Mistras (US:MG)2020-08-08 20:47Financial Data and Key Metrics Changes - Second quarter revenue decreased by 38% compared to the same quarter last year, coming in at slightly under $125 million [15][5] - Gross margin improved to 33.1%, the highest quarterly level in over five years, despite lower revenue [6][17] - Cash from operations more than doubled year-over-year, with free cash flow up nearly 300% compared to the same period last year [6][5] - Adjusted EBITDA for the second quarter was $11.5 million, down from $24 million in the prior year [22] Business Line Data and Key Metrics Changes - The company maintained a gross profit margin of approximately 29% year-to-date, despite a significant decline in sales [19] - Selling, general and administrative expenses decreased by over 10% compared to the year-ago quarter [20] - The company initiated a cost reduction program in April 2020, reducing overhead by approximately 10% [21] Market Data and Key Metrics Changes - The company anticipates a sequential revenue improvement of up to 20% in the third quarter compared to the second quarter [27] - The oil and gas market is experiencing pressure to condense supply chains, which the company is adapting to [8][10] - The aerospace sector is seeing a trend of consolidation in supply chains, which is expected to increase demand for the company's services [11] Company Strategy and Development Direction - The company is enhancing service offerings and diversifying into new markets, including the industrial Internet of Things [10][30] - There is a focus on transitioning to value-added services, which is expected to accelerate due to the pandemic [7][75] - The company aims to leverage unique technology into markets with significant growth potential [10][75] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a market recovery in the second half of 2020, with resumed revenue growth and adjusted EBITDA expansion [74] - The ongoing pandemic is expected to drive innovation and improvements in operational efficiency [30][75] - Management noted that the current economic environment is creating opportunities for the company to consolidate supply chains for customers [12][75] Other Important Information - The effective income tax rate for the second quarter was a 21% benefit, compared to a 37% expense in the prior year [26] - The company maintained liquidity of over $55 million, exceeding the minimum requirement of $20 million [22] Q&A Session Summary Question: What were the achieved cost reductions in the second quarter? - Management indicated that Q3 would look similar to Q2 in terms of cost reductions, with a continued focus on calibrating the cost footprint to match revenue [35] Question: What portion of planned turnarounds shifted from the first half into the second half? - Management noted that some turnarounds were deferred into 2021, while others were ongoing but extended due to COVID-19 [36][40] Question: What is the outlook for growth in 2021? - Management has not set a budget yet but aims to approximate 2019 levels, with expectations for significant growth off a low 2020 baseline [42][46] Question: Can you discuss the competitive environment and opportunities for gaining market share? - Management highlighted that larger, financially stable vendors will be favored, and there will be a shift towards fewer vendors handling more complex projects [47][48] Question: What is driving the expected decrease in revenue year-over-year? - Management attributed the decrease to delays in turnarounds and reduced spending in the oil and gas sector [50][52] Question: Is the current level of SG&A sustainable? - Management confirmed that the current SG&A level is sustainable and that they are focused on reducing fixed overheads further [72]