Mistras Group, Inc. (MG) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2013 Mistras Group Inc. Earnings Conference Call. My name is Annette, and I will be your conference coordinator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Sotirios Vahaviolos. Please proceed, sir.

Annette, 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 Frank Joyce, our company's Chief Financial Officer. The purpose of today's call is to review our financial results for the third quarter of fiscal year '13 ended February 28, 2013, 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. Frank will begin with a brief disclaimer about the information we are providing today and a summary review of our financial results. I will then follow Frank with a few remarks and observations about our performance, marketing activity and prospects. We will then answer any questions you may have. Let me start off by saying that we had another quarter of strong revenue growth including 10% organic growth in our Services segment, exceeding our aggressive expectations. Notwithstanding an unfavorable revenue mix, integration cost internationally and an additional $1.1 million of medical cost adversely affecting our margins, we still performed well in a soft and challenging market. With that, Frank, let me turn it over to you.

Thank you, Sotirios. First, I want to remind everyone that our discussions during this conference call will include forward-looking statements. Actual results could differ materially from those projected and factors that cause actual results to differ are discussed in our annual report on Form 10-K and in other reports filed with the SEC. Also, the discussions during this call will include 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 directly comparable U.S. GAAP financial measures can be found in Mistras Group's current report on Form 8-K dated April 8, 2013. These reports are available on our website at www.mistrasgroup.com in the Investors section and on the SEC website. Now, I'm very pleased to present the summary of financial results for the third quarter of fiscal '13. Revenues for the third quarter of fiscal '13 were $133.7 million, up 28% from $104.1 million reported in the third quarter of fiscal 2012. Revenue growth in the quarter was achieved through a combination of organic growth of 6%, acquisition growth of 23%, with the small balance due to foreign exchange. The Services segment achieved a 10% organic growth rate in the quarter and was partially offset by declines in the products in International segments, where lower equipment orders and an uncertain economic environment in Europe and Brazil reduced revenues. Gross profits grew by 16% in the third quarter of fiscal 2013 to $34.2 million versus $29.6 million in Q3 2012. Gross margins declined in the quarter to 25.6% versus 28.4% in the prior year. The gross margin decline was primarily due to a nearly 3% decline in the Service segment where the mix of project work in a traditionally soft quarter caused the decline. Also, the company experienced $1.1 million in higher medical cost during the quarter, and this represented 1% of the service segment gross margin decline. Operating income for Q3 2013 was $5 million versus $5.4 million in the prior year. Operating income in fiscal 2013 third quarter includes a net benefit of $1.2 million in acquisition-related expenses due primarily to the reversal of acquisition-related contingent liabilities; whereas, the prior year quarter had $1.0 million in acquisition-related expenses. SG&A in Q3 of 2013 was $27.2 million versus $20.7 million in the prior year. Approximately, $5 million of the total increase was due to acquisitions completed within the last 12 months, mostly in the International segment. SG&A as a percentage of revenues, however, held constant at 20% for both periods. Net income for the third quarter of fiscal '13 was $2.8 million or $0.09 per diluted share, versus $3 million or $0.11 in the prior quarter. Adjusted net income for the third quarter, which excludes the impact of net acquisition-related expenses mentioned above, was $1.9 million or $0.07 a share. Adjusted EBITDA was $12.5 million in Q3 '13 versus $13.4 million in the third quarter of last year. Results for the first 9 months of fiscal '13 include: revenues of $384.8 million, net income of $16.2 million, adjusted EBITDA of $51.8 million, EPS of $0.56 and adjusted EPS of $0.54. Our top 10 customers represented 41% of revenues during the third quarter versus 38% in the prior year quarter. In the current quarter, oil and gas revenues represented approximately 50% of total revenues, down from 55% in Q3 '12. Once again, this change was due to revenue growth of more than 40% in end markets outside of oil and gas. Advanced services revenues declined 1% to 13% of service segment revenues. And now, I'd like to make a few comments on the company's balance sheet and cash flows. In the first 9 months of fiscal 2013, the company reported net cash provided by operating activities of $27.6 million, up 31% from the $21 million in the prior year. In addition, we spent $8.9 million in cash on capital expenditures and leased another $2.9 million of capital equipment, bringing our total capital expenditure outlays for the 9 months to $11.8 million or 3.1% of revenues. This compares to total capital expenditures of $15 million or 4.8% of revenues for the first 9 months of fiscal 2012. As of 2/28/13, net debt was $82.6 million and our net debt-to-EBITDA ratio was 1.2x. As of 2/28/13, the company had cash and cash equivalents of $8.9 million and an undrawn revolver balance of approximately $70 million. And with that, Sotirios, I'd like to turn it back to you.

Thank you, Frank. I want to first make a few comments on the financial results for the third quarter, and then I would like to review some operating highlights. As many of you know, the third quarter is traditionally a soft quarter for us due to a number of reasons, which include: lower seasonality, driven turnaround activity and a slowdown in project work that often accompanies the holiday season. In addition to these seasonal trends, during the third quarter, we also experienced lower capital equipment spending in the U.S. especially in military spending, delays in European online monitoring 24/7 project work, softness in the Brazilian oil and gas sector and $1.1 million in higher medical costs. All these factors combined resulted in a softer quarter with lower profitability that we had forecasted. There were, however, a number of bright spots in the quarter especially in the area of revenue growth. Overall, revenue momentum was strong and it was distributed across a broad spectrum of our end markets. For example, while oil and gas revenues produced solid mid-teens revenue growth in the quarter, all other markets taken as a whole grew by more than 40%. As a result, oil and gas revenues, as a percentage of total revenue, declined to 50% in the quarter versus 55% in the prior year. Markets such as chemical, aerospace and industrials provided solid growth for us in the third quarter, and we expect this market will continue to be a source of growth in the future. We're delighted that our Services segment produced a 10% organic growth rate from new customer wins and gains in market share in what is typically a soft quarter with light turnaround activity. Our International segment, while typical at this time for acquisition, continues to integrate and ramp up to its full potential and reported improved operating results in the quarter despite a difficult economic climate in both Europe and Brazil. The integration of our international acquisitions is on track and I am very pleased with the collection of business we have acquired internationally. I believe that these acquisitions, combined with our existing operations, have given us a stronger foothold in the international markets we serve and in turn will contribute organic growth and profitability in the region. And now, I would like to review some of the operating highlights in the quarter. Our Services division experienced some key wins in the quarter and continued this positive momentum in oil and gas specifically within the midstream and downstream segments. Positive activity also continued in our chemical, power generation and commercial aerospace segments and we're applying our traditional, advanced and PCMS enterprise software and services into these growth segments of the market. Mistras has always been known as the leader and innovator in the field of NDT, and we continue to lead by deploying our experience, technologies, engineering capabilities and project execution methods into financial savings for our customers. We are being proactive in the way we approach our customers knowing that they are under pressure to reduce their costs without compromising safety. Many of our customers, who are leading global energy and chemical producers, are experiencing the tangible value-based benefits backed by proven metrics that our services are providing. These benefits include savings and increased customer revenue resulting from Mistras applying our advanced technologies and innovative services. We're also performing process assessments along with risk-based inspection analytics to target and prioritize inspection requirements. Customers are realizing the value of reducing the time required to perform inspections, which in turn minimizes revenue loss and optimizes their maintenance and turnaround inspection spending. As in previous quarters, momentum in our midstream business segment continues on its pace with the natural gas shale plays, driving higher revenue for services. It's also driven by new expansion and upgrades in the downstream market segment to handle increased capacity and processing of different crude grades coming from both the shale plays and the oil sands. During the quarter, 2 major midstream energy companies purchased our PCMS inspection, data management enterprise software and implementation services. PCMS is beginning to establish itself as the system of choice in the midstream market as is done over the years in downstream. A new midstream customer awarded us a large, multimillion-dollar pipeline project in the third quarter. We also received an additional first-time order for a large refinery turnaround located in the Gulf region scheduled for this spring. In our chemical industry segment, the AIMS' Engineering and Mechanical Integrity services group and the Predictive Maintenance, Rotating Equipment group were awarded a contract for a major West Coast chemical company. We also continued to track the 20 proposed chemical and petrochemical capital projects mainly in the Gulf that are awaiting final investment decisions. These projects are driven by the economics and local sourcing of natural gas within the region. We're optimistic that many of these projects will come to fruition, providing business well into 2016. Turning to products and systems. Power generation continues to be a solid area for us based in our portfolio of value-based solutions tailored for this segment. Several of our proprietary combustion turbine monitoring systems that detect cracking in running gas turbine starter blades were purchased in the quarter, and include Mistras providing 24/7 remote monitoring services for these critical operating assets. Also, several of our AMS acoustic boiler leak-detection systems were purchased in the quarter by 2 West Coast U.S. electric utilities that also include 24/7 remote monitoring services. We now have 312 pyro boilers outfitted with AMS systems in over 100 power plants, with 200 boilers under contract providing 24/7 online surveillance monitoring. The product we've just released, the Pocket CORPAC system, that is an affordable, intelligent instrument used to determine areas of localized, active corrosion from the outside wall of a vessel or pipe. With proprietary innovative software technology, this instrument would be used as a screening tool for the oil and gas and chemical industry. The products we've just released for beta testing, is the new UT Tablet instrument, that incorporates a 10.5 color touchscreen display and a scalable, full-feature functionality. The new Asset Condition Monitoring System with integrated dual sensor technology, vibration and acoustic emission, has been released for beta testing. This system is Mistras' solution to 24/7 online monitoring of wind turbine and high-value rotating assets found in industrial process plants. Both products are expected to contribute to product sales in fiscal year '14. It is worth mentioning that the product sector maintain its high margins even at reduced revenue. I will now turn to the International segment of our business. As expected and announced in previous earnings calls, acquisition-related expenses are returning to normal. We're pleased to report that international revenues and gross profit have more than doubled compared to fiscal year '12 third quarter. Additionally, our acquisition growth of 22% partially derived from the intercompany support of the newly acquired companies received during the quarter by our existing companies and global centers of excellence. Our French group continues to expand with new oil and gas evergreens and long-term nuclear power services work. Due to Airbus' growth of 2 new -- growth, our 2 new, in-house testing labs have experienced additional aerospace work. With an expended management team growing long-term business prospects and an excellent synergy with our German GMA operations, we are looking forward to improved sales and returns in France. During the quarter, our U.K. operations experienced delays in services work from a key customer in the steel industry and accomplished significant online 24/7 monitoring projects. Both of these opportunities are now moving forward and expect additional and more diverse services work in the delivery of the online 24 systems in the first and second quarter of fiscal year '14. Our PCMS software business continues to expand in Russia. A major Russian oil company recently award us additional contracts for PCMS installations in their Bulgarian and Romania refineries. Products and installations of our 24/7 monitoring systems have been affected by delays due to the European manufacturing delays. We expect the installation of these systems to take place no later than the second and third quarter of fiscal year '14. And now, I would like to spend a minute on the company's outlook for the remainder of fiscal 2013. Summarizing what was previously said, the future of our business continues to be bright. We have performed in the past and we believe that our growth and profitability will continue. We are proud of our 20% revenue growth and profitability in the third quarter, but we are not content with these results and expect a better fourth quarter. And now for the guidance for the remainder of the year. While the company's confident in its long-term prospects in line of the current business and economic environment, the company now estimates its fiscal 2013 adjusted EBITDA to be in the range of $75 million to $80 million, which represents a 15% to 20% growth over fiscal 2012. We also expect revenues to be in the high end of our previous guidance of $525 million to $535 million. In closing, we believe that fiscal 2013 will represent another record year in both revenues and adjusted EBITDA for the Mistras Group. Our revenue and profitability momentum will continue in the fourth quarter and I believe we're uniquely positioning well for the future. That concludes my remarks. And I would like to open up the floor to questions.

[Operator Instructions] Your first question comes from the line of Matt Duncan from Stephens Inc.

The first question I've got is with regard to the gross margin. Can you just talk a little bit more -- when you talk about mix, Frank, the drag that you had on margins from mix. Can you give us a little more detail about what type of mix you were seeing that was negative to margin in the quarter?

Sure. About -- if you're talking about the Service segment for starters, about 50% of the total business is evergreen, the balance is largely project work. So in any given quarter, in any given lab, the types and volumes of work that you're doing is different. So even if -- so each quarter, you clearly have a different mix. In the third quarter, it's a traditionally soft quarter, a number of other factors come into play. It's near the end of the year, and anecdotally, we hear that people start to run out of budgets. It's near the holiday season. All of those things come into play generally to make for lighter project work and lower margin project work. It's hard to put a finger on it, but there's thousands of jobs that are included in our gross margin. And mix is a big issue and it's sort of difficult to forecast.

Sure. So to be clear, it sounds like the dip in gross margin you had in the third quarter, you would view that as sort of non-recurring and it should come back going forward?

Yes. Basically, Matt, let me answer that. There is really room to improve, okay? As an example, for instance, a large evergreen customer after the quarter ended, rewarded with a 3% COLA increase for the good work that we have done and the savings that we bring to them with our technologies. So this thing really will continue. And remember, we also had less advance. And what we notice basically, that the larger business basically was not accompanied by higher-margin Advanced NDT. That something really that we saw in the third quarter.

Okay. And then the other thing I want to be clear on, you are not seeing any price pressure for what you guys do, correct?

I mean, I would -- it's a competitive business, it's always been a competitive business. We see more competition on the larger contracts than the smaller ones, but we're not going to say there's not pressure.

But, Matt, as I basically stated at the same time, customers see the savings that we bring with our technologies. And as I said, a very large, actually, evergreen customer just awarded us with a 3% COLA increase.

Got it. And then on the organic growth, Sotirios, you talked a lot about some nice new wins you guys have had. The organic growth did increase a bit from what you had in the second quarter, which is a good sign. Do you think you guys will be able to get that back to double digits organic growth sometime over the next year? I understand it may take a little time, but is that still the goal?

The goal is really to do that, but it might take a little bit time. And I think, basically, we'll be a lot healthier and a lot better if we do that.

Okay. And the last thing from me on the acquisition front, did you guys close anything in the quarter and what's the outlook there?

We did 2 acquisitions, about $6 million in cash. Revenue run rates of about $3 million a piece, so $6 million.

And they both were for in-house work. We're not really outside work, we're in-house, where people bring us parts and related to more aerospace.

Your next question comes from the line of Andrew Wittmann from Robert Baird. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: So, Sotirios, in the past quarter, you talked about walking away from some business that just wasn't at your return levels or is just too competitive on price, as just a -- as one strategy to get the overall margins up. Is that continuing to happen? And maybe the broader question is, what are you seeing in the business that can kind of put a floor under some of the margin challenges you've had on the gross margin side from here and give us confidence that it might work a little bit higher?

Well, basically, it's not really very normal to walk away from a business like we discussed before, Andrew. But the thing you have to remember, we're doing a lot of sale work and a lot of midstream, which really requires the right geography. It's a very competitive market and many people can do it. So that's one of the reasons, really, that we sold at some of the lower margins.

Also, Andrew, I might add that in many times in the past, we've said that as a general rule, gross margins in industries outside of oil and gas in total are higher than oil and gas, that continues to be the case. So mix is always an issue. But should that growth continue, we would think that, that would benefit margins. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: Got you. So specifically in Europe, Sotirios, you kind of mentioned that there was some integration costs. Frank, maybe can you quantify that number? And then Sotirios, maybe can you talk about what the plan is for Europe? I mean, the demand environment is clearly pretty soft. I mean, obviously, a longer-term opportunity. But today, a softer environment. Can you talk about any actions that you might have in place to address some of the challenges in that market today?

Okay, Frank, we had...

Just -- there is at least $200,000 in transitions of severance-type cost in SG&A in the quarter, there may be more. But then, I'll pass over to Sotirios.

Basically, Andrew, we had to make -- as we bought these small companies, we have to really bring better management talent in the company. That took us almost a year. We have done that both in finances and in operations. So we have now really made a very stronger team in France. And that's why, as I mentioned here, we got some long-term business in the nuclear area, because now AREVA looks at us as a key player in the future. So all of that, of course, was expensive to do in the last 6 to 9 months. And now I think we are very close to getting out of that and that's when I said that I am looking forward to better performance for France.

And just also in margins as well too -- organically, revenues did not grow in Europe. So when revenues -- when organic growth returns, there's a natural tendency to boost margins in that regard, an operating leverage type of concept. So that would be another factor that would bring back margins in the future here. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: That make sense. Maybe one final one and just touching on M&A again. Sotirios, with all the moving pieces that you had from some of these larger deals that you've done in the prior year, and really even more recently than that, can you talk about where the focus -- where your focus is as a management team? Is it more on internal operations today? And would you kind of put -- I know, M&A's always part of the strategy, but it is maybe a little less part of the strategy here today as you're undergoing some of these internal changes?

Okay. Well, the first thing, as we said, because -- especially because of Airbus and because we grew after acquiring GMA as we realized, Andrew, we grew a lot in the aerospace industry, and of course, because of Airbus. But keep in mind, Airbus is in France, very strong in France, as well as in Germany. So we have some integration problem between 2 teams in really attacking the market together. So that's one thing that we have done that is very -- as I mentioned in my earnings call here, that is progressing very well. In the case of the companies that we said were -- the smaller ones we acquired, both of them are really for in-house work and, as I said, in the aerospace industry. The management team stays the same as it is in Germany. We're very pleased with the management team in Germany. We're just looking basically for better integration and better profitability in the future, okay? The case -- in the case of France, we made the changes that were necessary, and the same thing in Brazil. So we're now looking forward to sharing some growth in the next quarters, in the next few quarters, okay? But I think things are really moving. As I mentioned, we've more than doubled our gross profits in the International and that will continue. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: Okay. But just in terms of strategy, is M&A a lower priority today than it maybe was a year ago now that you've done a bunch of deals?

No, I don't think this is really. I think we will always consider, as we have said before, because M&A for us is also getting a lot of certified employees, this will really continue as we have done before.

Your next question comes from the line of Tahira Afzal from KeyBanc.

So my first question is in regards to Europe. As we look at the shale opportunity in the U.S., which seems to be notable, we've seen some articles on the potential impact of that on really the manufacturing and potentially the oil and gas base on the downstream side in Europe. So just wanted to see, is that something that has crossed your mind? Has it sort of shifted your strategy in regards to Europe to some degree as you look out into the longer term? I know your business is multifaceted and not really focused entirely in those areas. But I just wanted to get a sense whether this is something that's cropping up as you described today?

From our point of view, Tahira, first of all, in the European business, as we mentioned therefore, we are dealing with maintenance and services. So maintenance services and that -- some of that will continue. We're not looking for capital -- large capital projects. While in the shale, as you know, there are new capital projects. Keep in mind that in the shale, we will have a lot more competition than you do sometimes in foreign countries. So we need to take that into consideration. And the opportunity for the shale is probably while you're doing the pipelines, and we do not know if it is for a long-term kind of business. So we need to really look at all of this as we are making the acquisitions. And as I said before, the acquisitions sometimes come together with markets that we see that will happen very quickly. We know, for instance, that Bombardier in Canada is getting a lot more orders and they are really -- and penetrated the small aeroplane market. That's why we basically acquired the small company in Montréal for that business. It's very specific what we're trying to do, okay? It's not really general mergers and acquisitions, we have a specific purpose before we really acquire somebody.

Got it. Okay. And I guess my second question is in regards to your EBITDA guidance, clearly a nice recovery as you see potentially into the fourth quarter of the year. Could you talk about, for all your segments, where you feel, as you look at the upper end of your EBITDA guidance, which segment you -- we should expect the most notable sequential recovery in terms of margin?

Yes, in terms of -- as you know, we don't generally guide within the guidance range. But if your question is what would move the needle more in the EBITDA range, I would have to say that it would be services. I don't know if that answers your question, if you want to try again.

No, actually, Frank, that was exactly what I was looking for. And I've got a couple of other questions, but I'll hop back in the queue and take both of them later on.

Your next question comes from the line of Tom Hayes from Thompson Research Group.

Frank, just a little bit on the products segment. Last quarter, we talked about some of the slowing -- maybe tied to some of the fiscal cliff issues and the expectations were, that's going to be pretty -- a temporary basis. I know this quarter was kind of holiday related, but we also saw some additional slowing in the product segment. Just wondering if you could talk about your thoughts going forward for next couple of periods on kind of recovery on the products side?

Well, let me tell you what we experienced in the quarter first. In the quarter, we saw kind of less product orders than we anticipated. And as you probably know, our products are long lead times both in sales and then they're somewhat customized, so we did see less than what we had anticipated. It's hard to pinpoint why this certainly, we believe, that very strong demand long term for the products that we produce. But it was definitely slower in the quarter. It maybe another quarter or so there. It's very, very hard to pinpoint.

Yes, and in some cases, Tom, as I mentioned, that also right in Europe, I can tell you, that was really from delays. And these delays come about because some of the -- you can't really install systems in Siberia in the wintertime. So a lot of the delays -- they placed the orders late and therefore, some of these orders that we were hoping that would be at the fourth quarter, at the second and the third quarter, now -- I'm sorry, in the third and the fourth quarter, now they might happen in the second and the third quarter of fiscal '14.

Okay. Frank, I think you called out that there was a $1.1 million in medical cost. Is that a onetime event kind of -- reflect a new run rate, and was it all in SG&A?

Our view is that it's not a new run rate, our view is it's an anomaly. And I'd say, somewhere between 8 and 9 of that hit cost of sales, so played a prominent role in services margin and that was 1% of the 3%. And it probably played like a 0.6, 0.7 or so in overall company margins. So we think it's an anomaly. We don't think it's a new run rate and most of it is in cost of sales.

Okay. It's the last one and I'll sit back in the queue. How should we kind of be thinking about the tax rate for the quarter, it's been kind of jumping around this year?

Good question. The tax rate has been coming down on a year-to-date basis, which is the way we calculate it. And it's at about 37.5 through the year-to-date. As we adjust that and as we adjust the forecast, the default is the quarter and the quarter tends to jump around. So I think if I were looking at the year, I'd be looking at somewhere between 37.5 and 38.

The next question comes from the line of Rich Wesolowski with Sidoti & Company. Richard Wesolowski - Sidoti & Company, LLC: By my math, the advanced services in North America grew by about 5%, maybe a little less from a year ago, both for the quarter and the 9 months. I was hoping you'd discuss the obstacles you faced in getting the advanced assessment to specifically the evergreen customers that you've gained during the last 1 or 2 years?

Just for starters, as a general rule, advanced services generally go more hand-in-hand with turnarounds. And in the third quarter, turnarounds are lighter than they are in the second and fourth, so I wouldn't generally expect a huge jump in the third quarter. Advanced services save time and money to customers. They're not an easy sell. The goal is still -- and I'm looking at Sotirios, they're still in the 20%. But as overall revenues grow substantially, keeping that up to high midteens is a tough sell. Richard Wesolowski - Sidoti & Company, LLC: Do I understand -- I'm sorry, go ahead, Sotirios.

The only thing I wanted to add here, Richard, also -- consider also there some delays in the advanced, and I think you're going to see more in the future. Because there were some delays on that because of, as Frank said, the turnaround activity. Turnaround activity. Richard Wesolowski - Sidoti & Company, LLC: To what degree in North America, specifically, are the plant operators very much familiar with the advanced services that you're bringing to them? Or conversely, to what degree is it something new that they might see as risky or -- they haven't seen before?

Well, first of all -- basically, first of all, I can say something that -- because competitors are also listening to this call, okay? I can basically tell you acoustic emission, pressure vessels, ammonia vessels, we have of are very good area and aboveground storage tanks. We're utilizing our TANKPAC. These are all very advanced technologies that we use. And there's another whole array of systems. Everybody knows in the industry that we're also the leaders in guided ultrasonics, guided -- and I would prefer not to mention anymore, okay? Richard Wesolowski - Sidoti & Company, LLC: Understood, okay. Did you have an idea that the plant managers in Europe are any more or less willing to buy advanced assessment services relative to the customers in the U.S.?

Excellent. Very good question. Basically we really start penetrating the market in Europe with some of the advanced technologies and starting actually from the fourth quarter. We see some activity in certain good areas in Europe and that's why the pressure is on them, okay, to really deliver and deliver more profit. But the activity already has started in Europe in several areas and we try to expand -- we haven't really expanded yet in Germany, but we're expanding in France, in Holland and in the United Kingdom when it comes to the advanced. Richard Wesolowski - Sidoti & Company, LLC: Last one if I may. I'm wondering if your large competitors in Europe are any further along in offering advanced assessment relative to Acuren or any of your U.S. competitors?

Yes. Rich, I think, basically, everybody's trying to really get involved in advanced, especially after Mistras introduced the whole concept. Everybody is trying to really advance, but I think we continue to be -- to have proprietary technologies, okay? But more importantly, we performed a lot of these services based on key performance indicators and that's where the big savings come to the customer. The customer really uses our advanced technologies in what the customer needs, not really as it was done before, doing everything. So that's why you see probably shorter time now in turnarounds. And you see basically -- it doesn't mean that you have less turnarounds, it means that you have more, what I call, cluster turnarounds during the year. And that I think is a lot of savings for the customer.

[Operator Instructions] Your next question comes from the line of Tahira Afzal from KeyBanc.

Just had a couple of follow-up questions for -- the first one is your G&A increased, you did a good job of explaining the recurring items and the non-recurring ones. I know you've been ramping up on some of your peers' initiatives, which have been showing traction on the sales side. Is there any increase in G&A that's notable related to most selling expenses?

That's a good question. First of all, G&A, as a percentage of revenues, is flat quarter-over-quarter, at about 20%. Absolute dollar wise, it's up by about $6.4 million. And I'd say, 70% of that is due to acquisitions we acquired in the last 12 months. In terms of any lumpiness that's in the quarter, it's probably a little bit higher in the quarter than I would have expected, maybe by $600,000 or $700,000. And there certainly is some severance and some transition costs in there, as, well, too. But as a percentage of revenue, it's fairly constant. And when I look at that portion which relates to new acquisitions, new acquisitions come on stream, the gross profits take a while to get going as we integrate them, the G&A is there on day 1. So that's how I view it. It's still a constant percentage year-over-year, but the dollar increase weighted more toward the acquisitions.

Got it, okay. That was helpful. And the last question I had was sort of a follow-up in an early question you got. One of your peers lowered their guidance as well recently. And it seems like what they were indicating is something similar to what -- Sotirios, you were saying that there's a change in maybe the scope of some of the turnarounds that's there. Perhaps, your sponsors are looking at really flowing that business through -- in different manners. So I guess what I'm trying to get at is the lumpiness we've seen in terms of services margins, is that -- should we expect that to be a 1 or 2 quarter phenomena at best, hence, you're expecting the margins to pick back up? Or are we -- is there a risk that, that really continues for a little longer?

Let me address first the issue of the technology. Tahira, what I have basically said on several, actually, earnings call before, is it that the customer now has the -- he has the tools in front of them, like our PCMS software, which is basically -- it gives them the ability to catalog all their assets by risk and make investment based on key performance indicators. That automatically really starts pinpointing to the customer the problem areas. And that's why I mentioned -- I call this cluster turnaround, okay, where basically people would do this type of work. And what happens is that kind of work really happens during the year, so you might have not 1 turnaround, but we might have several small turnarounds. Another big cost that you have also on the large turnarounds is the per diem. In many areas of the country, people are paying $20 an hour or more on -- when it comes to the per diem when they bring people from outside. So all the things we're bringing -- the software, the really -- as I said, organizing the assets by risks are saving money to the customer. Frank mentioned...

I would just add to this, Tahira, we hear anecdotally that due to higher crack spreads that operators are slimming down or deferring turnarounds. There's no way for us to verify that, but we do hear that on a regular basis. And so, just pass that along.

Sir, you have no questions at this time. I would now like to turn the call over to Mr. Vahaviolos for closing remarks.

I would like to thank everyone for listening in our call, and hope that you have a great day. Thank you.