Mistras Group Inc

Thank you for joining Mistress Group's conference call for its fourth quarter and fiscal year ended December 31st, 2023. Participating on the call from Mistress Group will be Manny Stamatakis, the company's chairman of the board and interim president and chief executive officer, and Ed Prisner, senior executive vice president and chief financial officer. Before we begin today's conference, I want to remind everyone that remarks made during this conference call will include forward-looking statements. The company's actual results could differ materially from those projected. Some of those factors that can cause actual results to differ are discussed in the company's most recent annual report on Form 10-K and other reports filed with the SEC. The discussion in the conference call will also include certain financial measures that are not prepared in accordance 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 tables contained in yesterday's press release and the company's related current report on Form 8K. These reports are available on the company's website in the Investors section on the SEC's website. I will now turn the conference over to Manny Samitakis.

Good morning, everyone. Thank you for joining us today. We finished the year with fourth quarter results exceeding expectations, with revenues up 8% and adjusted EBITDA up nearly 22% from the same quarter a year ago. Although this is a small sample, this performance is evidence of the effectiveness of the transformative impact of Project Phoenix our EBITDA improvement program. At the same time, we recognize that both revenue and EBITDA fell short of our initial full-year 2023 goal, as 2023 was essentially a rebuilding year for the company, in which we initiated several changes to unlock MISTRESS's intrinsic value and to improve financial performance over the long term. I believe we have set the groundwork for future success, and we are making meaningful progress in implementing all of our Phoenix workstreams and our various initiatives. But there is still work to be done as we will continue implementing and identifying new opportunities to improve EBITDA in 2024. Project Phoenix and our strong fourth quarter results are providing good momentum heading into 24, where we expect to realize the majority of the financial benefits from the implementation of the many changes Project Phoenix drove across and throughout the organization in 2023. Consequently, we are reiterating our expectation that fiscal 2024 EBITDA will be one of our all-time high performances. Throughout 2023, we made a number of changes to the management team. I can tell you that the new management team is energized and implementing changes throughout the organization to capitalize on our competitive advantages while also taking steps to further assess and eliminate, if necessary, activities that have not performed to expectations. We are revamping our marketing strategy with an energized commercial function driven by our new chief commercial officer role and instilling a new focus on efficiency within our operations team. Beyond the pure financial focus of Project Phoenix, we also are focused on behavioral discipline, accountability, and the overall company culture, which is quickly adapting to conform with the organizational and related changes taking place throughout the company. For 2024, we have also revamped the company's incentive plan with a stronger focus on accountability and rewarding performance that increases shareholder value. The results are already becoming evident. For example, we are working closely with our customers in obtaining needed price increases and developing strategies to expand into attractive adjacent markets. There is significantly more cross collaboration which is uncovering needs at the existing customers that can be serviced by our various technologies. But what has me the most excited is the progress being achieved in our growth initiatives. These businesses are already growing quickly, and we expect this growth to continue into 2024. Data analytical solutions revenue was up 18% in the fourth quarter and 16% for the full year. Commercial aerospace, private space, and our industrials are also rapidly expanding. In part as a result of the capacity expansion of our facility in Georgia, and strategic capital expenditures at other shop laboratory facilities across the globe. These are high margin businesses in large and rapidly growing markets. To complement these growth initiatives, I am spending more time on a short list of priorities that I believe are key to our growth and gaining and sustaining the full impact of Project Phoenix. First, my goal is still to have a new CEO in place by the third quarter of this year, and we are making excellent progress in that regard. Second, I am continuing to remain deeply involved in the continuation of Project Phoenix and other ongoing cost disciplines on a go-forward basis. Third, I will continue to review our company operations to further identify our strengths and challenges so we can provide a clear pathway that will enable the next CEO to focus his or her energies on growing the company profitably and improving shareholder value. Finally, I intend to continue reshaping the company's culture. focusing on the development of a more robust set of guiding principles, which include transparency, process improvements, accountability, and a clear chain of command. After a few years of lackluster financial performance, I am confident that we have a plan that will enable MISTRESS to capitalize on our core strengths and to grow both the top and bottom line at attractive rates. Our markets are large, growing, and becoming increasingly more complex. This demands more sophisticated solutions that integrate technology, data, and expertise. I believe we are well positioned to capitalize on these trends. and the initiatives currently underway have been developed to ensure that we maintain and improve our position of prominence as an industry leader. The goal is to create long-term value for our shareholders, which I believe we are well on the way to achieving. With a full quarter under my belt as CEO, I can now more emphatically state that I am even more optimistic about the future of the company and extremely pleased to be leading the company at this crucial juncture supported by an invigorated, highly skilled, and motivated senior leadership team. We plan to be making more exciting announcements as we move forward. and as we achieve even more progress toward our goals. Now I'd like to turn this call over to Ed for his update on our recent results and a little more detail on Project Phoenix. Thank you, Manny, and good morning, everyone. Fourth quarter results clearly demonstrate that we can drive significant bottom line growth by leveraging improved sales efficiency and enhanced operational productivity. This is inspiring change, which is expected to build on the various initiatives implemented under Project Phoenix. I'm excited by the depth and breadth of success we have achieved, but also recognize, as Manny said, this is only the beginning and our job is not yet complete. Again, as Manny noted earlier, there is a new discipline at MSHRAS. everyone throughout the organization is re-energized and laser-focused on finding new opportunities to leverage our core competencies and evolving new capabilities and data in other areas to capitalize on growing demand for improved asset protection solutions. In addition to instituting Project Phoenix as a core discipline in 2024, we are also enhancing related processes, including a planned upgrade of our current ERP scheduled for Q3 this year. Improvements will include further automation of transactional areas related to time collection, invoicing, and related areas, allowing us to digitize activity and reduce manual entry and enable regionalization of the underlying functions. In turn, this will lead to consistency, efficiency, and overall productivity, enabling us to achieve our 2024 and beyond targets and bottom line goals. Turning back to the fourth quarter, our results were a strong finish to a transformative year. While still early, I am becoming increasingly confident that the implementation of Project Phoenix is facilitating real change that will drive both top and bottom line growth, not just over 2024, but over the long term. Revenues in the fourth quarter were up over 8%, with strong growth in our three largest markets, oil and gas, aerospace and defense, and industrial. In oil and gas, we saw strength in all of our subcategories, that being upstream, midstream, and downstream, including a strong turnaround market in both North America and in New York. We expect turnaround activity to remain strong into early 2024. However, our plans and expectations assume a more normalized turnaround level of activity in the second half of 2024, whereas our overall energy market results will more likely benefit from the growth of data analytical solutions due to the ongoing success of PCMS and on-stream, both of which classify their sales to primarily downstream refineries and midstream pipelines. Aerospace and defense bounced back in the fourth quarter from a difficult comparable presented over the first three quarters of the year, which were due to delays with a large defense contract which had been suspended since the third quarter of 2022. In aerospace and defense, however, as Manny stated earlier, there have been some fundamental improvements in this market. For one, this has been a robust market and will continue to expand and gain share. The other is that our facility in Georgia, which serves primarily aerospace customers, is now fully operational and quickly ramping up to full capacity. In fact, in the fourth quarter, our West Penn business once again broke the record it set in just the third quarter, for the best-ever quarter for revenue and EBITDA generation. And we expect this trend to continue over the near term. And in private space, we remain a leader, and this business is also showing no signs of a slowdown, and we continue to expand our service offerings to help relieve the supply chain constraints experienced by our customers. In addition, we also saw continuing growth in data analytical solutions an area of emphasis where we expect sustained double-digit compounding growth over the near term, driven primarily by continued expansion of our PCMS and on-stream businesses. We plan to expand PCMS outside of its legacy refinery market into new industries where we believe it has great applicability. This initiative is just one of the many commercial market focuses of our new management team and our corporate directive to better leverage our existing technologies and competitive strengths. While we were pleased with our growth in the fourth quarter and the continuation into Q1 2024 with strong turnaround activity, we do not expect to see turnaround activity run at these high levels for the full year 24 and this is factored into our fiscal 24 revenue guidance that is a strong spring turnaround but a more normalized fall turnaround cycle. Gross profit margin in the fourth quarter was down from a year ago primarily due to an unfavorable sales mix and higher employee benefit credits received in the prior year period. First profit dollars, however, were up 5% due to the increased revenue and reflected growth in revenue from the oil and gas industry, which do tend to run at below the corporate average margin. Selling general and administrative expenses were 42.9 million, which were up marginally by 1.7% due to higher foreign currency exchange losses partially offset by savings associated with Project Phoenix, actions taken in the fourth quarter. 2023 SG&A also included an increase in stock compensation expense related to executive transitions of approximately $800,000. Excluding the impact of the adverse foreign exchange and the aforementioned executive stock comp, SG&A would have decreased in the quarter. Beginning in the first quarter of 2024, we expect SG&A to be significantly below comparable levels in 23, and in line with our goal to reduce SG&A to be approximately 21% of full year 2024 revenue. For instance, as examples, we will receive the full effect of the approximate 15% reduction in overhead headcount, as well as the benefits of other costs to drive down our SG&A. Project Phoenix is expected to enable us to drive total SG&A down by approximately $12 million in full year 2024, while also providing ancillary revenue and gross profit benefits. Income from operations was $700,000 for the fourth quarter, with a gap net loss of $2.5 million, or $0.08 per share loss, due to the aforementioned reorganization and other related costs of $6.3 million. Excluding reorganization and other non-recurring costs, non-GAAP net income was $2.9 million, and earnings per share were $0.10 per share, which is up from $2.8 million and $0.09 per share, respectively, for the prior year period. For the quarter, adjusted EBITDA was $19.2 million, up nearly 22% from $15.7 million in the year-ago quarter. This Q4 23 adjusted EBITDA of 19.2 was the highest Q4 result we have had all time, as was the Q4 adjusted EBITDA percentage of revenue at approximately 11%. Net cash provided by operating activities for the year was 26.7 million, which is up slightly from 26.4 million in the prior year. After being negative over the first three quarters of the year, free cash flow turned positive in the fourth quarter, raising the full year to a positive 3.1 million. The decrease in free cash flow for the year was primarily due to 10.2 million of increases for capital expenditures in order to support the growth of our shop laboratories and data analytical solutions operations. We are intently focused on organic growth investments via strategic capital expenditures as well as an improved commercial function in order to foster revenue growth in expanding areas, including aerospace shop labs and data analytical solutions. While this increased spend on CapEx for our growth initiatives was above our projections for the year and caused us to miss our free cash flow guidance for the year, the strategic investments nevertheless continue to provide us with this best-in-class capability to meet our customers' demands in 2024 and beyond. We also had meaningful cash outlays associated with Project Phoenix in the form of severance and consulting costs, which were required to achieve the significant cost savings. We also had a slight increase in working capital, both accounts receivable and inventory, which adversely impacted free cash flow in 2023. Interest expense was $4.7 million for the quarter, increasing incrementally from the prior year or the quarter due to the rising interest rate environment. In fiscal 24, we expect interest expense to decrease modestly year over year as a result of further debt payouts of debt as well as a reduction in our borrowing rate due to a decrease in our leverage ratio. Our trailing 12-month bank-defined leverage ratio was 3.25 as of December 31, which will give us a prospective benefit of a reduction in our effective interest rate in 2024. Based on our current 2024 projections, we expect to be able to achieve our targeted three times or lower ratio sometime in the first half of fiscal 24, based on an increase in our trailing 12-month EBITDA, even with an only modest reduction in our outstanding debt. As we did in 2023, we are going to continue to increase our investment in capital expenditures to support our growth strategy, which will also impact the pace of our debt reduction. We feel very comfortable at a 2.5 leverage ratio, so at that point, we will gain additional optionality as it relates to future cash flow. And for now, we believe capital expenditures are the best use of the company's cash to foster revenue growth in attractive markets. I am encouraged by our financial performance in the fourth quarter and what I am seeing throughout the organization for 2024. At the same time, I recognize these are early days and we need to maintain discipline and remain committed to our plan. There is work to be done. Over our many years in business, the Mestrage Group has developed proprietary technologies, unique insights, and extensive experience helping to protect our customers' valuable assets. These are skills that are in increasing demand. and we have an unmatched global workforce of over 3,500 technicians, and this is a true competitive advantage in our market. With the implementation of Project Phoenix, we anticipate modest top-line growth with a slight gross margin expansion over the course of 2024. Longer term, one of our goals is to expand gross margin through a favorable mix of higher margin revenue, price increases, and productivity and efficiency improvements. which will take some time to implement before the full financial impact is achieved. We sincerely appreciate your continued support and expect to reward your patience with significantly improved results in 2024. At this time, I would like to turn the call back over to Manny for his closing remarks before we move on to your questions. Thanks, Ed. We are now one year into the implementation of Project Phoenix. And as we expected, we will be completing our engagement with Alex Partners in the first quarter of this year. While we are certainly pleased with the initial success MISTRESS has had with Project Phoenix, we also recognize the need to continue to be vigilant in fully implementing and sustaining our Project Phoenix initiative. Every day we are identifying new opportunities to improve performance. We are fundamentally changing our business operations. I am pleased to report that our Project Phoenix initiative was more successful than initially expected with achievements which include a projected gross annual run rate basis of 47 million of EBITDA benefit to be achieved by the end of 2025, including, amongst other benefits, a reduction of 245 overhead positions, seven locations closed, and 150 vehicles disposed of or are planned to be sold in 2024. In addition to enhanced commercial efforts driving a top line price increase and revenue growth strategy. I am also pleased to announce that moving forward, Project Phoenix will be a permanent ongoing initiative as our board has approved the creation of a new chief transformation officer position who will be reporting directly to the CEO. The new CTO position will help the company remain competitive moving forward by ensuring our business leaders challenge the way they conduct operations and embracing change regularly. The CTO will help the company improve its operational efficiency and effectiveness, which in turn will lead to greater profits and improved brand reputation and higher employee retention rates. You will hear more good news on this front in the near future. The new commercial focus, which emerged from Project Phoenix, will, amongst other things, help drive organic revenue growth in 2024, which we hope will enable us to achieve a record adjusted EBITDA, primarily attributable to a significant increase in operating leverage arising from a meaningful reduction in overhead combined with profitable growth. For 2024, we anticipate full-year revenue between $725 million and $750 million, and adjusted EBITDA between $84 million and $89 million. We additionally expect to generate free cash flow of between $34 and $38 million. This outlook includes approximately 20 million in incremental benefit from Project Phoenix in 2024, as we achieve the full year impact of cost savings executed during the fourth quarter of 23, in addition to the enhanced commercial function, which was also ramped up in the latter part of 23. I am extremely encouraged by the strong early returns from the Project Phoenix related actions. The increased discipline and accountability implemented throughout the organization has resulted in an increased focus on achieving the goals we have set for revenue growth, efficiency improvements, and increased profitability. Now we are set on a course of continuous improvement. Further integration of data analytical solutions and uncovering other opportunities where our proprietary technologies and extensive knowledge and know-how can solve problems for our customers and create value for our shareholders. At this time, I would like to ask the operator to open the call to your questions.

To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Mitchell Pinheiro with Sturdivant & Co. Your line is now open.

Yeah, hi, good morning. I had a couple questions for you on Project Phoenix in particular. Could you talk of the $20 million of incremental sort of cost savings that you expect this year? Like, what are the big buckets that you could perhaps describe for us? Well,

Primarily, it's the overhead reduction of 245 positions. That's a big component of what we've been able to achieve through our work in 2023. But in addition to that, we have revamped our entire revenue strategy. We have a new plan to move forward with a deal desk and our CRM system has been improved. So I think the combination of the reduction of unneeded positions and the focus to grow revenue are the two prime drivers of what we've achieved in 2023 through Project Phoenix. But I can tell you there's more out there. Project Phoenix kind of showed us the opportunities that still exist. We will be focusing on improving our revenue in our high margin areas and revisiting those projects that are not profitable or are not working out the way we'd like them to. So I would say that's the biggest plus of Project Phoenix, in addition to the fact that it has re-energized our leadership team to better understand we do have opportunities to improve. And we now, in addition to recognizing that, have the mechanism and a structure in place to take advantage of those opportunities.

Okay, that's helpful. Let me ask you this. Like, you know, Project Phoenix, you know, it's multifaceted. I'm curious on how, if you could talk about how it drives revenue. I would imagine that there's some... some culling of unprofitable contracts that you'll either let pass or not pursue anymore. That would be an offset, a negative. But it sounds like you're talking about some positives in terms of growth. And then as it relates to revenue, how should we think about the difference between the bottom end of your guidance range and the top? Like what either... What doesn't happen for it to get to the bottom or what happens to get it to the top of the range?

Well, as it relates to revenue growth, our goal is to manage our sales mix so that we can end up with higher margins. And this includes revisiting our lower margin areas and business and determining what we need to do to get those margins in line. And I think we have a strategy to do that. It includes partnering with our customers. It doesn't serve anyone's best interest for mistress not to be profitable. We have to continue to enhance are 3,500 technicians out there so that our customers have the capacity to make the inspections and to do the data gathering they need to protect their assets. So there is going to be a focus on more clearly working with our customers to better understand our needs to make a profit. And that is to improve and to improve our sales mix. As it relates to overall revenue, our performance organically has not been acceptable. You can see that by looking at where we've come and where we've been. This year, we hope to make a significant change in our overall performance. And of course, look, We'd like, we're optimistic. We'd like to hit the high end of our guidance. But we want to be realistic. We want to give you a range of performance that we can achieve and to continue to maintain our credibility. But I am optimistic. I'm optimistic more than I've ever been that we can and will perform. and meet our goals. That is everybody's focus. In 24, our focus is to meet our goals. So I think that's all I want to say about that now, but I think you've gotten the gist of where I'm coming from.

Okay. All right. Well, thank you for the questions. Appreciate it.

Thanks, Mitch. Thank you. One moment for our next question. Our next question comes from Chris Sakai with Singular Research. Your line's now open.

Hi, good morning. I wanted to ask about overhead reduction. You've talked about it. Are you planning on any more in 2024?

We're always going to be focusing on improving our overhead costs. One of our goals is to improve our EBITDA margin to a level that I think is appropriate for a company like Mistress. I think our historical EBITDA margin performance hasn't been adequate and our goal is to improve it. And in order to do that, we have to continue to chip away at our overhead costs. And so even though we've concluded The consultant phase of Project Phoenix after a year, which by the way, as I said in my remarks, worked out much better than we expected. And I have to give credit to Alex Partners. They did a good job in coming in and working with us. But in 2024, we will continue to work on improving our our overhead costs and our efficiency so that is still on the table and it will continue to be on the table and that is why we've created the chief transformation officer position uh who will get up every single day and focus on how we can continue to improve ebita beyond what we've identified thus far okay i understood and in that same

Light, for restructuring expenses and capital expenditures, can you shed some light there? What will we be seeing in 2024?

Well, that's a good question. Our focus in 2024 will be to invest in ourselves and in initiatives that will scale our high margin business. And so therefore we have allocated a reasonable amount of capital expenditures for 2024, but we are just as committed to paying down our debt. Ed's comments about our leverage ratio are right on. Our plan is to continue to lower that leverage ratio and to keep it below three moving forward. So we are going to be investing and we are going to be paying down debt. That is our two objectives in 24. And we hope that our EBITDA improvement programs will allow us the room to do that and continue to move forward. Okay, thanks.

Thank you. One moment for our next question. Our next question comes from Tim Moore with EF Hutton. Your line's now open.

Thanks, Adam and Annie. Good job with the improvements. And it's nice to see the stock up 50% since I just see it at coverage in August. So, you know, I think there's still a ways to go on the re-rating for your stock, clearly. But, you know, just picking on a theme that's pretty important for your EBITDA growth guidance, That $20 million incremental cost savings for Project Phoenix, I know it's already been asked about a couple times, and Manny gave some examples. What I'm wondering, just to dive in a little bit more, what would you say, Manny, you're in as far as an inning in a baseball game, fifth or sixth inning, for not renewing unprofitable projects, culling some of the customers, the tail end? Because that's probably some good low-hanging fruit, but they probably also have roll-off timing. Do you think you'll be through a lot of that by the summer?

I think by the summer of this year, we'll be through a lot of what we've identified in 23. But as you correctly pointed out, there's still more. And I would say as it relates to Project Phoenix, we might be in the fourth or fifth inning. We still have room to go. And it's not just making cuts. It's identifying those areas that we should be growing and identifying the right strategy to grow them. An organized strategy with a plan that can be executed on. So there's more work to do. And but Where our management team is today, I have utmost confidence that they can get us there. There's a new energy in the company, and it's infectious. So that's what really motivates me the most, to see that I think we can get to where we're going.

That's great, because I'm thinking of Project Phoenix, the two-pronged approach, I mean, addition to EBITDA by subtraction of the low margin on profitable businesses, and then, you know, what is probably the later innings is, you know, the revenue growth and that side. But actually, I want to ask you about your pricing strategy. I remember you mentioning it on the last call. You know, your company, I'm not going to put words in your mouth, but, you know, for a couple years, pricing was hard to come by in a cost-sufflation environment. When do you think you might be caught up on cost inflation and taking pricing as contracts and projects get resigned? Because, you know, that's also a good EBITDA driver this year.

That's another good question. Let me say this, that working on the pricing is going to take a little bit of time. In some cases, we have multiple-year contracts. as they come up for renewal, we will look at them somewhat differently than we might have in the past. Because when we commit to something for three to five years, we have to make sure we price it correctly. And so that is something that we'll have to continue to work on over time. But I think the other approach is that we will have a focus in our marketing efforts to be able to demonstrate to our clients that we can add value to their initiatives. That it's not just going out and inspecting. It's coming up with solutions that will ultimately allow them to have more uptime, and more profitability by lowering their inspection costs. And for that, we will charge a fee. But I think the combination of allowing them to save money over what they're doing now and our focus on using our software and technology to help them better understand their choices is where we believe we're going to be able to drive higher margin growth. Great.

I have one quick question for Ed. Any service company, project company, always has delayed projects and things get shifted for weather and good reasons. That defense project that you commented on, it seemed like it started in the fourth quarter. If I remember from my estimates, and I could be completely off on this, I think that could have been worth almost $8 million in sales. I'm just wondering, Ed, Did all that already get sieved in the fourth quarter? Are we going to see some good tailwind on that maybe in the March quarter?

Great question, Tim. Yeah, that has now lapsed. So there'll be no impact on that year over year going into 24. We're past the 12-month anniversary of when that dropped off. So that would only be upside in that case. We won't have to call that out. That will not be a lag anymore. That would be upside at this point. But we feel good about commercial space, private space. and that defense, but that will not be causing any tailwinds at this point.

Good. I have one last question and I'll turn it over for data analytics solutions. I mean, that's been a good growth driver. I know you've come out, I think last call and guided maybe a 15 to 20% CAGR. When I asked about it, it was nice to see those sales reaccelerate, you know, December quarter after they came down, they weren't as robust growing in the September quarter, but I'm, How do you think about the gross margin contribution there? I mean, you're getting to a point where there's probably going to be a flexion point when you get to a certain amount of revenue. Do you think that steps up later this year, or do you have to kind of reinvest in that business and maybe the incremental contribution on the margin won't be as big as maybe it could have been?

We are planning on growth in data analytical solutions in 2024. But we will at the same time be developing a strategy to scale that in 25 and 26 and 27. And we will be investing in that initiative in order to achieve that scale. It's good margins and it's good business. You'll still see growth in 24 because our data solutions team has that baked into their 24 numbers. As I indicated, they finished the year at 16%. They finished the fourth quarter at 18% growth. And their growth objectives for 24 and beyond are in that range and beyond. So we're excited about that.

I love that go-to. I remember sitting down with Ed about it 10 months ago in New York. But thanks a lot, and that's it for my questions. Congrats. Thank you.

Thank you. One moment for our next question. Our next question comes from Brian Russo with Sedoti. Your line is now open.

Hi, good morning. Hey, just on the 20 million of incremental Project Phoenix savings in 2024, if I heard you correctly, I think 12 million of that is the overhead or, you know, i.e. SG&A savings. So that leaves about 8 million. Is that the commercialization, commercial initiatives and the pricing initiatives? And have any of that 8 million been achieved yet?

Ed, why don't you? Sure, man, yes. Yeah, Brian, the breakdown components for Project Phoenix, as we cited back in our November press release as an adjunct to the third quarter press release, that's all still holding serve, and we're reiterating that. So as you pointed out, of the $20 million, $12 million is incremental SG&A savings in 24. That number is baked in, and we feel good about that. Of the other $8 million, $5 million of that was revenue price-increasing adders, and $3 million was gross profit margin reductions. So you've got $5 coming on the revenue line, $3 coming on the COGS improvement line, and the other $12 coming in SG&A. That's the composite of the $20 million incremental Project Phoenix savings we're projecting for 2024.

Okay, understood. And out of the $5 million of pricing adders, is there any kind of – maybe a generic but true example of where the pricing initiative has been successful to date?

Oh, absolutely. Pricing was one of our key work streams on this commercial function. The other one's called sales enablement, where we're trying to drive some new business. But pricing by far is the key one. As Manny said earlier, it's a strategy. It's a new structure. It's this, let's know in the bid what we're going after. Let's track it through the deal desk. Let's really think about multi-year pricing impacts. Obviously hard to do, as Manny said. You've got multi-year MSAs. You can't magically change that. But you have a discussion. It's all about the ROI, as Manny said. It's about the higher value add. We have the ROI. We're not just a cost plus commodity. We don't want to be seen that way. There has to be a bigger discussion there on the longer term. The investments we're talking about in our capabilities and our data, that's value to the customer, and it's about having a discussion. So we've had real examples now. Our internal budgets have baked in opportunities. We went to top-tier customers, bottom-tier customers, thought of what works. There's different strategies, different dialogues, different capabilities there. But, no, there's meaningful increases built in now to contracts as a structural thing going into 24 that we didn't quite have the discipline on in the past. So no, there's real meaningful examples that that numbers that, you know, is a part of our growth here in 24, having the pricing factor, you know, on top of a volume factor, growing that top line organically. So, you know, there's real examples with, with customers on, um, different facets of our work that, you know, has been accepted. We we've had those discussions and lo and behold, you know, to a large extent, many of those increases were accepted by the customer. So while, yeah, we feel very good that there's a real pricing trajectory. It's a meaningful part of Project Phoenix, and that'll be kind of one of the ending phases here as we get to growth areas, leveraging our footprint. I do believe there's more to be had there, but it's more about having a pricing structure now, a pricing strategy, a philosophy about it going forward. That's really what changed, but there's lots of tangible examples where customers have accepted it going forward, and that impact will be there in 24. Just to give you one example, as Ed said, In last year, I had asked for a list of contracts where the margins weren't acceptable. It was just very low margin business. And we've been tracking those contracts from July of last year through February of this year. And the latest report I got was that we were able to through a series of pricing initiatives and price increases and cost reductions, we've been able to improve those margins by three to five percent, primarily because of what we've done in Project Phoenix. And it's through a combination of improving our pricing and the combination of cutting back on our overhead. So it is working. We just need more time to develop that thinking and not the thinking, to develop that approach with our customers. It just takes time. But it is working. And I was really happy to see that because that proved to me that it's worked. So I wanted to see evidence of that myself, and I've seen it. And so that's an example of how the Project Phoenix mindset has already started to improve the margins in some of our low-margin contracts.

Yeah. Okay, great. And then when I look at the 2024 midpoint of the revenue guidance, it looks like maybe slightly under 5% growth. Are there any one of your – largest three end markets or even the sub markets within those three that are growing faster than others. You mentioned the three segments in the ONG, but I'm curious on the aerospace and defense side, are you seeing more interest for third party raw material and parts inspections given what's been playing out in commercial aerospace over the last six to nine months?

We are. We are seeing improved interest in aerospace, in our industrials. I mentioned data analytics solutions. And our team has come up with some very creative ways to partner with our customers who have demand that they need to have met. So in the aerospace area, there is demand, and we've been strategizing with them to meet that demand by adding more equipment and moving forward in that direction. So we think that in 24, we will have improved growth, as I said, in our data analytics, in our aerospace, and will continue to grow in our industrials area.

Okay, great. And then what should we assume for 2024 capital expenditures?

Ed, what do we have? We have it up a little bit from 2023. we'll probably be up another, you know, three, four, maybe five million. So we have an aggressive year plan for CapEx. Again, in shop labs, in aerospace, in data solutions, those type of areas where we want to put a little more growth, expanding capabilities, expanding service line offerings for current customers and new customers. So, yeah, we've got, you know, a high interest in doing that where we keep leaning into the CapEx. So we'll do more of that. But we're not going to double it, but it might be up 10% over this year, maybe 15% top end if the opportunity is there, if they're right. We're going to be very judicious in the ROIs and paybacks we look for. But, yeah, we will see CapEx expand ever so modestly here in 24. And the key to what Ed just said is that our process in determining how to allocate that capital expenditures has been revived and revamped. when we invest, we will do so based on the return on an acceptable return on investment. So our CapEx expenditures are going to be focused on initiatives that will drive and grow revenue.

Okay, great. Well, thank you very much. I appreciate it.

Thank you, Brian.

Thank you. At this time, I see no callers in the queue, so I'll hand the call back over to Mr. Stamatakis for his closing remarks.

Thank you, operator, and thank you, everyone, for joining this important call today and also for your continued interest in MISDRAWS. I look forward to providing you with an update on our big business and progress achieved towards our ongoing initiatives on our next call. Everyone, please have a safe and a prosperous day.