for customers
spk05: Okay, great. Thanks for the answers. Thank you.
spk01: All right. Thank you so much. One moment while we take our next question. All right, our next question comes from the line of Brian Russo with CDOTI. Your line is now open.
spk00: Hi, good morning. Morning, Brian. Thanks for all the detail on Project Phoenix. And I'm just curious, you know, bigger picture, what are you doing on the top line side to, you know, avoid all these unabsorbed costs? when revenue fluctuates, given the uncertainty and project-driven nature of the refinery or downstream end market in oil and gas?
spk03: Yes. So, good question, Brian. I mean, typically, the peaks of our spring and fall are absorbed by more people coming into the system, but certainly by a much greater amount of density of work during that week. So they go from 40s to 60s to 80-hour weeks, right? So a lot of that isn't that I have all this excess body sitting around waiting for work. In fact, what we do is every week on Fridays, we have a domestic and international call. We talk to the management and where's our surpluses and where do we have resources and equipment, people, skill sets that we can move from one to the other. So we're always moving people around to try to balance that off. And the trick is really we watch our unbillable and try to keep it down to 2% on the unbillable, an additional 1% to 2% at most for training. And what we try to do is just move folks and skills within that to keep up with it. But we try not to keep a very heavy load of people waiting for spring and fall in the offseason because it really upsets you on your costs. That being said, I will say, though, this last 12 months, because of just trying to get access to folks and getting people to work, and the biggest problem is bringing in Apprentice and getting customers to move the numbers on the Apprentice to the numbers we need. And there are now more and more understanding of that, not just because of us, because many other vendors are saying we need to bring in fresh new people into the market, and we're competing with food, retail, used cars, and everything else. And people aren't going to work in an industrial setting if you can get a similar somewhere else as a starting wage. So by doing that, we've been working to build it up. But we certainly do miss more of the peaks now than we had in the past just because the spikes in trying to get labor out into the market as you need it is more difficult than we've usually seen over the years.
spk06: If I can just add to that, Brian, I think your question is more in the context, I think, of What's Project Phoenix doing to help this area? And I would say it's what Dennis is saying. It's really helped leveling things out. As an example, we're looking at utilization and, hey, what more data can our CRM give us? Like, we're looking top to bottom. Phoenix is more than, you know, an EBITDA enabler, not just a cost-out thing. So, we are looking at better ways to, you know, even the load out and, you know, better utilize our resources, our footprint. to go after, you know, more diversifying work and kind of level the load out there amongst the existing resources we have, as well as going after, you know, different niches and whatnot. So, it is looking at those things, and it'll help, I think, address what you're getting out there, sort of the lumpiness of the business. It is what it is. It's inherent to the business. It is cyclical. So, let's just be smarter about how we kind of stage and set up our resources and then target what we're going after in the ebbs and flows. That is a big part of what Project Phoenix is looking at as well. hence why it's taking us some time to kind of think it through and, you know, really look bigger picture.
spk00: Okay. And then on the $15 million reduction in revenue at the midpoint, is that primarily due to the power generation project that's winding down, or is that the result of legacy downstream work that's being completed, or is it just a shift from that defense contract that is slow to resume. I'm just trying to get a sense of the 15 million is lost forever and you're rebasing your revenue midpoint, you know, to work off of going forward or, you know, can you recoup some of the 15 million going, you know, going forward and into 2024?
spk03: All right, Brian, I'll take the first half and let Ed comment if he wishes, but It's not a structural change as far as we don't think it's lost forever. Certainly the project that's winding off is going to go into decline and will stay on site as a run and maintain kind of thing, but nowhere near what you do during construction. So that'll fall off, but that's just normal project activity and we'll find replacements for it. Like I said, the timing wasn't perfect that we didn't get it as it came off, but we'll find replacements for that. legacy part of the refining is really where more of the concentration of the changes came from we expected more out of even though we grew this year like we said earlier in oil and gas especially downstream we didn't grow to the extent that we had original forecasts for and discussions about so we believe that's just normal changes that we'll be able to get back into these upcoming years
spk06: Just to reiterate that, Brian, exactly. The PowerGen contract drop-off, sunsetting, that was budgeted for, planned, expected. That's not affecting the outlook whatsoever. That delayed defense startup, yep, that's slower than we thought. That's definitely affecting the full-year outlook. But as Dennis said, it's this legacy downstream is the bigger piece that's not hitting the full-year expectation. That's essentially the real root reason why we brought the revenue outlook down.
spk00: Okay, got it. And then just to clarify, you know, you mentioned the strong performance of on-stream, and I'm just looking at the oil and gas sub-revenue subcategories. On-stream is all, it's in the upstream, right? Because that's really the only sub-oil and gas category that experienced revenue growth in this June quarter versus the year-ago quarter. Am I reading that correctly?
spk03: Truthfully, Brian, you would think so, but it depends on the size of the pipes that we're inspecting for the customers. Sometimes they're midstream, sometimes it's upstream. So there's other work inside our pipeline and other ones that you're looking at, but probably the bulk of the time, it's a midstream play for onstream. So some of the things that you're seeing in the upstream is just some of the core legacies from other previous acquisitions such as Nature and such that is also doing well. But Onstream is in both sectors, so it doesn't always drive one or the other. It's just a function of what's happening with the rest of it.
spk00: Okay, great. And I know you guys don't disclose backlog, right, because just of the nature of the business. But, I mean, any sense of, you know, is there like a pipeline of work out there that, you know, that you're pursuing? you know, to help mitigate, you know, when older legacy projects, you know, roll off. I mean, you know, we're just trying to get a sense of, you know, the market opportunities for, you know, for growth, you know, above that, you know, that 710 million midpoint.
spk03: So in defense, there's a huge amount of backlog and need out there. We participate all the time in the defense with the Navy and other military folks and many contractors trying to bring in new talent from welders and 3D and machinists and NDT and all that. There's a huge backlog there that's needed. There's a huge backlog in aerospace, so we see aerospace is continuing to grow in the future. As far as in the oil and gas sector, like I said earlier, there's LNG projects out there that there's a lot of that building up, multiple trains at multiple locations trying to ship what we have in excess overseas to places where they don't have that. So there's a lot of capacity there looking to be built up. There are still construction projects and other things that we're looking to get into. So you would see it maybe not in any one sector. But our growth in data, our growth in on-stream, West Penn Aerospace, those other sectors, no issues seeing them continue to grow. And we believe in the oil and gas. There is still obviously contracts to be won and lost at individual sites, but there's a lot of longer-term capital projects that are out there as well. We see continued growth in what we would call our upstream for like the nature folks, looking at – more winds in Gulf of Mexico and places like that that are in our line of sight. Sometimes customers are taking longer because of their own things they're working on. We've had one we've been waiting on for two quarters already. It's just for whatever reason they haven't announced anything. So there's a lot of that kind of things going on where they're working out their own issues before they make these major changes. Maybe it's watching their own cost changes. I don't know. There is a lot out there moving. It just seems to slow up a little bit this year.
spk02: Okay, great. Well, thank you very much.
spk03: All right. Thanks, Brian.
spk07: All right. Thank you so much.
spk01: All right. I'm showing no further questions at this time. I would now like to turn the conference back to Dennis for closing remarks.
spk03: Okay. Thank you, Brittany. I'd like to thank everyone for joining the call today and also for your continued interest in MISROS. I look forward to providing you with an update on our business and progress achieved towards our ongoing initiatives on our next call. Everyone, please have a safe and prosperous day.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.
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