Welcome to the Fiscal 2012 Q4 and Year-End Mistras Group Earnings Conference Call. My name is Kim and I will be your operator for today’s call. [Operator Instructions]. Please note that this conference call is being recorded. I will now turn the call over to Mr. Sotirios Vahaviolos, CEO of Mistras Group. Mr. Vahaviolos, you may begin.

Kim, thank you very much and good morning to all. Welcome to the Mistras Group earnings conference call. Again, my name is Sotirios Vahaviolos. I’m the Founder, Chairman and Chief Executive Officer of Mistras Group. Also joining me today is Franc Joyce, our company’s Chief Financial Officer. The purpose of today’s call is to review our financial results for the company’s fourth quarter and fiscal year ended May 31, 2012, and to discuss our company’s performance and prospects going forward. This discussion is intended to supplement our quarterly earnings release and our filings with the Securities and Exchange Commission. I will begin by providing you with an overview of the year. Franc will follow with a brief disclaimer about the information we are providing you today and give you a summary review of our financials. I will then follow Franc with the remarks and observations about our performance, marketing activity and prospects. We will then answer any questions you may have. Once again, the Mistras business model continues to produce an impressive results with very significant revenue growth. Our 2012 revenue growth of 29% and organic growth of 16% are in line with our historic 6-year compounded annual growth rate for revenues of 29% and 5-year average organic growth rate of 17%. Our 3 segments had revenue growth of more than 20% and all achieved double-digit organic growth. I should point out that our revenue growth continues to be broad based with strong double-digit growth in all our key markets which I will discuss it later in further detail. In 2012, we also delivered growth of more than 20% in adjusted EBITDA, adjusted operating income and adjusted net income. Our strong cash generation in 2012 will help us facilitate continued accretive investments and acquisitions in 2013. With that introduction Franc, let me turn it over to you.

Thank you, Sotirios. First I want to remind everyone that our discussions this morning will include forward-looking statements. Actual results could differ materially from those projected and factors that could cause actual results to differ are disclose in our Annual Report on Form 10-K and in other reports filed with the SEC. Also, we will be discussing certain financial measures that were not prepared in accordance with U.S. Generally Accepted Accounting Principles. Reconciliations of those non-U.S. GAAP financial measures to the most recently comparable U.S. GAAP financial measures can be found in Mistras Group current report on Form 8-K dated August 8, 2012. These reports are available on our website at www.MistrasGroup.com in the investor section and on the SEC website. Now I’d like to present summary financial results for fiscal 2012 and for the fourth quarter of that year as well. Revenues for the fourth quarter of fiscal ’12 were $127 million representing a 24% increase from$102.1 million reported in the fourth quarter of fiscal 2011. Organic growth was once again a significant driver behind revenue growth, contributing 9% in the fiscal ’12 fourth quarter followed by acquisition growth of 16% with the balance due to foreign exchange. Gross profit in the fourth quarter of fiscal ’12 grew by 16% to $37.5 million versus $32.2 million in Q4 ’11. Gross margins in the fourth quarter were 29.5% of revenue versus 31.5% in the prior year. The decline in gross margin was due primarily to lower gross margins in the services and international segments. In services, the decline was attributable to several items including higher unbilled direct labor and mix of work performed in the quarter, none of which was significant by itself. The gross margin decline in international was largely due to recent acquisitions which have in their mix…

Thank you, Franc. The Mistras team delivered a very good year in fiscal 2012. We ended the year by also creating new opportunities, and we believe that our prospects for the future continue to be very strong. We had our best year in terms of revenue, adjusted EBITDA, operating income and net income. While we are disappointed to have fallen just short of our adjusted EBITDA guidance provided after the third -- the end of the third quarter, we hope that you have noticed that we have exceeded the high end of our initial 2012 guidance range for adjusted EBITDA. During 2012 and in the fourth quarter, our services division continue to experience strong demand from all market segment areas and in particular the refining, mid-stream, chemical and power generation markets. Our largest market, oil and gas, grew a healthy 16% in 2012 but all of the markets when taken together grew by more than 40%. For 2012 the oil and gas market was 54% of our total revenue as compared to 61% in 2011 and 63% in 2010. The top 10 customers represented 39% of revenue in 2012 versus 44% in 2011 and 45% in 2010. These are important measures because as we have continued to grow in line with our 6-year CAGR of 29%, we are reducing our dependency on the oil and gas industry and our top customers. This is the result of working diligently to diversify our business and service offerings and grow in all the markets. All of the factors that have led to our growth in revenues and EBITDA continue to exist. Indeed, we are very excited about our business and while we believe we will continue to grow, we must and have placed strong emphasis on improving our profitability. Gross margins were down…

[Operator Instructions] And at this time we have a question from Scott Levine from JPMorgan.

So firstly I guess with regard to the margin pressures that you highlighted in international and services. I don’t know if I missed this, if you provided a proportionate breakdown maybe, was one a bigger factor than the other? And with regard to the acquisition, is that something if the acquisition activities remain high, that we should expect on a go-forward basis? Or were there any unusual items with regard to integration of specific deals that were a particular headwind in the fourth quarter?

Yes, looking at the total margin drop, services was by far the bigger piece, and within there, unbilled direct labor of about $500,000 was a key part of it. And again, the balance is really due to the mix of jobs and work performed in the quarter and we can’t overemphasize that. International, the story there is that the mix is different from last year and there is more service-oriented business than product as a result of our new acquisitions, and so that is a blend thing. I think going forward, we expect to see higher margins in both of those areas. I think in international, there is more of a permanent mix change as a result of the acquisitions.

Understood. And then maybe as a follow-up, it did look like the organic growth decelerated a little bit this quarter. The acquisitions more than made up it for versus what we were expecting and you exceeded the high end of your guidance, but is that anything -- is there anything going on there, your expectations that will accelerate a little bit more color on organic versus acquisition growth?

Actually, Scott, basically we had a phenomenal fourth quarter in 2011 to start with, and so we really had to really jump over bigger hurdles. The second issues also is that we were also very careful with the profitability and therefore, sometimes they're basically were there, we do not really take them, okay, and we really avoid them. And that’s really what happened with the organic growth. I think as we have stated, as I have stated in my comments, we believe that in the new year there will be organic growth of double-digits is something that we will achieve in 2013 and beyond.

Our next question comes from Matt Duncan from Stephens Inc.

So sticking with that organic growth conversation for a minute. Franc, what’s the organic growth assumption in your guidance for FY ’13 and how much acquired revenue is in there?

We predict that acquired revenues between $30 million and $35 million, and so therefore, at the high end of the range, that would bring the organic growth rate to about 11% or higher, and at the mid-point it would bring it to about 8% or higher. So, that’s just a rough layout for that.

Okay. And then coupling that then with Sotirios, you were saying you think you can continue to get double-digits organic growth. I guess we should probably read the initial guidance as being conservative at this point, and that’s been what you guys have done in the past. So I understand I'm going to have a layer of conservatism in the initial guide, but is that how we should think about it?

Yes, I think that’s the fair way. I mean the year has just started, and we had a softer quarter than we anticipated. We believe it's all timing. So, good way to start off the year is to be pretty reasonable in terms of our approach.

Okay. Looking at your business in Europe, are you seeing any impact there from the economic turmoil? I know in the U.S. back in the recession of ’08, ’09, it gave you an opportunity to pitch the value proposition of what you guys do to a lot of people and you were able to pick up a lot of market share domestically by doing that in a tough economic environment. Is the same thing happening in Europe right now?

Matt, as I mentioned, I mentioned that we received some new evergreen contracts in Europe and specifically in France. That’s really our piece what you just stated. That’s exactly what we are trying to do.

Okay. So, that is helping them and you do feel like you are taking pretty good share internationally?

And we do not see any downturn in the -- especially in Europe, especially in Europe.

Okay. And then last thing from me on the margins, it sounds like they are probably going to stay under a little bit of pressure in the short run but eventually bounce back probably maybe later in FY '13. Franc, how should we think about FY ’13 full-year gross margin versus FY ’12? Would you expect it to be up on the year?

Yes. Actually, our guidance implies in my mind low end of about $29.7 million is where we came in and a high end of about $30.5 million. So, that’s how we are looking at the business now. We think at least at the mid-point, we are going to see the operating leverage that we believe is in the model.

Our next question comes from Taheera Asa [ph] from KeyBanc.

The first question I really had was you have seen refinery exclusion recently in the U.S. Last time we saw one in the mid 2000, it led to a lot of new regulations, which led to, I would assume, some more 50 integrity work. So, can you give me your thoughts on, as you look out, what this one could imply or whether this really isn’t anything important at this point?

Yes. Taheera [ph], basically we will not speculate on saying if there is any more or less business, okay, especially in these locations because it happened to be our evergreen but to say that we will stand behind Chevron and Richmond and the management and the employees in this difficult times and be ready to support them and help them to timely bring the plant into operations. And that’s all we can say at this time.

Got it. Okay. And then you have seen the transportation bill go through recently. I know that infrastructure and really doing some structural work has been one of the things you have looked at in terms of growth market. And there seems to be a lot bridge work implied in that potentially. We are hearing the same from some of your peer contractors. Any thoughts on what this could mean? Could this accelerate this opportunity for yourself?

Well, we continue to get online monitors for bridges. We just finished the last one in the Bay Bridge. We have a couple of them in United Kingdom and there is some good opportunities here. The question always, Taheera [ph], will be that in order for us to really have enough business so that really can make the change, the government has to put more money in fixing these bridges. Right now, they are talking about that all the problems with the bridges, but there is no real money in really fixing them and really find out what -- do the repairs are necessary in the bridges. Hopefully, in the new year maybe, whoever will win will put some money in the bridges and I think a lot of that will come our way.

I think it's fair to say we are not hanging our guidance hat on it in Europe.

It's the small -- the small numbers as I pointed out also in United Kingdom will do a lot of online monitoring and so that continues, but not in the scale that we believe we can do.

Oaky. And then you talked a bit about your pipeline integrity work and incremental awards so with there. Is this ramping up in line with your expectations or better or slower?

It's a continuous business because the pipeline integrity is a lot more than value. It's also the construction of the new gathering lines, as we call it, in the sale projects. So, there is a lot of this and hopefully if the Keystone comes in, will be also business for everybody, okay. So, there is a lot of opportunity in this area, and everybody is really trying to get their piece of the pie I might say.

Got it. And then I guess the last question and then I'll hop back in the queue, if you look at your competitive landscape, incrementally any changes over there both in the U.S. and outside?

Well we prefer not to discuss about our competitors and hopefully they don’t discuss about us, okay.

Our next question comes from Rich Wesolowski from Sidoti & Company.

In the service business, your advanced share was about equal to 1 year ago, and the oil and gas, as Sotirios mentioned, was far lower. Could you elaborate then on the change in the mix that you mentioned that would account for the lower segment gross margin?

Sure. I think if you look at our business in the services segment, about 50% of it is what I would call evergreen and the balance is longer -- is shorter duration contract. So, evergreen’s larger contracts tend to grow a little bit more slowly. The other half is the short duration, I’d say certainly 1 year or less projects who’s margins tend to fluctuate. Also, the mix of the non-evergreen is not as predictable as the evergreen. So, I’m looking at the business, you got 50% of it longer term margin is pretty predictable; you got 50% of it that is shorter duration and margins which tend to be less predictable. I don't know if that helps.

Rich, also, if I’d like to add little bit more on the international side, okay. In the international side, we made as we discussed acquisitions, the acquisitions we made were in traditional, non-distracted testing [ph]. So before we're used to for international margins to be in the upper 30s, but now that you got traditional we need to things when it moved down to be the lower 30s, okay. And that’s really another thing that will influence in the future our gross margins.

And on the international, regarding the comment that the performance will take a few quarters to get to your target, is that target based on raising the share advanced services from these or getting them on Mistras systems or combination of both?

It's a combination of both, but as I mentioned also the labor laws and everything else is a little bit different than it will be in the States, but everything really is on in the same expectation that we have. We are online with that in hiring some management talent also there and helping our people. So, we are really tracking what we are discussing but it will take some time.

So, is there anything differently that management is aiming to do to get the operating leverage to your guidance? Or do you expect it to happen just from a change in mix and getting the international acquisitions up to speed?

I think domestically, it would be a change in mix. That’s a good part of it. And then internationally, I think it is increasing gross margin and also operating margins over time.

And I -- maybe some of my customers will listen to this call, but let me basically say also that this -- that we need to really increase some of the margins in the U.S. also because there is a lot more shortage than it used to be a couple of years ago in talented employees.

Others are saying that as well. Lastly, Franc you had mentioned $30 million to $35 million in a acquired revenue assumed in guidance, how much would you have if you didn’t make any more acquisitions? How much is from those already completed?

Well, it's all from acquisitions that have been completed. It's -- there are no unannounced acquisitions in there.

Exactly.

[Operator Instructions] And at this time we do have a question from Tom Hayes [ph] from Thompson Research.

I was just wondering if you could comment on the Sentinal [ph] lawsuit that you guys announced winning yesterday and the ability to recoup some of the expenses.

We are not yet banking on ability to recoup the expenses, but these things come up from time to time. We are happy to say that we won the case. It dinged us by about $500,000 grand in the quarter, but we move on.

Okay. Just, Franc, I know it's kind of embedded, just wondering if you can provide a little color on what’s your plan for stock comp expense for this year?

Stock comp, we have in the range of about 6 to 6.5 is what we're initially putting in there, so little bit higher than last year.

Okay. And not to beat a dead horse, going back to the timing on the margin. It sounds like, if I have it right, that the -- it's more of a temporary issue in the domestic market and you expect that to kind of recover little bit quicker than the international segment?

Yes, we have pretty good visibility on revenues going down the road. We have less visibility on the composite of revenue so therefore less visibility on the blended margin.

And at this time we have a question from Justin Hauke from Robert W. Baird.

I had a question, just -- I know one of the things on your international strategy then the ability to sell globally to some of your large customers and I know that, that mix shift is falling a bit as you have grown, but for example, like BP, I think you served almost all of their U.S. sites but nothing outside. I guess I was wondering if you could talk about some of the progress you have made in being able to leverage these international acquisitions and sell to your legacy U.S. customers?

Exactly that, but we would not like to rally use names. But basically the names that you are seeing in the United States, including BP, is the people that we go after in Europe, okay. But you also have, remember we have also Lyondell Bassell, very strong in Europe. You also have Total in Europe that is very strong. So, these are really some of the customers that have done business with us for many years that we went after, because now we have the available labor to do the complete and take over, let’s say, evergreen accounts. And that’s why as I mentioned before we received several evergreen accounts in France.

Okay. That's helpful. And I guess the other question is, going back to the unbilled labor expense. So, are those people, are they now -- are they actually being billed now? Are they on the job sites? And how should we think about, as you continue to grow, if that’s a recurring headwind or how do we think about that?

Well, I think it's relatively new. It's about $500,000 grand higher in the quarter, about $2 million higher in the year. And I think it's really a function of our need to get more trained technicians on board. And I think the fact that we need to have more trained technicians on board is the function of the demand for our services. So, I expect that to continue for some time. The folks are basically on board, many are in various stages of training and we are getting them ready for our business.

And if I just add one more piece, we have -- I mentioned before that we have 3,500 employees, a little bit more than that actually. But 800 of them were added in 2012.

And at this time we have a follow-up question from Rich Wesolowski from Sidoti & Company.

Did the company make any acquisitions during the quarter or so far in the August quarter?

Not subsequent to -- not in the August quarter and we closed 3 acquisitions in the fourth quarter, paid about $3 million in cash so nothing huge there.

Okay. The company typically starts with a $5 million EBITDA range, if I’m not mistaken, but there is $10 million here and I'm just wondering if there's any significance to that.

I think it's probably just a pound of caution with -- just very briefly, evergreen as a percentage of our business is coming down as a result of the growth in areas outside of oil and gas. So just a big picture, our ability to predict gross margins is probably a little bit more difficult than it might have been 2 years ago. So, mix is a bigger factor so we probably give ourselves a little bit more leeway on EBITDA margin line or the EBITDA line.

And lastly, as management looks at the company 3 years from now, I’m curious what services or end markets you see that will contribute a materially higher share of the sales than they do today.

Well we have mentioned before that power generation is an area that we have really identified, and as a matter of fact, we have created now an executive that is in charge of only in that particular sector. So, that’s very important to us. The Aerospace business is becoming bigger and bigger factor for us, okay, these days. Of course, let’s not forget the chemical industry, because the chemical industry, especially with gas being so low price these days, okay, people can really afford to build plants in the United States. Before it was really unthinkable. So, all of these sectors are really growing for us and we are prepared and we are making the investments to really be after them.

This concludes the time that we have for the question-and-answer session. I will now turn the call back to Mr. Sotirios Vahaviolos for final remarks.

In closing, we are indeed very proud of or 6-year CAGR of 29% or higher for both revenues and adjusted EBITDA, given it's down years as 2008, 2009. We are committed to double-digit growth for fiscal 2013 and beyond. We are also keenly aware of the need for margin improvement and believe we have in place the right strategy to achieve that. I would like to thank everyone for listening to our call and wish you a great day. Thank you very much.

Thank you ladies and gentlemen, this concludes today’s conference. Thank you for participating you may now disconnect.