Brian Russo: Just a few follow-ups, I guess, from previous questions. The first on the price – or just Project Phoenix in general, clearly the SG&A appears to be completely within your control. So visibility there is pretty good. But just on the price increases to follow-up on a previous question, I think, in 2023 the majority of that was focused in your North American operations and specifically in Oil & Gas, which is a very competitive market. Feel free to disagree. But in terms of aerospace and defense, it seems that that’s where you might have higher barriers to entry, a lot of certifications needed where price increases might be more palatable for customers given the unique expertise that Mistras brings to the table. Just trying to get a better sense for the price increases, which I assume falls in your gross profit and/or revenue benefit category for Project Phoenix in 2024?
Ed Prajzner: Yes. [Indiscernible] Okay, yes. So, you’re right, Brian, there is not one-size-fits-all here necessarily for all of our customers and all of our sectors. But what we are really going after here is more of a proactive approach versus reactive. I mean, we obviously have great partnerships with our customers and we do have price increases any given year. That’s not new for us. But it’s more about a policy, a structure, a routine matter of business here where we are getting fair value from the customer. A lot of this ties into our commercial efforts to get more KPIs, get more connectivity, to really understand the value to the customer, to demonstrate that, to illustrate that. Data solutions is all about that, bringing that true value to the customer and making sure there is a KPI that fully recognizes that.
Obviously, many of our price increases go right to the technicians as they should, but it can’t just be a push here. We are investing in many capabilities for customers, whether it’s robotic crawlers, software, and many other capabilities. And we are doing that to be more efficient, to help the customer more effectively, safely, efficiently use their asset base. So all that’s about getting a fair return and making sure that it’s all connected there. So that’s really what we’re going after. It’s a more holistic discussion, and dialogue and partnership with the customer wherein it’s – where we’re both winning. They are getting more effectiveness, more efficiency, more productivity from the offering we give them. That requires investment and a fair return.
So that’s really what we’re going after there, where it’s proactive in a dialogue and a discussion, not a reactive thing as it has been kind of routinely for us in more recent times. Make it more of a process, a policy with transparency and dialogue. That’s what we’re going after. That’s where – again, where it’s meaningful, and we want to make it part of a routine thing that we do each year. And I think that’s fair, and I think that’s the conversations we’re having and discussions we’re having with customers. And I think that’s important because it is – there is growth here, there is investment needed, and there’s a huge payback to what we do. So that’s why we’re really focusing in on this particular aspect of pricing in its more holistic sense.
Brian Russo: Okay.
Manny Stamatakis: And just to add to that, just to add to that, strategically we want to make sure that we are taking full advantage of the price increases that we’ve already agreed – that have already been agreed to. So many of our arrangements allow us to pass through certain costs as they increase. We want to make sure that we have a standardized, comprehensive approach to making sure we are taking full advantage of all of the increases that we’ve already – that have already been agreed to. And then secondly, we want to make sure we have a clear understanding of what our costs are as we sit down and talk to our customers and renew the business. It is a competitive business. There is no question about it. But we do provide value, and all we want to do is be paid fairly.
So a lot of it is making sure we’re taking advantage of what’s already been agreed to. And I don’t think that’s going to be as problematic. So it’s not – I don’t want to give anybody the impression we’re just going to raise our prices across the board. That isn’t the intention here. The key word here is strategic. And our first and initial focus is to make sure we are taking advantage of all the price increases we’ve already been – that have already been agreed to and then take it beyond that.
Brian Russo: Got it. Okay. And then maybe for Ed, given the reduced free cash flow outlook for 2023, are you unable to reach that three times leverage target that the market has been focused on this year?
Ed Prajzner: Yes. That was – as we said that in the prepared remarks, yes. We’re right – we’re below a three-five now. We had hoped to get below a three by 12/31. That’s going to slip out maybe just one quarter due to that little relatively weaker free cash flow. But it got pushed out, we’ll achieve that in the early part of 2024. We will still get below a three, yes.
Brian Russo: Okay, great. And historically, your cash conversion has been nearly 50%. Is that kind of a reasonable assumption in 2024?
Ed Prajzner: Yes. I believe that it is. I mean, our CapEx for good reasons has been growing a little higher this year than a couple of past years. But, no, I think that 50%, not in every given quarter, but over the longer term, yes, we do believe a 50% conversion, but it is still a fair number to use going forward, yes.
Brian Russo: Okay, great. And then I apologize if I missed this earlier, but what is the new CapEx run rate?
Ed Prajzner: Well, I mean, this year we’re going to end up at probably 21%, 22%, which has been a little higher – million – which has been a little higher than the mid to high teens we’ve operated at the last couple of years. It’s to be determined. It’s really a function of how much more investment in our shop labs do we want to do going forward. We’ll have a little – if it’s value-add, and there is good ROI with quick paybacks, meeting our hurdles, we’ll expand up a little bit. So the 2%, 2.25% of revenue might drift up to 2.5% to 2% and 3.25% of revenue. So we’re leaving a little flexibility to spring that up next year. We have not yet locked in our CapEx plans for next year, but we’ll have a little more tolerance to invest in the business for the high-growth prospects.
Again, this year was a little higher than last year. It may level right out at the same number next year, but we’ve yet to lock down our capital plans. But it may be modestly higher next year for good reasons for this expansion capital to grow some of our shop labs in particular and to invest a little bit in data solutions, we might be going to go just a little bit higher here in 2024.
Brian Russo: Okay, great. And you mentioned the delays in the defense contract as a driver of the reduced revenue guidance for 2023. I also noticed the power and industrials were weak, and I know you had that large nuclear contract that rolled off. Are you still looking to backfill that? And is that also contributing to the reduced top line?
