Good day, ladies and gentlemen and welcome to the Third Quarter 2014 Mistras Group, Incorporated Earnings Conference Call. My name is Katina and I'll be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Sotirios Vahaviolos, Chairman and CEO. Please proceed.

Katina, thank you very much and good morning to all. Welcome to the Mistras Group earnings conference call. This is Sotirios Vahaviolos, Founder, Chairman and Chief Executive Officer of Mistras Group. Also joining me today is Jon Wolk, the company's Executive Vice President and Chief Financial Officer, who joined our company in November. In today's call, we will review Mistras Group's financial results for the third quarter and first nine months of our fiscal year 2014 that will end on May 31 and discuss our prospects going forward. I will start by saying I'm pleased with Mistras' performance for the third quarter even though our profitability was less than expected. Our Services segment had double-digit organic revenue growth despite unfavorable weather conditions that impacted our customers and our entire industry. As a reminder, our guidance for fiscal year 2014 includes organic year-over-year revenue growth ranging from 7% to 12%. Organic revenue growth for the Services segment exceeded the range of 12.8% for the quarter and is well within that range at nearly 10% for the first nine months of fiscal year aided by our recent contract win in Alaska. Our International segment experienced a modest organic revenue decline during the third quarter as recent customer wins were delayed to commence generating revenue. Organic revenue in the Products & Systems segment was even with the prior year third quarter. Total companywide organic growth was 7% for the third quarter and we expect a strong fourth quarter that will enable the company to approach the lower end of the organic revenue guidance for the full year. During last year's call, I was pleased to announce our five-year contract with BP to provide non-destructive examination inspection and support in Prudhoe Bay, Alaska. This time, I'm pleased to announce that just last week we…

Thank you, Sotirios. I remind everyone that the remarks made during this conference call will include some forward-looking statements. The company's actual results could differ materially from those projected. Some of the factors that could cause actual results to differ are discussed in the company's most recent annual report on Form 10-K and in other reports filed with the SEC. Also the discussions during this conference call will include certain financial measures that were not prepared in accordance with U.S. GAAP. Reconciliations of those non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found in the company's current report on Form 8-K filed April 8, 2014. These reports are available on the company's website in the Investors section and on the SEC website. Now, I will present the company's summary financial results for the third quarter and first nine months of fiscal 2014. Revenues for the third quarter of fiscal 2014 grew by 13.5% above prior year while revenues for the nine months grew by 15.5%. The company's third quarter year-on-year revenue growth of $18.1 million or 13.5% was driven entirely by its Services segment, which grew by $18.6 million or 20% of which nearly 13% was organic growth. These gains were noteworthy in an environment where poor weather reduced revenues about 2% and at which competitors have grown at a slower pace. Our International and Products & Systems segments experienced modest organic revenue declines during the third quarter, reducing the company's total organic growth rate to a bit over 7% for the quarter. Year-to-date our 15.5% revenue growth was driven by our Services and International segments. Services revenues grew by more than $35 million or 13%, most of which was organic. International segment growth of $30 million or 34% was driven almost entirely…

Thank you, Jon. And now let me take the opportunity to brief you on some key developments and activities within each of our business segments. First, our Services segment. The Services segment continues to grow, gain in new multiyear run and maintain contracts, capital projects, fleet-wide power plant inspections, and engineering services and is now expanding into the oil sands of Canada. These projects will contribute to results in our upcoming fiscal year and then to our already strong position in oil and gas and power generation. As I mentioned earlier, I'm excited about our new three-year contract with a major integrated energy company with significant operations in the Canadian oil sands region. Mistras was chosen to become one of a handful of this customer's inspection providers. We expect that our full portfolio of advanced engineering and inspection services and data management software will enable our customers to realize improved productivity, especially in areas where they currently have a very large maintenance spend. We're also very pleased to be selected for two significant capital projects. One project is an LNG export facility and one is the first gas-to-liquid natural gas facility in the U.S. Mistras was chosen for this project because of our new pre-developed asset integrity program, which incorporates our recently developed software tools, proven engineering capabilities, best practices, and baseline and advanced inspections. These attributes enable Mistras to bridge the gap from design contractor to an end-user client during the build phase. We believe our clients will realize substantial cost savings by developing an asset integrity management program in the pre-built stage, including reduced personnel exposure, more efficient inspection plants based on engineering inspection planning, and more cost-effective baseline inspections prior to planned startup. We feel confident that our pre-developed asset integrity program will have great appeal for…

Okay, okay, okay, Katina. Please open it up.

Thank you. (Operator Instructions) Your first question comes from the line of Andy Wittmann representing Baird. Please proceed.

Good morning.

Good morning, Andy.

Good morning, Andy.

Hi. I wanted to dig into the soil sands contract. I'm sensing a lot of optimism from you both. Maybe if you could just give us maybe a sense of the magnitude of that. It sounds like its going from probably a lot of players to fewer players. What's the annual opportunity at this site with this contract? And how do you think investors should think about your share potential at this contract?

Well, Andy, the total really that people are talking about is in the hundreds of millions of dollars of NDT business, because it's not only this one, there's also a lot more in line. A total sale for us, we'll try to capture as much as we can.

Yeah. I think that's right. I mean, you're talking about hundreds of millions of dollars of NDT spend in the Canadian oil sands region at the new particular customer. There's more than perhaps $100 million of spend at that particular customer. And since we're one of a handful of qualified vendors for that site, we think we should be able to get a representative share. As we said in our remarks, this could become one of our largest contracts in the company.

Got it. So in terms of -- I mean, we heard last quarter that you are moving into Canada to take advantage of these types of opportunities. How do you balance finding the personnel to staff this up knowing that this is a new geography for you; as well as, it sounds like the significant start-up cost that hit this quarter, can you give us a view as to how those will change over time as you get up to speed? And really kind of where are you on ramping this project right now, and just in terms of how we all should think about the contribution as we move into fiscal '15?

Andy, my second answer will be basically the same as before is that we'll do the same thing we did in Alaska, we'll do it again. We have performed in many evergreens throughout the years and we'll perform again.

Yeah. In terms of the staffing, Andy, I mean, we've had to step up ahead of this in order to be a credible provider to this customer. Certainly, we had to have at least a certain amount of critical mass and gravitas to be able to justify confidence in our company to gain -- to get them assigned and on with us. So we've had to do that. We've had to spend; we've had to do conversions of non-union personnel to union personnel as the year has gone on. So we've been quite busy. We're still layering in infrastructure to make sure that we can really get out of the gate strong. So, I think in the fourth quarter certainly we've incorporated the initial start-up cost, which should be $2 million or $3 million, let's say, in the fourth quarter. But I think the goal is to really commence the revenue stream toward the end of the fourth quarter and be able to get into fiscal '15 having revenues that more than offset cost.

I think its important Andrew to stress also that these contracts are very attractive because they are not really short-term capital projects. They are really long-term contracts. So the employees know their future. So we did it in Alaska, we have done it many before, we'll do it again. Now there is always a case where more the business the more trouble you'll have in recruiting people, but I think so far we have been successful in doing it. And we have convinced our customers that we have done it in the past and we'll do it again.

Yeah. That's a good point. It kind of feels like what's happened in Alaska and Canada is maybe not that dissimilar from what's going on with Total contract in your international business. It sounded like -- and maybe the question here is, it sounded like you're starting that one a little bit later than you thought. Maybe can you give us a sense about what the annual revenue contribution is to that one? And this also seems like you're suffering -- not suffering, but you've taken the short-term pain as you're starting this one up. This seems like start-up costs are in excess of revenues. What's that profitability ramp look like and what's the opportunity that investors should be thinking from that type of contract in the end of '14, moving into '15?

Well, I think that the profitability opportunity is certainly very exciting for us in the new Canadian contract and in that region. So we're excited about, first of all, the relationship with the customer, the growth potential that it affords us, certainly the profitability opportunity, we're excited about all of it. I hesitate to quantify anything right now only because we're in such an early stage. I mean we've literally just got the contract last week, and we'll be going up there later this month to get with the customer and really start to get launch. So we don't really have a great visibility yet as we speak into what the slope of the line will be during the next couple of months. But I think given three, six, nine months from now we'll start to have very good visibility into what the revenue ramps going to be. In terms of profitability, we're confident that the contract will certainly be at or higher -- in line with our corporate margins.

And it's really important, Andy, to also stress that this customer knows us because we have done a very good job for them before.

Right. Yeah, I was talking in the international business in France particularly. That seems -- you mentioned there's a start-up delay there, Sotirios.

Yes.

I just wanted some kind of your view on when those burn off and when me might see the profitability shine through in the international segment.

Yeah. The problems you have also in international is that whenever you really put new employees in a new contract like we had, it takes time because they have contracts and they really are delayed a lot more than they will be delayed in America. In America we can get somebody in a week of two weeks in, but in France you might need three to six months of time.

Yeah. But to answer that question more specifically, Andrew, I think what you're looking for is the cost were a bit ahead of the revenues in Q3, maybe a $200,000 or so. In Q4, we'll be able to make a profit on that contract as the revenue start to flow, and beyond that we'll -- we should be nicely profitable. In terms of the revenue size, it's quite material in France in terms of -- to Mistras overall. It's a good contract, certainly a healthy contract, but not one of our largest one corporate-wide.

Got it. Okay. Thank you. I'll leave it there, maybe jump back in later. Thanks.

Thank you.

Thanks you, Andrew.

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

Hi. Good morning. This is actually Saagar on for Tahira.

Hi. Good morning.

Good morning.

Hi, morning. So, I know lot of -- I know the first few questions tried to get some gauge around the size of the contract, and I'm pretty sure you guys don't want to give that out. But can you give us some more color on maybe what the -- again, what the average size of a contract is in terms of annual contribution in your services segment, so we can get some idea of maybe the size, potential contribution from this contract once it does ramp up?

I mean, on the average an evergreen contract for us might range in the $5 million to $10 million per year annual revenue range. And this contract has potential to be many times that.

Perfect. Thank you. And then, Sotirios, I know in your prepared remarks you went through each of the segments and gave all the color on the opportunities and why you guys have won, specifically within that you mentioned with your asset integrity program, LNG export facility and GTL facilities. Can you just give us some more color on -- it seems like you've won your first two projects in that area, what the size of opportunity could be there going forward over the next few years?

As we all know, really the oil and gas has a lot of capital projects in mind as these capital projects continue to emerge, because some of them, if you remember, were cancelled. So as these really come in, I think we're a key player in gaining our share of business. And, in our case, we combine not only basic of the entity, but we also combine, as I mentioned, AIMS, asset integrity management software also in between.

Okay. And then lastly on my part, you also mentioned fall turnaround work pretty quickly saying that you've already secured work from some key sponsors. If you were to look at this -- if you were to compare how you are looking at fall turnaround at this point this year versus the same point last year for the 2013 fall turnaround season, what would be your commentary about year-over-year?

Yes. My commentary would be that this year will be better than last year.

Okay. Sounds great. Thank you very much.

Thank you.

Your next question comes from the line of Tristan Richardson representing D.A. Davidson. Please proceed.

Good morning, guys.

Good morning.

Good morning, Tristan.

Just kind of curious, I mean aside from the project in France and start-up costs there, I'm curious, Sotirios, you talked a little bit about Germany. And I'm curious, is Germany growing currently, your operations in that region?

Yes. The German business basically right now is not really growing, but it's not going down either. What we had done in that area is we certified two brand new laboratories and we have a lot of hope for that. Whenever you do destructive testing, you have to have [NATA card] [ph] and other certifications. And sometimes in America it might take a year, abroad it might even take 18 months or even more. I think (inaudible), then we hope not this, the fourth quarter but starting with a new year we're hoping that this -- that's why I mentioned quotations. We're going to start doing a lot of work because the customer gets promises at work. And that's why we made the investment that we made.

Sure. Now that's helpful. Thank you. And then, I guess the same question sort of when you look at Brazil, I mean obviously with the offshore contract the growth prospects there look better. But I mean, should we think about Brazil as sort of a double-digit growth type opportunity next year, or is it still too early to say?

Brazil, basically we have invested over the years and right now our strategy is very simple. Right now we want to see Brazil more profitable rather that more growing.

Okay.

Yes, yes. The growth prospects I think certainly are there. There's lot of bidding activity and so forth, but the economy in general, as everybody knows, is kind of hard time. And so, as Sotirios said, our focus right now is on making sure we can be quite profitable given the volume of business we have there.

Okay. Now that's helpful. And so, I guess I'm just trying to wrap that all up and think about where the biggest opportunity in your international segment is. It seems as though it is this new contract in France seems to be in the most immediate near-term going to be the growth driver for the international segment, is that fair?

Yes. Remember also that the nuclear energy in Europe also going to be growth for us. No longer in France, but also the same customer we have in France is now doing business in United Kingdom.

Okay. That's helpful. Thank you guys very much. I appreciate it.

Thank you.

(Operator Instructions) Your next question comes from the line of Matt Duncan representing Stephens Incorporated. Please proceed.

Good morning, guys.

Morning, Matt.

Morning. You made it.

I did. Just -- actually just jumped on, so I apologies if some of this has been asked. But I think you guys were asked about the size of the opportunity in Canada, maybe I can come at that a different way. The contract that you announced last quarter with BP, my recollection is a $40 million to $50 million opportunity. Is the opportunity Canada similar to that in size?

It can even be higher than that, but I think we really need -- these contracts don't happen. In Alaska we had been for almost four or five years, this contract doesn't happen all of a sudden. They ramp up, so -- and as a matter of fact, it’s the best approach to ramp up because you really train the people properly. Safety is an important issue. And so, therefore, the ramping up is very, very important in this contracts. So I think based on that I think we'll take some time.

And Sotirios, how should we think about that ramp? You're adding the cost obviously now. The ramp will come as the resources that you add there get busy. Is it something that could weigh on margins a little bit early in your fiscal '15 before it starts to level out, or how should we think about that?

Yes. I mean definitely, in fourth quarter '14, as you know, and as we've talked about, we've reduced guidance because of that very factor. In the first quarter of fiscal year '15 I think there's still a possibility of some drag due to that reason, but as we get further into the fiscal year that should burn off we should be able to more than offset cost with revenues.

Okay. Jon, sticking with cost for a minute, you've been in those drops about six months now. As you've looked at the company's cost structure where do you see opportunities to maybe reduce some expenses and get some good operating leverage out of what should be an improving revenue growth environment going forward?

Well, that's great question, Matt. I think the biggest opportunities have to do with our processes. And certainly, we're working to develop a strategy right now to really modify today's more manually based processes and to move more electronic and get mobile input. And so, we're sort of forming this three-legged stool really centered around processes for the timekeeping and billing within the U.S. services and Canadian services business. We've got the international side where, Sotirios alluded to in his comments; certainly we've got some cyclical things happening with the German labs getting certified, certainly with economies improving, with the French contract starting up. But also to an extent if we need to do some rightsizing in some markets, for instance, potentially in Brazil, we'll be doing some of that as well. So I think there's considerable margin accretion possibilities in Europe. And then finally, back to the U.S. side, U.S. and Canada, we're very focused right now on margin growth. Our team is extremely focused on driving improved margins, gaining additional leverage. We've made some investments during the current fiscal year, which are beginning to pay off in terms of some sites and people in order to grow the business. And we'll be looking to realize on those investments while limiting cost growth from here on our fiscal year '15. So I think there's several levers that we're looking to pull.

Okay. So well, Jon, I certainly understand you're not ready to give guidance for fiscal '15 yet. It would be safe to assume that there are good margin improvement opportunities out there for you in fiscal '15 then.

Yes, I'm excited. I mean, I think that in fiscal '15 and beyond we have ample opportunities to really grow margins from here.

Okay. And then, last thing for me guys. So Sotirios, if you could give us an update on the M&A environment. Did you guys close any acquisition during the quarter or may be subsequent to the quarter and what are you seeing out there on the M&A landscape right now?

Matt, it continues to be robust in some cases. And we'll continue to really -- to get companies that are more of the bolt-on type companies for us. And we find something that really has some different market that we don't have. We'll go after it. And nothing really has changed on our strategy. We hope that we probably can buy three or four, maybe six companies a year. But all of them basically have to fit our model. If don't fit our model, we're not going to make the acquisition.

Thanks guys. Appreciate it.

Thank you, matt.

There's no further questions at this time. I would now like to hand the call back to Mr. Vahaviolos for closing remarks.

Yes. I would like to really thank every one of you, and have a great day.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.