Ladies and gentlemen, thank you for standing by, and welcome to the Q4 and Full Year 2019 Earnings Call. [Operator Instructions]. I would now like to hand the conference over to your speaker for today, Mr. Don Bleasdell. Please go ahead, sir..

Thank you, Deborah. Welcome, everyone, to Team's 2019 Fourth Quarter and Year-end Conference Call. With me on today's call are Amerino Gatti, our Chairman and Chief Executive Officer; and our Chief Financial Officer, Susan Ball.

This call is also being webcast and can be accessed through the audio link under the Investor Relations section of our website at teaminc.com. Information recorded on this call speaks only as of today, March 13, 2020.

Therefore, please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. There will be a replay of today's call and it will be available via web cast by along to the company's website, teaminc.com. In addition, a telephonic replay will be available until March '20.

The information on how to access these replay features was provided in yesterday's earnings release.

Before we continue, I'd like to remind you that this call contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act of 1995, including statements of expectations, future events or future financial performance.

Forward-looking statements involve inherent risks and uncertainties and we caution investors that a number of factors could cause actual results to differ materially from those contained in any forward-looking statements.

These factors and other risks and uncertainties are described in detail on the company's annual report on Form 10-K and on company's other documents and reports filed or furnished with the Securities and Exchange Commission.

The company assumes no obligation to publicly update or revise any forward-looking statements, except as may be required by law. Amerino will begin by providing an update on our business. Susan will then detail our results and before we take your questions, Amerino will highlight our OneTEAM progress and market outlook.

I would now like to turn the call over to Amerino.

Amerino?.

Thank you, Don, and good morning, everyone. We appreciate you joining us today. Before we get started, I would like to comment on the recent market developments resulting from the coronavirus and the decline in crude oil prices.

First and foremost, we are taking active precautions to help protect the health and well-being of our employees and working closely with our clients.

While it is too early to forecast the ultimate impact of these events, Team's agile and scalable operating model, coupled with a strong track record of rightsizing our cost structure has prepared us for these dynamic times.

Team is well positioned to lead in this volatile market leveraging our unexploited competitive advantages, which includes the breadth of our subject matter expertise and cross-segment integrated solutions.

In partnership with our clients, we are working to develop and deploy technologies across our inspection, engineering assessment and mechanical services portfolio to deliver increased productivity and extend the economic life of their assets. I will now review our performance.

We are pleased with the fourth quarter results as we continue to deliver improvements in free cash flow, EBITDA, gross margin and SG&A despite various top line challenges.

Consolidated fourth quarter revenues were $288 million, down 7% from a year ago, primarily due to lower activity in our Inspection and Heat Treating segment and the 2018 shutdown of underperforming businesses. Here are some highlights of the quarterly and full year achievements.

Fourth quarter adjusted EBITDA was $23.2 million or 8% margin, full year adjusted EBITDA was $80.3 million or 7% margin, a year-over-year increase of 11.4%. Despite lower year-over-year quarterly revenues of $22 million, fourth quarter gross margin was $84.2 million or 29.2%, a 160 basis point improvement over the prior year.

For the full year, gross margin was $328 million or 28.2% of revenue, up 190 basis points over the prior year. This gross margin improvement was realized despite a year-over-year reduction in annual revenues of $84 million. Fourth quarter SG&A was $79.7 million, a decrease of $10.4 million or 11.5% from the prior year period.

Full year SG&A decreased by $32.5 million or 9% when compared to the prior year. Free cash flow was $20 million in the fourth quarter and approximately $30 million for the full year of 2019, more than doubling our free cash flow of $14.7 million in 2018.

During the fourth quarter, we paid down $17.5 million of debt, with a full year paydown of more than $33 million, reducing our debt to the lowest level in over 3 years.

Our fourth quarter and full year performance showcases our ongoing commitment to generate increased free cash flow for debt paydown, focus on working capital and other efforts to reduce costs. Additionally, we further expanded gross margin through pricing discipline, project management and market diversification.

I will now provide a high-level segment overview. The Mechanical Services segment delivered positive year-over-year revenue, gross margin and EBITDA. This strong performance was driven by a 31% growth over the fourth quarter of 2018 in the on-stream service line, which includes hot tapping services.

The full year adjusted EBITDA percentage was the highest for the segment in Team's history. The investments in manufacturing and engineering, technology and workforce management drove the increased profitability year-over-year.

Going forward, Mechanical Services is well positioned not only in the oil and gas sector, but also in some faster-growing markets, such as pipeline, power and process-related industries.

Most recently, Team completed on its third consecutive turbine at the largest - completed work story on its third consecutive turbine at the largest hydroelectric plant in the U.S. The dam is in a remote location and all components were built between 1967 and 1974.

The client's biggest challenge was the degree of precision required to deliver the critical tolerances necessary to maximize turbine life and efficiency. And due to the significant size of the units, the work was required to be performed on site.

Working collaboratively with the client, we provided a specialized and advanced modular field machine that utilize the laser-guided self-leveling solution. This client also benefited from materially reduced downtime and the elimination of costly freight.

The Quest Integrity segment achieved its highest-ever quarterly revenue and EBITDA in the fourth quarter of 2019 driven by continued international expansion. Quest delivered back-to-back years of record performance with more than 18% revenue growth for each of the past 2 years.

And EBITDA margin expansion of 260 and 714 basis points when compared to 2018 and 2017 respectively. Quest continues to perform exceptionally well in its target markets and is quickly building market share in new industry sectors.

As an example, a Quest client recently required a thorough inspection and clean-up after foreign debris was lodged in their power unit system. The client needed to avoid the process of complete this assembly, manual inspection and cleaning.

Quest was engaged to utilize our robotic camera systems and remote operated tools to perform the operation, eliminating 3 weeks of downtime and saving millions in lost revenue for each day the plant was idle. We expect Quest to continue to grow in 2020 as a result of the market-leading solutions we provide to our clients.

The Inspection and Heat Treating segment reported lower fourth quarter revenue and adjusted EBITDA when compared to 2018. In the past year, our IHT clients focused on maintaining high utilization rates and operational flexibility to maximize margins. Rather than large traditional turnarounds, smaller pit stops were used to minimize downtime.

We continue to work closely with our IHT clients, leveraging our stable and extensive nested footprint to provide additional high-margin services. IHT's performance is expected to improve in the second half of 2020 driven by a stronger turnaround season and additional discovery activity.

We are strengthening our IHT revenue diversification efforts focusing on international growth, innovative technology and sector expansion within LNG, midstream, aerospace and renewables. Utilizing our advanced technology, we are disrupting the inspection market.

We recently provided laser scanning in place of ultrasonic inspection for one of our multinational refinery clients to measure an external protrusion on a critical pressure vessel. Team's integrated solution, coupled with our subject matter experts, eliminated the unplanned shutdown of the vessel for internal inspection and repair.

Team is now an exclusive provider for the company and has deployed similar services to other facilities globally. Looking at our business from a geographic standpoint, we experienced fourth quarter year-over-year EBITDA growth in all our divisions, except for the West Coast.

The West Coast was impacted by delayed turnarounds, regional market share and pricing pressures, increased cost in part from SB 54 and other related factors. The Canadian division grew with mechanical services more than doubling revenues from the prior year quarter, while IHT operations were down 1%.

We continue to closely monitor project sanctioning activity, regulation changes and other market factors that may create some near term headwinds. In our International division, the IHT segment grew revenues by 13% when compared to the prior year quarter.

We continue to focus on diversifying our revenues and expanding to new markets while maintaining our high standard of safety and quality. Recently, a European client required a specialized solution to refurbish their wind turbine generator shops on site.

We developed and deployed a customized machine that took 50% less time when compared to our closest competitor. Team's enhanced solution was extremely well received by our client and is now their standard operating procedure for all future repairs.

The Central division is receiving several requests for proposals after our aerospace operations obtained Federal Aviation Administration certification in the third quarter. Team has more than 35 years of experience in the aerospace industry and is a single-source provider for all engine certification programs.

Recently, we provided chemical processing, advanced NDT and metallurgical services to one of the largest engine manufacturers in the world. Through our one-source solution, we were able to expedite inspection and deliver on time, ensuring no disruptions to the client's operations while meeting all necessary FAA requirements.

This further demonstrates Team's ability to secure high-grade revenue and diversify beyond our core energy sectors. I will now provide safety performance highlights. Safety is our #1 core value. We improved TRIR year-over-year by 25% and reduced recordable injuries by more than 30%.

During the year, we received the voluntary protection program Star of Excellence from 4 clients and the American fuel and petroleum manufacturers distinguished safety award from 3 others. The 2019 safety performance was one of the best for the company.

I remain extremely proud of our people and their commitment to safety as we strive for 0 recordable injuries. I will now turn it over to Susan for a detailed financial review and then we'll share more about our OneTEAM progress and outlook.

Susan?.

Thank you, Amerino, and good morning, everyone. I will review our quarter-over-quarter performance and highlight some of the 2019 full year results. Consolidated revenues of $288 million in the fourth quarter were down 7% from the fourth quarter of 2018. On a full year basis, consolidated revenues were $1.16 billion, compared to $1.25 billion in 2018.

In the fourth quarter, both Quest Integrity and Mechanical Services increased revenues as compared to the prior year with Quest driving the majority of the year-over-year growth and posting a record quarterly revenue performance.

The Quest and Mechanical Services revenue increase was offset by a revenue decline of 19% in our Inspection and Heat Treating segment. Full year revenues were negatively impacted by foreign exchange of approximately $12 million.

Additionally, exiting underperforming operations in late 2018, contributed to a full year variance of approximately $20 million, with the fourth quarter impact of $3 million.

Consolidated gross margin for the fourth quarter 2019 improved significantly to 29.2% of revenues, which was an increase of 160 basis points when compared to the 27.6% gross margins achieved in the prior year quarter. This represented the highest fourth quarter gross margin in over 4 years.

In spite of our revenue decline, we were able to generate favorable fall through due to the progress of the OneTEAM program. The fourth quarter 2019 cost savings benefits of the OneTEAM program approximated $5.1 million. On a segment basis for gross margin, mechanical services increased 8% over a 1% revenue increase.

Quest increased 27% and on an 18% revenue increase, while IHT was down 25% on a 19% revenue decrease. The fourth quarter net loss was $7.2 million, which was down from a $4 million profit in the fourth quarter of 2018, primarily due to the impacts of the effective tax rate variance.

Pretax loss for the fourth quarter of 2019 was $4.5 million as compared to a pretax loss of $13.7 million for the prior year quarter. Consolidated adjusted EBITDA of $23.2 million in the fourth quarter of 2019 was down slightly from the $24.5 million reported in the fourth quarter of 2018.

Adjusted EBITDA as a percentage of revenue increased to 8% from 7.9% in the prior year quarter. On a full year basis, adjusted EBITDA of $80.3 million was a year-over-year increase of approximately 11.4% and was 6.9% of revenues compared to the 2,000 adjusted EBITDA percentage of 5.8%. Now turning to our segment performance.

The Mechanical Services segment delivered fourth quarter 2019 revenues of $133.3 million, up 1.4% from $131.5 million in the fourth quarter of 2018. Adjusted EBITDA was $19.5 million or 14.6% margin, up significantly from the $14.3 million earned in the same period last year.

Full year 2019 revenues were $535.4 million, up 1%, with adjusted EBITDA of $77.6 million, up 66% from the prior year, resulting in a 5.7 percentage point margin improvement. The Quest Integrity segment posted record results for both revenues and adjusted EBITDA in the fourth quarter.

Revenues of $33.6 million were up 18% over the prior year period of $28.6 million. Fourth quarter adjusted EBITDA was $11.5 million or 18% higher than the prior year quarter. Quest record revenue year of $115 million was over an 18% increase from 2018 revenues of $97.2 million.

Adjusted EBITDA for the full year 2019 was $32.4 million as compared to $24.8 million in the prior year. The Inspection and Heat Treating segment reported fourth quarter 2019 revenues of $120.9 million, down 19% when compared to the same period last year.

Fourth quarter adjusted EBITDA was $10.7 million, down from the $15.6 million earned in the prior year quarter. As Amerino mentioned, the IHT top line was negatively impacted due to the end markets continued focus on maintaining high utilization rates, operational flexibility to maximize margins.

Additionally, the closure of underperforming businesses in late 2018 contribute to a decline in revenue quarter-over-quarter. For the full year, IHT revenues decreased 17% to $513 million and adjusted EBITDA decreased to $42 million or 30%, representing 157 basis point margin decline.

Despite lower revenues, the fall-through to EBITDA was fairly limited to 17%. This was largely due to the disciplined -- due to the result of our disciplined project selection and effective cost control measures that we have implemented over the past year.

IHT full year revenues were negatively impacted by a decline in revenue generated from our Canadian operations as well as the shutdown of businesses of approximately $40 million. Now moving to SG&A. We continue to realize year-over-year reductions of SG&A expense through our cost management actions, including the expansion of the OneTEAM program.

Total SG&A costs for the fourth quarter 2019 were $79.7 million as compared to $90.1 million in the fourth quarter of 2018, a decrease of $10.4 million or 11.5%. On a full year basis, SG&A was $328.2 million, down $32.5 million from the full year 2018. Our full year effective income tax rate was approximately 1.3%.

This reduction of the effective tax rate was primarily the result of an increase in the valuation allowance reported on the expected realization of Team's deferred tax assets for federal, foreign and state net operating loss carryforwards.

The company has federal tax net operating losses of approximately $150 million, which are available to offset any future domestic federal taxable income. In 2019, Team generated $58.8 million of operating cash flow, representing an improvement of $17 million over 2018.

Capital expenditures were -- in 2019 were $29 million, with $5.8 million being spent in the fourth quarter of 2019. Free cash flow in 2019 for the full year was $29.8 million, which was more than double the full year free cash flow of $14.7 million achieved in 2018.

We ended the fourth quarter of 2019 with $12.2 million of cash, cash equivalents and have $66 million of available borrowing capacity under the credit facility with total liquidity of approximately $78 million at year-end. We've remained committed to paying down debt with any free cash flow generation.

We paid down $17.5 million of debt during the fourth quarter and a total full year debt paydown of $33 million. Our senior secured leverage ratio at the end of the quarter was at 1.9x.

In closing, we've remained committed to paying down debt by generating free cash flow through incremental cost reduction, margin improvement and continued focus on management of our working capital. That completes the financial review. I will now turn the call back to Amerino..

Thank you, Susan. Before we take your questions, I will recap the last 2 years of our successful OneTEAM program and provide our market outlook. The OneTEAM program's two cost pillars generated savings of $22.9 million in 2019 and delivered within our targeted range of $20 million to $25 million for the full year.

We remain on track to achieve the projected run rate savings of $35 million to $45 million by the end of 2020. We controlled costs through enhanced supply chain management and improved project execution, utilizing our workforce function to generate a 240 basis point gross margin expansion during this 2-year period.

This expansion was achieved despite a 3% top line revenue decline, primarily resulting from the shutdown of underperforming locations in late 2018 and various external market impacts. Our adjusted EBITDA grew by approximately $28 million or 50% and more than 250 basis points.

And most importantly, our commitment to capital management and deleveraging the company led to a free cash flow improvement of more than $80 million during this 2-year period. On the last call, we discussed the deployment of the OneTEAM program into our international operations using the successful and scalable North American blueprint.

This strategy further positions Team for profitable growth. We are now able to deliver discrete and specialized services and differentiated integrated solutions globally. Implementation activities for OneTEAM international are now more than 2/3 complete and will complete through -- sorry, will continue through 2020.

We have transitioned the focus of OneTEAM to the revenue enhancement pillar, highlighting pricing strategy, product and service mix prioritization and integrated project management benefits.

This includes important actions such as deploying an enterprise account management approach, driving cross-selling across our segments to further expand margins and centralizing our billing processes. Additionally, we are focused on diversifying our industry sectors and geographies, while providing innovative technology leading solutions.

Now shifting to the market outlook. According to EIA data, U.S. refinery utilization rates remain at elevated levels with the fourth quarter averaging 88%. The months of October and November experienced a decrease into the high 80s, but December saw a return to above 90% utilization levels.

Analyzing full year averages, refinery utilizations continue to run high in 2019 with an average of 91% for the year, well above the 10-year average of 89%. We continue to evaluate our business in 2 halves, which has become even more critical due to the instability of our end markets.

In the near term, we are experiencing a slow start to the first quarter, driven by the prolonged holiday period, delayed start to the 2020 turnaround season and overall lumpiness of Quest business.

In addition, the coronavirus has created some disruptions to our operations and the recent drop in commodity prices may lead to a decline in capital spending of our clients. Similar to last year and as a result of these challenges, the first quarter is likely to be the softest quarter of the year.

While we continue monitoring the global markets, we currently anticipate the second half of the year to be stronger than the first half. And expect both Quest integrity and mechanical services to deliver year-over-year growth. Operating cash flows are expected to follow a similar trend.

We are focused on managing what is in our control and mitigating the evolving end market fluctuations. Our vast and successful nested business remains stable and allows us to first expand upon our current footprint and service offerings; and second, closely collaborate with our long-standing diverse clients to quickly mobilize resources as needed.

Team's workforce management function has successfully maximized labor utilization rates while reducing costs. We continue to take steps to optimize workforce deployment to mitigate labor inflation and enhance operational effectiveness.

While we also continue to execute on our diversity playbooks, further high-grading revenue and becoming far less dependent on any single sector or geography. In conclusion, we remain steadfast in our priorities. Free cash flow, debt paydown, expanding margins and top line growth to build a sustainable and profitable business.

We believe the diversification of our markets will allow us to grow and expand our client base. We are excited about the opportunities ahead and will continue to be disciplined in our investments for the long term. Deborah, I'll now turn it back over to you for questions and answers..

[Operator Instructions]. And your first question comes from the line of Sean Eastman with KeyBanc Capital Markets..

Team, this is Alex on for Sean. Congrats on meeting the cash flow guide for 2019. I'm just kind of wondering how we should think about cash for 2020? And maybe if you can give some directional commentary on how EBITDA to free cash flow should trend in 2020 and on..

Okay. Thanks for the question. So first of all, I'll start a little bit with the overall market trends. I think that, obviously, a lot has happened over the last 30 days or so.

We continue to monitor the budgets for 2020 and we will have full Q1 - at our Q1 call, which is not far from today, we will have a full, let's say, better picture for first half and second half together.

But directionally, we do expect at this time that our EBITDA would grow in the range of about 5% to 8% when you look at year-over-year growth in terms of EBITDA. And through strong and disciplined working capital and CapEx management, we do expect to see about a 10% improvement -- 10% to 12% improvement on free cash flow.

Now again, I will just highlight that there's a lot going on today in the markets. There's a lot of instability. Obviously, from a demand standpoint, a lot of instability when it comes to oil price, consumer GDP levels. So we have to continue to refine our model.

I think, even more than the last 2 years, looking at the business in 2 halves will be extremely critical for us, and we will have to stay very close to our clients.

Now what I like about our positioning and that's because of the hard work over the last two years by the leadership team and the company, is we now have 3 segments that are able to play in different cycles of the market between IHT, mechanical services, which plays in a lot of the on stream market, which I expect as cash tightens from the capital side, there will be a lot more OpEx and on-stream repairs.

And then Quest continuing to expand international offshore, et cetera, we're just a healthier business when you look at not only the financials, but also the 3 segments that are now able to play in different parts of the market.

Susan, would you like to add anything?.

Yes, I would only say or reiterate that the free cash flow, Amerino mentioned the expected increase there that those are lumpy and usually back-ended. So as you see the improvement in free cash flow that generally does fall in the second half of the year or latter part of the year..

Very helpful.

And then can you just give us an update on the diversification into the markets like aerospace, LNG and renewables? And maybe just like an update on how much of the business that is in 2019 and maybe where you expect this to trend in 2020 and beyond?.

Sure. So the best way to look at our business right now is if you take the refining, we generate approximately 40% to 45% of our revenue in that sector.

And then when you look at other related oil and gas or chemical businesses, it adds up to about 75% to 80% which leaves 20% to 25% of our revenue coming from what we consider new venture emerging noncore markets, meaning noncore to our existing revenue stream.

So that 20% to 25%, we do expect it to grow up to about 1/3 of our total revenue, but that would take us over the next 2 to 3 years. So I'm not going to go into detail of each specific sector. Aerospace, obviously, is extremely exciting for us. We've been in this space for a lot of years.

We will be investing some capital expansion into the aerospace business. And we feel that both in the U.S. as well as in Europe, we've got expansion opportunities there. We made significant investments over the last few years in other sectors that are able to allow us to play in renewables.

Some of the midstream space, although it is oil and gas related, it's a lot more integrated project management, expansion into offshore being led by Quest and the opportunities that, that brings us to cross-sell. So we're going to, over time, bring more color to the growth of our, let's say, emerging markets.

But right now, that we're targeting about 1/3 of our revenue from that space over the next 2 to 3 years..

And your next question comes from the line of Edward Marshall with Sidoti & Company..

Amerino, Susan, I hope you are well. That probably means a lot more today than it did a few weeks ago. But as I look at the fourth quarter calls from a lot of the refineries, a lot of your customers, they pointed to higher maintenance spend for 2020. And it kind of makes sense.

Inputs versus output spreads narrowed and refined inventory levels are pretty high.

So as you kind of step back and I think about if that spending is higher in 2020 than it was in 2019, how does that affect the on-stream services of Mechanical Services? And what does that do to that business versus what might -- the positives that might help with IHT..

Thanks for joining this morning. So right now, we're relooking, obviously, at the 2020 budget, considering the current, mostly, let's say, oil price impacts and what it does to capital. And the best way to look at this, at least from our view at this point is the following. You've got 2 or 3 tiers -- or not tiers, but groupings of clients.

You've got the integrated clients that have upstream, downstream, midstream that as you're seeing, there's a lot of capital reductions, OpEx reductions happening hourly right now. And that grouping of clients that is -- that also has refining is going to take some time to evaluate their capital projects and how they're going to spend their OpEx.

So I do expect that in that group, it won't be necessarily a slowdown, but I think that we're going to have a period of time here for the next 30 to 45 days for things to settle in terms of their CapEx and OpEx budgets. So that's one grouping.

Then you have the other grouping of clients that aren't fully integrated that, let's say, more on the refining space that are going to try to obviously increase utilizations right now, maximize their differentials and cracks using the drop in the input costs.

So I think that when I look at the latter on stream services similar to last year, while they want to maintain high utilizations and try to maximize margins is good for on-stream. It's also good for some of our Quest offerings that are used like fire heaters, which is one of the largest downtimes in a refinery. We've got a fully integrated offering.

So that's how we're looking at it is that on stream in H1 is going to -- as things settle, we expect that to be strong and continue on. I would be right now cautious on project work, specifically CapEx. So we do see H2 turnaround stronger than H1, but we are staying very close to our clients in terms of those capital type delays.

And it's not only CapEx related, there's a lot of concern right now just bringing in hundreds of people into a site when it comes to health and coronavirus. So I don't want to panic yet. I think we've got to be close to our clients. We've got to monitor, but I think having the three segments allows us to better handle that cyclicality.

And I would expect that over the next 30 to 45 days, we're going to get a lot clearer picture in terms of the types of clients and if they're going to be focused more on OpEx in run and maintain versus CapEx and project work..

Got it. Got it. And then if you look at Quest, there's been some good incremental margins as there generally is.

I'm curious, you've talked about a few emergency solutions that you provided during the quarter and I'm wondering how much of that was what I'm identifying in the margin versus maybe the scale on the top line or just overall? I know there's no restructuring in that business, but overall, kind of just better execution..

The biggest push right now for Quest is they continue to create and gain share in the international and offshore markets. So that's really what's driving their overall growth and margin improvement.

The -- what comes with that though is that there are some specialty services like robotics, for example, where when that hits, obviously, it's a good impact. It's a good integrated solution for our client, but the majority of the growth is coming in those markets.

And we -- as I've explained a little bit before, they are essentially creating new markets in terms of the size of the lines that they're inspecting in terms of the integrated offerings around the refining and process and petrochemical space.

But the specialty services are good at, so as advanced engineering providing fit-for-service support to our clients, but the bulk of the growth is in those new sectors..

Got it. And I guess, looking at Quest, you've talked about some new applications, some new processes that you're using or that customers are using with your services core.

I'm kind of curious, how do you accelerate the growth in that business? I mean, what's your vision ultimately for that division? And can it be as big as a Mechanical Services and IHT over time..

So it's a good question. And their growth rate over the last 2 to 3 years, obviously, is far exceeding the core industries.

And what we're doing now is when you look at how we prioritize our investments around capital, recruiting, sales efforts, R&D investment as well as starting to set up service centers globally for their tools instead of being fully centralized in one location.

So we're setting up a model that would allow them to continue to expand their business development efforts. We're setting up a model that allows them operational support globally and we're continuing to recruit and train our talent to be able to handle.

The nice thing about Quest is when we go to a job, if you're looking at just the high-end inspection equipment, you're sending two technicians and two tools. So it is a very low investment compared to some of our competitors and that allows us to scale. Now what's important, though, is that we do this scaling safely. Obviously, we do it with quality.

So we're pushing the growth and managing the quality, but this model of continuing to run the business centralized with the decentral support will allow us to continue to grow Quest as we move. Now when you ask, where is the top end. Obviously, we continue to see good growth in that market because they're creating new market. We don't want to be naive.

I think there's always competition that we've got to be aware of. But I think the clients are giving us extremely good feedback. They like the investments we're making in R&D. We're collaborating with a lot of our clients.

We're increasing our engineering support and resources so we're prioritizing the investments to keep Quest growing as quickly as possible..

Your next question comes from the line of Adam Thalhimer with Thompson, Davis..

So for Q1, do you think EBITDA is kind of in line with last year?.

So at this point, yes, we would project that we're going to be similar to last year at this time with some slight improvement. But again, with the changing environment right now. We're continuing to focus on what's occurring here in March..

Okay. And then as it relates to coronavirus, you haven't seen any facilities shut down.

You said you just -- maybe it seem less project work?.

Yes, at this point, Adam, if I look at it overall, what is happening, obviously, as everybody is seeing the demand side is coming down. We have had some projects delayed where it would be bringing in a significant number of people into a project like a turnaround or a capital project.

So due to the social distancing and rules around trying to keep things minimized for the time being, we have seen some things push. We've also seen some call out reductions, not necessarily due to the coronavirus only, but as our clients are looking at how they're going to manage their OpEx and Capex.

And so I expect that, like I said earlier to last 30 to 45 days until we can get a better read on where that's going, but yes, nothing has physically shut down completely. There is some operations that have moved to shift work where to limit exposure of just being around significant number of people. They're going to shift work.

We've had some of them run and maintain projects, reduce hours per employee, again, to reduce some of the exposure, but I guess, directly to answer your question, no shutdown so far. And obviously, we're staying very, very close with our clients to manage the situation..

Okay, perfect. And then I think you said up MS up this year, Quest up this year, IHT flat.

Is that revenue or EBITDA?.

So the comments are on revenue. I didn't clarify on IHT in terms of flat, that's the one that we see we're going to need at least another month or so with the changes in the environment to get a better handle on the IHT full year.

So right now, I think as you've stated, yes, revenue up for the 2 IHT projecting to be flat, but we do see a stronger second half turnaround season which could push things, but we need a little bit more time here to see how the exact -- your first question, how that plays out for IHT, where we're a lot more nested and embedded within the client plants..

Okay. But if you had flat revenue in IHT, you might have some EBITDA growth just with the cost saves. Is that fair? In terms of margin expansion, yes. I think that if we're at a flat, overall, right now, as I said earlier, we're driving and anticipating an expansion on EBITDA year-over-year. I think that mechanical services.

When you look at last year, we expect the top line growth hold gross margins somewhat in line and really try and gain market there. Quest, top line growth. And through the investments, there might be a small drop in an EBITDA percentage, but the growth is our focus. On IHT, I would plan for flattish revenue.

And right now, slightly up on EBITDA due to the cost improvements that we would be implementing throughout the year..

[Operator Instructions]. You have a question from Stefanos Crist with CJS Securities..

So you mentioned competitive pressures in the Gulf Coast affecting IHT.

Have those been in your expectations with pricing discipline? Or is there something different there?.

I guess, the last couple of quarters, I've highlighted the fact that we are focused on gross margin improvement and pricing discipline and price of project selection, let's say. So it is a continuation of that and it's primarily been West Coast and Gulf divisions.

The only thing I would add, Stefanos, that I would be concerned with or I am concerned within the next quarter or 2 is depending on how the market plays out, some of the smaller regional players that are going to need to try and continue to generate profit, et cetera, we're going to have to monitor the pricing and gross margins very closely because I think it's if the market wasn't going through the volatility that we're seeing right now, I would give you the same answer as I did the last two quarters.

Due to the volatility in the market and depending -- especially like in IHT and some of the more commoditized product lines, I would need to monitor that a little bit closer over the next 30 to 60 days..

I'm showing no further questions at this time. I would like to hand the call back over to Don Bleasdell for closing remarks..

Actually, Deborah, I'll close. This is Amerino. So thank you, everyone. And looking ahead, we will continue to leverage innovation and technology, apply pricing discipline and execute on the OneTEAM strategy focused on our revenue enhancement pillar. Thank you for joining us on this call and for your continued interest in team.

We look forward to speaking with you again next quarter..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..