Good day, ladies and gentlemen, and welcome to the MISTRAS Group Second Quarter Fiscal Year 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I’ll now turn the call over to your host Sotirios Vahaviolos. Please go ahead.

Stephanie, thank you very much. Good morning to all and a Happy New Year. In today's call, we will review MISTRAS Group’s financial results for the second quarter of fiscal year 2015 that ended November 30, 2014 and discuss our prospects going forward. I’m very pleased with our second quarter. MISTRAS achieved record quarterly performance in several important categories. We achieve more than $10 million of net income. We earned $0.35 of earnings per diluted share. We earned more than $28 million of adjusted EBITDA and we earned total revenue growth of 32% over prior year, 14% of that organic for a record quarter of $207 million. This record performance was driven by our services business, which experienced year-on-year operating income growth of nearly 40% and revenue growth of nearly 48%. Services revenue growth was still close to a 50-50 split between organic revenue growth of 22% and acquisition growth of 26%. Our organic growth was driven by healthy fall turnaround season, project work for a handful of large customers and the year-over-year impact of last year’s Alaska contract, which recently achieved its one-year anniversary. Our recent acquisition The NACHER Corporation has performed our initial expectations has outperformed our initial expectations and help to drive our revenue growth of acquisitions, it was a mid 20% from the mid teens in the first quarter. Now the NACHER is an integrated part of our team. We are even more excited about our offshore business growth prospects and the demand for NACHER’s high pressure water blasting, a new and complimentary entity inspection services. Our Canadian oil sands region start-up initiative remains positive even if progress has continued to be slower than we would like. As previously mentioned, we remain confident that our maintenance dependent Canadian business will pick up in the second half with the fiscal year. We’ve been asked by many people about the volatility of energy prices and the expected impact, if any, upon our market and our Company. In our oil and gas segment, MISTRAS’s main business is on the downstream refinery operation side with the major integrated and independent energy companies. Here we have -- reoccurring the revenue growth contracts in place to provide regular maintenance inspection services enabling safe and reliable production. With a drop in crude oil prices, refinery operations are leveraging advantaged switchback and running their units at higher utilization rates in order to leverage improved crack spreads. There is continued demand for gasoline, jet fuel, diesel, heating oil. These products tend to lag oil prices and are more stable due to fixed refinery capacity, thereby supporting refining margins. Because of these drivers our customers tell us their operating budgets that fund our services will remain intact or may even increase. To improve profitability we continue to press forward on several operating initiatives that Jon will discuss and as our team knows these are my top priority. And now I’ll turn it over to Jon, who will cover the Company's summary financial results. Jon?

Thank you, Sotirios. I will 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 yesterday. These reports are available on the Company's Web site in the Investor Section and on the SEC Web site. First, I’ll summarize our second quarter financial results and first half cash flow. And then I’ll comment on our initiatives to address our profit margins. Revenues for the second quarter of fiscal year 2015 were nearly $207 million, or 32% higher than in the prior year driven by 48% growth in our services segment of which 22% was organic. These gains were offset in part by revenue declines in our international and products and systems segments of 5% and 13% respectively. Sotirios mentioned the drivers for the strong services performance. The international segment had a 5% organic decline driven by FX impact and by a tough prior year comp that included a large and profitable U.K. wind energy turbine project and a large product sale in Russia. Also impacting revenues adversely for international in the second quarter were a refocus in Germany upon more profitable projects and continued market challenges in Brazil. The products and systems decline reflected a focus on more profitable opportunities as operating income was consistent with…

Thank you, Jon. As always, I am proud of my team. They have recognized the opportunity in front of us and have created a plan that we’re following to drive improve results. And now we will update you on some key developments in our business. First, our Services segment. The second quarter yielded a very strong and diverse mix of projects, span across industries that included both additional and advanced inspection services as well as engineering and application software design, and implementation services. Specifically, our North American midstream business was especially strong with 15 new pipeline and terminal project awards, many of which are Canadian. These projects will also include such advanced services as automated UT, mechanical integrity, damage reviews and procedure development supported by our proprietary plant conditioning monitoring software, our PCMS software. Our chemical business was strong with several new contracts from major multinational customers. One such project is the selection of our PCMS software as the U.S corporate standard for a major European-based chemical company. Our refining business secured to new January turnarounds. Our in-house component inspection business secured a large order to inspect railcar wheels used to transport crude oil. In the power generation sector, we became the primary inspection provider of pressure vessels for a national utility and we gain a multi-year inspection contract for a top five utility company. We also secured two capital projects for the construction of natural gas combined cycle plants. Our products and system segment continues to focus on its business pipeline of aerospace, automotive, power and chemical industry opportunities, and focusing on higher margin product lines to improve second half profitability. A major elected utility order several of our advanced monitoring system, solution packages to be integrated into their centralized monitoring and diagnostic center to perform online monitoring of…

Thank you. [Operator Instructions] Our first question comes from Matt Duncan with Stephens. Your line is open.

Good morning, guys and congrats on a great quarter.

Thank you, Matt.

Thanks, Matt.

Sotirios, you gave us I think a lot of color on what’s been driving the strong organic growth in the services segment. It sounds like the Alaska contract is certainly a contributor. But can you talk maybe a little bit more were there any specific large projects that you guys had in the fall that helped that may not repeat or was this really just a good indication of the momentum in your business?

Actually, you know, Matt the turnaround were really standard turnarounds that are used to be in the old days, okay? Things did not stop at any point because of cost. Anything else people really received the services that we always give. And so that was really -- they were what we’d like to call them healthy turnarounds. That helped a lot. Plus also some new business that we created during this quarter.

Okay. Can you talk about NACHER? It sounds like maybe it’s doing a bit better than you thought it would out the gate? How much revenue did it contribute in the quarter and what’s the outlook like for that business?

Jon, go ahead.

Well, Matt we’d rather for competitive reasons not provide precise numbers. But I will say that the reason that we went from the mid teens to the mid 20s in the acquisition growth year-over-year from first quarter to second quarter was primarily NACHER. The outlook is very positive. We are very excited about the business. We think that NACHER, our customers are telling us NACHER has unique attributes that they're excited about. But having said that, it’s a new business to us and we're just getting learning their seasonality patterns and so forth. So it’s little bit tricky for us looking forward to really specifically guide you.

Okay.

I think in the future also we hope that, that would help our entity business in the offshore business that is very, very minimal at this stage.

Okay. Looking at the guidance for a second guys, the guide on revenues implies the second half would be below first half and I suspect that there is probably some level of conservatism in that. But is there any reason to believe that you had things happen from a revenue perspective in the first half that you can’t repeat in the second half? Or should we really view this as more of just a conservative approach to guidance?

To start with, Matt, basically we -- as we said before, we expect that the fourth -- in the second and third, in the third and the fourth quarter we’re going to have good turnarounds again. But remember from our experience in the last couple of years, we are very optimistic after the second quarter and then the third and the fourth quarter were really below par for what we expected and the customers really do not do as much work as they are supposed to do. So we’re a little bit conservative. We are based on past records; we think that the market is there. The turnarounds are there, but we just hope that the customers are going to spend the money.

Okay. And then last thing and I'll hop back in the queue just on price, I knew you guys had put a wage increase through back in June. Jon, I appreciate maybe for competitive reasons you don’t want to give us too much detail here, but just in broad strokes are you getting enough price to help make up for the wage inflation that you put through and maybe just give us an update on that process?

Well, the process is going very well. Our team is in discussions with customers. There is a couple of dozen of these conversations going on. They’re all progressing apace. We feel very positive about where they’re heading. And in some cases we’re having very innovative discussions being very creative with our customers in ways that we can mutually solve each others needs even better than we have been. So we feel very good about it. At the same time, we did cite the labor inflation pressure in the first quarter and the timing of our increase. You’re correct to allude to that. I think the expectation might be that with the price of oil declining that might take a little bit of the edge off of some of the inflationary pressures that we're experiencing. But we'll see how that plays out.

Okay. Thanks, guys.

Thank you, Matt.

Our next question comes from Andrew Obin with Bank of America Merrill Lynch. Your line is open.

Yes, hi. How are you? Congratulations on a good quarter.

Thank you, Andrew.

Thank you.

Can you talk a little bit more on what specifically you’re doing inside the Company to control SG&A cost? I know you’ve sort of refocused compensation, but can you talk about specific initiatives, how you’re changing the way the Company is operating to put maybe more cost controls to take advantage of all of the growth you’ve had over the years?

Go ahead, Jon.

Yes, thanks. Sure, Andrew. Thanks for the question. You’re correct about the compensation program. We’ve more closely aligned the management compensation incentive program with operating income margins and growth and operating income, and I think that, that’s just beginning to play out and will have a big impact going forward. But in addition to that, on a global were all of our teams are looking at operating expenses. We are doing careful reviews, particularly, in the international and services segments where we’ve been acquisitive in the past. This is a great time to sort of circle back and look for efficiencies that can be gained from combining duplicative redundant functions or efforts. So we’re undertaking that kind of review.

And just a question, I guess, on labor costs. I’d imagine with what’s happening with energy prices some people are being freed up and it’s a benefit to you, but the same dynamic can work against you, right? Was this decline in energy prices -- what we’re hearing from a lot of companies, they want to go to their service companies and demand much better deals so that’s the flipside of you guys were discussing. How are you going to deal with that?

I think, first of all, Andrew, the last couple of years they got all the support that we gave them in reducing the prices. I think right now where we’re and there is not going to be any labor as you suspected before. And we believe that the prices will remain where they’re, if not better it.

Yes, I think Andrew, what I would add to what Sotirios just said is that from a wage perspective, while it’s true that there are perhaps potentially some people who are being displaced right now within the oil patch or oil services industry. Remember that, within our group we use certified technicians and there is a shortage of those people. So I don’t expect that there is going to be a big impact upon our market because of the limited supply of very qualified individuals that our industry depends upon.

It might be in some regions. It might be some difference in regions, but right now let’s call it neutral. We believe that it’s really neutral at this point.

That’s right. And in terms of our pricing for our services and so forth, I mean, if anything the need for our services we believe is going to increase, because of extension of life, because of busier refineries with increased demand that accompanies lower-priced patrol products. And so we don't see any demand slack in the offer of products or pricing pressures.

Thank you very much.

Sure.

Our next question comes from Andy Wittmann with Baird. Your line is open.

Hi, guys. Good morning.

Hi, Andy.

Good morning.

Hey Jon, just on the guidance, you tweaked the revenue guidance up, the EBITDA guidance stays the same. That implicitly means that maybe you’re a little bit more cautious on the margin profile. Against the initiatives that you’ve got going on across the Company to improve the margins, how should investors reconcile that?

Well, we -- well its true that we maintain the range of the EBITDA range that we’ve given. We did say that we expect to be in the upper end of that range. So for us, I think that revenue we do expect it will be a little bit above that range as we’ve said, but we also increased our expectation of where EBITDA will fall. So I don’t think it’s a material difference.

Okay. And then, just in terms of creative approaches to get after as you work with your customers in these discussions about how to best suit their needs while meeting your return goals on specific projects, can you talk about different contracting styles and risk profiles that you might be employing and what that could mean for your business and your financials going forward?

Basically Andy we always tried to attempt to really change the way we do business and trying to improve, because in this particular case we’re trying to improve our profitability. Some of the measures that we’ve taken is not -- is really normally just on the run and maintain areas where you’ve really nothing more than time and material. In some cases there might be some benefits, there might be some bonuses that we can really create for the customer and ourselves. And that’s as much as we can say on this call, okay?

Yes, in general, Andy, we’re trying to do is just make sure that we improve our alignment with our customers objective.

That’s exactly.

And as they succeed, then we succeed. And so it’s a virtuous relationship and it just strengthens the relationship between us and creates more value for both.

Are you open to looking at potentially doing more fixed price contracting work in circumstances where you feel like you’re better positioned or can manage that risk?

In areas where we’ve years of experience and the specific example -- specific examples we will do that.

Got you. And then just as we move into the oil sands I know that’s been an area of focus and I believe you started actually getting to work on some of those contracts now. Can you just talk about the ramp that you’ve seen so far and that you expect in the year ahead? Is this expected to be a substantial growth driver as you finish off the year, or a modest growth driver recognizing that, in the last year you’ve won the Alaska contract, which now is anniversaried and this was kind of seen as the other big one. I guess just as you look at the top line, how much of a factor is the oil sands contract that you signed?

Okay. First of all, we see modest increase, okay? And that’s as we said, we see modest increase, but what is important also Andy to mention because this question was before is that the past two or three years we’ve really mentioned that we try to diversify. Our oil and gas business now is below 60%. If we take the oil and the chemical industry, we’re below 6% where we used to be above 70% before. So we’re really doing all the things to -- the oil continues to grow for us, bringing us growth, but other areas grow faster than the oil and gas. Power generation, for instance, is a key area for us, that we really like to spend more and more time. And we have already received contracts for that as I mentioned in the earnings call. So that’s really how we’re trying to really predict the future.

Got you. Maybe just one last one for me, I guess, for Jon. And Jon, just on the cash flow, it sounds like you got the $20 million receivable in December, so that kind of makes sense and gets you back to probably closer to where you want to be or maybe above, but as you look over the last or the next year or two, balance sheet leverage on a debt to EBITDA basis on a trailing basis is over 2 times. I think you guys had said that you’re a little bit closer to 1 times. Can you talk maybe, two angle to this question, about kind of cash flows that you expect over the next year, two years and what does it mean for your ability and your desire to go after M&A targets recognizing that you do want to deleverage?

Well, first I’d say that we just as I said in my remarks, extended and updated our revolving credit facility. Our banking group was extremely helpful. We were able to execute that amendment, thanks to our excellent banking group, very quickly within a month. And we did slightly increased the amount of aggregate debt we can have under that facility to three in a quarter times from the previous 3 times trailing EBITDA. And the banking group indicated they would be willing to go even higher than that under certain circumstances. Having said that, so we have ample flexibility. Having said that, our desire would be closer to one to one, just because it gives us more flexibility going forward so that’s another terrific opportunity like NACHER Corporation comes along we would be able to have the flexibility to pull the trigger and act on that kind of opportunity. So we’re going to work back toward one to one. My expectation is that we will be closer to 1.5 than 2 by the end of the current fiscal year and that we will work it down from there.

Okay. Well that’s still pretty good cash flow. And so, I mean, if EBITDA is $80 million-ish and you’re over 2 times now, you’re looking at somewhere like $100 million, then to -- or $80 million to $100 million to get down to that level. Is that -- is there something wrong with that math that we’re thinking about there?

Well, as I said, we’re about 1.9 as of November 30th times projected EBITDA and we had a very good pay down in December that we think will mostly hold for the Q3. Of course there will be working capital utilization as we continue to grow. But again, I expect that it will be closer to 1.5 times our full 2015 EBITDA by the end of the fiscal year and that will go down from there.

Yes, Andrew, if I summarize this okay, our base is really one. That’s our base. But at the same time, opportunistically we’re looking for -- if there is an opportunity, we will go after it as we went after NACHER. And we’ve the banks support us.

Yes, okay. And that makes sense. I think I found the discrepancy that Jon is kind of the way you’ve looked at the metric versus the way we did. So you’re at 1.9 getting down to 1, so that cash flow is more modest than the math that I was suggesting earlier. So that makes more sense. Thank you guys and have a good day.

Thank you.

Thank you, Andy. Thank you.

[Operator Instructions] Our next question comes from Tahira Afzal with KeyBanc. Your line is open.

Thank you very much. And congratulations for a great quarter.

Thank you, Tahira.

Thanks, Tahira.

My first question is, folks can you give me an idea as you look through your businesses how much you would consider recurring as in inspection services, maintenance services, really tied to existing capacity versus new ones coming up?

Okay.

I’m not sure we quite understood the question.

Yes, sure. So an example is there is an Airbus plane coming up, a new plane that would be something tied to something new. But some -- you’re not going into a refinery that already exists?

Basically as we mentioned Tahira, since you mentioned Airbus, that’s an area for us, because the A350 is coming into production. So we hope that our German business, especially destructive testing will increase and be more profitable. In the case for instance in France that I mentioned, the EDF electricity to France is a new business for us. We never had the nuclear business in France and now we’re entering that area with a couple of small acquisitions. All of this thing will give us more. At the same time, in the United States and Canada, we would be looking -- we will continue to be looking at opportunities as they come in front of us. And in some cases, as we did in Canada, if we have to reinvest, we’ll try to invest.

Got it. Okay. And then, if I look at what the CapEx trends might be in oil and gas for the next couple of years at least, clearly it doesn’t look like a good picture. And that means whatever capacity is there, there is going to be more effort maybe plowed into maintaining it and etcetera, so that should play into your expertise. So can you talk a bit about areas you feel you can get bigger in potentially in terms of adjacent end markets like you have in NACHER, if there is more capital allocation to really maintaining the current asset base on the oil and gas side?

Well, we’ll continue to -- of course we’re playing on the oil and gas, because that’s our – 60% of our market, okay? But at the same time, keep in mind that we have become a good player in the chemical industry, as well as in the power generation industry.

Right.

And we will continue to do that. Aerospace also is in double-digits for us for the first time. Now these are areas that five years ago we do not have. So we’re trying to basically continue to play on the oil and gas, but at the same time diversify. And I think it's the same thing that we have discussed the last couple of years, when you diversify, of course sometimes you’ve got to make investments and that’s really what we have to deal with.

Yes, what I would add to that Tahira is that, the investment we made in NACHER and the investment we’re making in the organic growth in the Canadian oil sands. We believe we have an awful lot of running room in both areas. There is a big opportunity in both spaces for us that’s incremental in terms of the growth perspective in addition to the areas Sotirios has spoken about. So really we’re not sitting here scratching our heads, worried about how we’re going to grow. Most of the effort right now is really on maintaining and driving improved margins and profitability with the business as we grow.

Got it. Again, last question on that and I’ll hop back in the queue. Jon and Sotirios, when I look at products and systems, clearly you’re rationalizing and we’re starting to see that on the margin side. When do we start on the revenue side seeing sort of stable comps going forward? When should we look for that inflection?

Basically as we’re moving more and more not on capital projects, but things that people really need like I mentioned the area in the power generating business where really -- where they have -- they put a lot of information technology in their plants. That’s where it’s really helping our growth in the products. Our products really are not a commodity anymore. They’re really solutions oriented kind of -- we’re really giving solutions for the customers and that generates the growth of our products. So you’re going to have this lumpiness that go up and down based on the solutions that we provide and -- but at the same time, you have to remember that products is not a very high growth area for us or for others in our industry.

Yes, that’s right. What I’d add to that Tahira is that in products our team has done a very nice job of rationalizing some costs. There is probably a little bit more than we can do recognizing, as Sotirios just said, that is not a high growth area for us. Its an area that we can be opportunistic and we can really ensure that we’re performing high value added activities with our customers and realizing good margins from it, but also cognizant that we need to maintain a lean cost structure there.

Yes, it’s also a resource for us for our services. Keep in mind that the products group provide some proprietary products for our services group that are a lot better and more efficient. So that also helps our Company.

Got it. Okay. Thank you very much and I will hop back in the queue.

Thank you very much, Tahira.

I’m showing no further questions. I’ll now turn the call back over to Sotirios Vahaviolos, for final remarks.

Well, thank you very much. Thank you very much. That concludes our prepared remarks and I’d like to thank everyone for listening. And we wish you a great day. Thank you very much.

Ladies and gentlemen, that does conclude today’s conference. You may all disconnect and everyone have a great day.