Good morning, ladies and gentlemen, and welcome to Mistras Group's Earnings Conference Call for its First Quarter Ended August 31, 2016. My name is Candice and I will be your event manager today. We will be accepting questions after management's prepared remarks. Participating on the call from Mistras Group will be Dr. Sotirios Vahaviolos, Chairman and CEO; Jon Wolk, Senior Executive Vice President and CFO; and Dennis Bertolotti, Mistras Group President and COO. I will now hand the conference over to Dr. Vahaviolos. Please proceed.

Candice, thank you very much, and good morning to all. In today's call we will review Mistras Group's financial results for the first quarter of our fiscal year 2017 that ended on August 31, 2016, and discuss our prospects going forward. For nearly two years, I have been speaking about challenge in market conditions imposed by low prices, oil prices and the many actions we have taken in recognition of these challenges. We remain focused on three things: first, helping our existing customers realize more value for their inspection services spend while engaging in discussions with potential customers to do the same. Second, reducing our costs by eliminating wasted time, wasteful processes, and in some cases, managers would choose not to focus on either of these first two priorities and third, pursuing multi-year evergreen contracts like our new Safran contract. Our performance in the first quarter for fiscal year 2017 was in line with our expectations. The 6% revenue decline reflected the time of customer produce within a week overall market. Our gross profit and adjusted EBITDA margins continue to improve and our cash flow remained very strong and our balance sheet got even stronger. Our long term outlook remains extremely promising. Cash from our assets are aging, inspection and maintenance needs are growing. Conversation with customers and prospective customers indicate that the potential for organic growth for market sale gains is abundant. Our new contract with Safran demonstrates the importance of our growing aerospace business in Europe. Our acquisition pipeline is promising and our balance sheet provides us with many options for future growth, but our near term outlook in North America where most of our revenues come from oil and gas customers has become clouded. Many customers have growing inspection needs but they are choosing to reduce costs for now due to their ongoing economic challenges. As Dennis will explain in more detail the fall season looks weaker than we expected causing us to lower expectations for the remaining of current 2016. While this is disappointing it serve as a reminder we need to double our efforts for the upcoming spring of 2017 so that we hit the ground running with some new customers, new acquisitions and improve growth prospects in our existing customers. Jon will now explain our results and then Dennis will provide more color on our operations. Afterwards, I will close and then we will take your questions.

Thank you, Sotirios. I remind everyone that 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 which 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. The discussion in this conference call will include certain financial measures that were not prepared in accordance with U.S. GAAP. Reconciliations of these 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 website in the Investor Section and on the SEC website. Revenues for the first quarter of fiscal year 2017 were $168.4 million, 6% below the prior’s year Q1. Organic revenues during Q1 contracted at approximately this level as the negative impacts from foreign exchange and the absence of revenues from two small prior year dispositions was mostly offset by a small amount of acquisition related revenue growth. Services Q1 revenues declined by 8% compared with the prior year driven almost entirely by negative organic growth stemming from the timing of customer projects, a tough prior year comp and a lower overall market for NDT spend. International segment Q1 revenues grew by a net 2% as mid-single digit organic growth was slightly reduced by foreign exchange and dispositions. Products and Systems revenues had an organic contraction in Q1, driven by lower sales volumes. Despite the challenges imposed by lower revenues, the company’s profit picture remains strong. Net income for Q1 2017 was $6.6 million or $0.22 per diluted share, both levels within 4% of the prior year’s record Q1 performance. Gross profit margin reached 29.7% or…

Thank you, Jon. I will now provide updates on our business segments. Our global team has continued to perform well in this tough market. I will provide some color on key developments in our business. In our services segment, approximately 60% of services revenues are in the oil and gas sector, and this market remains challenged. The price of oil remains in the 40s at a level where many of our oil and gas customers are spending less. We continue to meet with both existing and prospective customers, identifying ways to improve their productivity and the value that we provide them. Services had a first quarter where revenues finally contract in line with the challenging market after outperforming throughout fiscal year 2016. Revenues declined by 8% in Q1. I mentioned in our last call that services benefited from the timing of customer projects in our Q4 that ended in May 2016. The way the opposite impacts in the first quarter of fiscal 2017. What’s causing our reduced near term outlook is that several customers have reduced the scope of their fall turnarounds. And although we had a very promising sales pipeline, we expect that the timing is such that the impact of these scope reductions will not be completely offset in the remainder of the fiscal year. On the other hand we feel optimistic that our growth will resume in calendar 2017, driven by some increases in work scope and some modest lift from acquisitions. After the quarter ended, we completed one acquisition of accompanying their performance at the mechanical services outside of the Oil & Gas sector, and we have several others in our pipeline. Even though Services short-term growth outlook is negative, we are sticking to our disciplines on staffing and spending, which will enable profit margins to…

Thank you, Dennis. We continue to study this market, and more importantly, to interface with our customers and our prospects to determining the best way forward. We believe that our strategy will provide them the best value, productivity and safety throughout diverse network of thousands of multi certified technicians is the right one even though we experience a temporary decrease in business levels. We believe that our focus on running the highly efficient back-office with strong content management capabilities, be it business leaders who believe behave as business owners is the right one, and it has helped to drive our profit margins in this difficult environment. We believe that recently [ph] diversifying our business has been the right strategy as evidenced by our strong European performance, which we are grateful for, and we continue to seek acquisitions that will grow our franchise and allow us to diversify at the same time. It never feels good to have to scale back the performance expectations even if it is only as we expected for a short period of time, but we feel we have the right strategy and the right team in place to achieve outstanding results in this market and in any market. Our customers have big challenges, and we are the solution provider that can be counted on to protect their assets in calendar 2017 and beyond. As always, I extend my personal thanks to our management team, our loyal employees with their commitment to safety and quality and our loyal and value customers and shareholders. Candice, please now open the floor for questions.

Thank you. [Operator Instructions] And our first question comes from Andrew Obin of Bank of America. Your line is now open.

Yes, good morning.

Yes, good morning.

Good morning, Andrew

Just a question on the impact of rally in the oil prices. I mean, I do understand that crack spreads have come under pressure and we have seen delay in turn around, but when do you think you'll start seeing benefit of high energy prices in the rest of your energy expose business?

I think the rest of the business, you mean the rest of the Oil & Gas, you are talking about?

Yes, yes the rest of Oil & Gas, yes.

Okay. This is Dennis. We don't have a good prediction of when it will come up but we can see the fall being slow, but we don't think that they're going to continue to stay too slow. We expect 2017 to start coming up if the oil price gets to be $50 and above. Obviously that will spread a little bit more, but there is more talk about2017 being closer to a normal season where 2016 the fall is just kind of flat.

Yes. And in terms of -- Andrew, this is Jon. In terms of oil prices, I mean it's always hard to just take a specific price or a range. I think that the direction in the last few weeks has been encouraging. The talk in the Middle East about maybe limiting supply is also encouraging, and that's given the market a little bit of a lift. If that continues to be the case that we can extend the rally and get to the mid-and upper 50s and beyond, I certainly think we feel that customers will get perhaps more confident and be more willing to spend also.

Its worth, Andrew. If we see the pricing in the $60s and $65, then you will see a lot more spending in the --your refining business.

And how do you manage your drive for efficiency with refiners, given that sort of they are under cash pressure? Just how do you work out this balance between pricing and sort of delivering good margins?

Andrew, the talk is really on spend. What we try to do is we focus on what we spend within last year versus what we did and what else we can do for them. So we do things like we have key performance metrics they're called KPIs, key performance indicators, and it shows productivity and other things. And we benchmark that against this year, against last year, against competition. It's a good way to improve our value and we also do things like right now, it's an open market. They're looking for ways to save in anything from mechanical that supports inspection to whatever it is. So you're looking at the total spend. If you can put guys on ropes [ph] as opposed on spending money to use scaffolding or something like that, you're saving the money. So anything you can do to show that they can get their entire job done for less money there's value in it. So we benchmark all of those things and show the customer how their total spends is going to by using a bundle with the technology and ideas that are different.

Thank you very much.

Thank you. And our next question comes from Andy Wittman of Robert W. Baird. Your line is now open.

Good morning, guys.

Good morning, Andy.

Good morning, Andy.

I guess, I want to just get a little bit more detail from you about kind of what you can do or what actions are in place or what plans are in place to deal with this new outlook in the near to intermediate term. You guys, clearly last year, particular in the International business kind of restructured how that business goes. So, I guess, question is what are the ongoing activities in the spirit of continuous improvement or in reaction to softer near term environment that you guys are doing to help offset some of the top line pressures that you are seeing?

Yes thanks, Andy this is Jon. It's good question. It's one we're asking ourselves and we've been quite a lot of study on this. I think at this point, we view this as sort of as we said in the remarks sort of a temporary low in activity. We've seen a down drift in spending over the last couple of years in the market in general. We've been able to offset that through market share gains or timing. I think that in this particular quarter for the rest of this calendar year, we don't see an ability to offset that. But based on our selling cycles, based on how we feel about the market, based on how we see things going as we -- as the calendar turns to 2017 I think, we think that we'll see a resumption of growth. So at the moment we're not calling for any kind of big changes. I think it's really more a question of making sure that those growth initiatives that we were working on are going to bear fruit. If we feel that those won't or that the market is taking a step down that we are not anticipating beyond where it is, that will continue to re-evaluate that.

Jon, I guess the [Indiscernible] to that question then is, can you talk a little bit about the confidence. What gives you the confidence in2017? Are these kind of contracts that are already signed and kind of -- locked and loaded? Or is it like real firm backlog that you can look at, I'm just curious as to maybe a little bit more detail on why things get better after the New Year?

Yes as you know, Andy the nature of our business is we don't have the luxury of a lengthy backlog full of signed contracts and all sorts of productions that will go on certain days, but we do have some very promising selling cycles through our conversations with customers that make us feel optimistic about work, scope and so forth.

Got you. And then maybe just my last question and I'll yield the floor here. The acquisition that was conducted after the quarter you guys described it as mechanical service. So that sounds a little bit new to me. You guys have always been so NDT and inspection focused. Can you just talk a little bit about what this new acquisition brings to the table, and how that compares to the past strategy? And is this a demarcation for maybe a new strategy to do more mechanical services going forward? Really above any kind of financial health that you can give us so we can get the model right as well?

Yes Andy, this is Dennis. What we're always looking at, our mechanical and services are complementary to pre or post inspection, and this one has that type of balance. There's work where they're doing NDT to decide what needs to be done and then there's mechanical work to get the work done afterwards. So we can complement and help the workforce by providing the upfront NDT to it. And at the backside, the NDT isn't a precursor -- customers don't look at it as a conflict of interest, they look at it as complimentary to mechanical. So what we do is we do the inspection work and then do the mechanical. And we're looking at things like that because right now our customers it's another way for us to save money for the customer. In the past, you'd have two different vendors coming in and arguing over who did the job right or wrong and customers like one vendor coming and just knocking it out. So anytime we can see ways like that, it goes back to the other question. It's a way to provide new value to the customer.

Yes. And Andy to answer your other question about modelling. It's not a huge company for us. I mean, this company probably has about 1% of revenues or something like that, but we see a lot of growth potential from it over the years.

Thanks, guys.

Thank you. And our next question comes from Matt Duncan of Stephens. Your line is now open.

Hey good morning, guys.

Good morning, Matt.

Good morning, Matt.

So I know it's a tough environment, but I want to comment more on what you've been doing on the gross margin front that’s going to pay off whenever things do finally turn around.

Thank you.

Let's start by talking a little bit more about the guidance sort of what you're seeing for the fall season. It's sounds like Dennis, based on your comment if you have kind of what you call an 8% to 10% decline in Services revenue on an organic basis sort of backing, I guess that really is going to be including FX, that's not going to account for the full $30 million that you are pulling the guidance down by Jon. So I'm trying to reconcile that with it sounds like to give the reduction in guidance is really all about the fall. You're expecting things to get noticeably better when we flip the calendar 2017, and I think that marries up with what we've heard from others. So I'm just trying to understand how we need to adjust our models to make sure that we're accounting for the guidance change correctly.

Yes, thanks Matt. This is Jon. I think you've got it roughly correct. That's how we see it too. Our expectation is that essentially, the revenue shortfall that we've got embedded in our guidance occurs all in our first half, and we believe that will be roughly flat let's say, in the second half as we see things right now.

So you're talking flat revenue all in. So there's -- no actual revenue growth in the second half?

You know that's a rough -- a rough expectation right now. I hate to become down to within $1 million here or there or a couple of percent either way. I mean, it's still early. There's still, obviously the potential for growth. But as we've modeled this right now we're thinking that it's the first half decline, it's a second half flat. We'll see what it actually it will be.

Okay. And then as we look out to next spring, what are you guys hearing right now from your customers, Dennis. What are they saying? What are you watching to give you confidence that they'll follow through on their desire to spend more? What -- just sort of a big picture what are you hearing and what we should we be thinking about there?

Matt, customers always have planned spring and fall outages. And in the fall, we've been hearing a lot of talk about trying to shorten, or reduce or if they can't push. We haven't seen that for the spring, so that's why we are going to back to a normal expectation of the spring. We've been talking to customers, and they're also hopeful with customers a lot of this weekend, they are also hopeful that the $50 oil range will get them spurred up a little bit that they're seeing now, and they think that the spending will get closer back to normal. So while we don't expect 2017 to be a huge difference from in the past, we also don't expect to be like 2016 where it's been a dampened or less than normal year. So we see 2017 going back closer to a normal year outside of something crazy happening between now and then.

So is this really just going to be a function at what kind of CapEx budget the refineries have to work with, which I'm sure, in some way specially for the major integrated guide is going to tieback into the oil prices are?

Yes, exactly. Yes, I think the other variable there, Matt, its Jon, is also market share gains, and we feel good about several sales cycles that we're in the middle of and feel like there's some upside there. So we're not going to guide aggressively. So when I tell you that we're going to be down in the first half and flat in the second half, I mean there's every potential we can do better than this. But we just don't want to do the markets to get an overly rosy picture.

Yes, that helps because the comments I'm hearing from you guys are normal spring season which means growth, but the guidance seems doing include none so.

Exactly.

So I'm just trying to kind of marry that up. Okay. That helps. And then I want to go back to the acquisition again because in the past, whenever I've talked to you guys about mechanical services you’ve always told me it's not something you're interested in doing. That you are an asset protection services company and that you're inspection is what you do, not mechanical. So this feels like a little bit of a shift in strategy. Is this something that you want to continue to build-out and could we one day see you have a much larger mechanical services business, or is it really just sort of opportunistic niche bolt on tied to mechanical service that you would add?

Matt, this is Dennis. We don't -- we're not looking to mirror anybody else that’s out there but we do believe that the way our customers will see the value in us is more complete service. So anything that touches the inspections that we're doing now, anything that we can go to the customer and say, we can do more of that for you reduce the complexity of how many vendors and workforce and they talk, they measure until time and windshield time and time to get from one vendor to another to the same site. So any time we can reduce that and have parts of the same crew or part of the same vendor face doing more of that whole job, it brings more value to them. So that's why we're looking at these opportunities. So it's going to be wrapped around what mechanical work helps the inspection process get it done.

So have you guys have give any thought then, Dennis, to how big the mechanical services business you may someday have?

You know we believe there's a lot of mechanical that touches inspection, we call it non destructive testing, but there's a lot of things that get positive move and replace before and after the inspection cycle. So there's a good potential here. We don't want to forecast any numbers at this point, but we believe that there's a lot of complementary servicers to inspection that mechanical has potential for.

Okay. And then lastly Sotirios, for you, is this where you envision steering M&A dollars in the future is towards mechanical?

I would like now to share only mechanical okay, because the common that we're buying is both. So we are really we are steering to both, not to mechanical or to inspection.

Okay, all right. That helps.

That's very complementary.

Sure, all right. Thanks guys.

Thank you, Matthew.

Thank you. And our next question comes from Matt Tucker of KeyBanc. Your line is now open.

Good morning, gentlemen. This is [Indiscernible] for Matt, nice quarter. Just back to the guidance on the near-term weakness, a lot of my questions -- just you've explained this pretty well, but wondering whether within Oil & Gas, it sounds like there's a lot of weakness near term among the refiners. Are there any other types of customers that are cutting back more than others and/or demonstrating strength in the near term?

Yes. I think within the Oil & Gas sector you've got some that are spending more, some that are spending less. But overall, that's what we're seeing; the weakness right now in terms of year-over-year comps, which is not to say it's a weakness. It's just for us a bit lower than it was compared to very strong business last year. So we still feel good about these customers. We still feel good about the amount of upside there is the amount of work to do, as Sotirios said in his comments. We think this is still going to be a very robust market. It's just that right now, we just got a little bit of an air pocket in terms of timing.

This is Dennis. Outside of the Oil & Gas, the Aerospace, the electrical power and the other sectors that we provide are doing well.

In terms of the spring activity, do you have any sense of I guess, maybe on a trailing 12-month basis, what -- I'm sorry, do you have any sense of how long customers have deferred major work scope versus like historical average?

You know this is Dennis. I don't know how much is out there deferred. I mean, I think there is some in. I think it's also just they are trying to tighten it, shorten it and not spend. They look at the return on investment and they tighten up their bandwidth right now. So if things aren't primarily safety or debottlenecking, sometimes I don't – they don't get a lot of room to grow in it. So -- I mean, like I say, it's tied to the oil prices, tied to how they feel. I mean, you can talk to them and how we feel right now is they are feeling more positive, they're feeling like their capital budgets aren't going to impress as much. So it's hard to say it's any one thing. But in general, they seem to be just more generally optimistic.

Sure. And just one more. A couple of months ago when you initiated guidance, the customers who have since reduced anticipated work scope from the fall, have they -- what were they saying then. What were they assuming then? I know that someone asked a similar question, but were they assuming an improvement in commodity prices or anything else? Or just any additional color there would be great.

I mean truthfully they were just mostly quiet at that time. So we anticipated they'll be more normal. And then as the cycle went deeper and deeper, they -- you could just see them starting to pull up, tighten up and tighten up stakes all around. So it wasn't like they really changed their tone there just really wasn't anything there. So we assume that it will be a little bit more normal.

Makes sense. That’s all from me now. Thanks Jon.

Thank you.

Thank you. [Operator Instructions] And our next question comes from Edward Marshall of Sidoti. Your line is now open.

Good morning guys. Sotirios, Jon, Dennis how are you?

Good morning.

Good morning.

Good morning, Ed.

So my question is a follow-up to the budget discussion that we had in August and what we thought fiscal 2017 was going to look like. And, obviously you’ve had some anecdotal comments about the fall and I've heard that from other customers as well. I'm just kind of curious as to where you're really getting the confidence other than what we've heard kind of over the last, I don't know, 4, 5, 6 seasons in a row from your customers. And I'm just -- to take that step a question a step further, I'm wondering if they're just kind of kicking the bucket down the road, or has inspection gone so much better and the data that you guys are being able to produce is so much better that maintenance is sharply focused and the project scopes have been permanently changed to a much smaller run rate? Sorry about the length of that. Sorry about that.

No problem. No problem. I took notes with you. I mean I think what customers have the ability to what they call engineer or reduction in work scope. They can look at what they call risk-based inspection and probabilities and they can move some things further out, but they can't put those things out completely. And the inspection, for good or bad, the inspection capabilities haven't gotten so good that they could predict that far into the future. I mean, our refinery still have a corrosive tough environment and things change as they change blends, as they are buying different types of inputs and all that. All these things are always moving their normal metrics. So they really still have to do a lot of this thermal maintenance. They can defer some of that by looking at engineering, but they get nervous about doing it too far out because the regulators, OSHA and their own capabilities get cloudy when they do that. So they don't like going too far out. So they can defer, but they really can't just put it away and not do it at all.

Yes, this is Jon. The other thing to keep in mind is these assets aren't getting any younger and they're getting more and more complex. So I think in that environment, we don’t see a reduced need for inspection.

But my sense is though they used to send a lot of employees in to do a job. And obviously the job is based on per employee, correct? And you used to come out and kind of just change everything that you touch. I think you've – they probably have a better sense as to where we have about a six months or another year left on this pipe, so let's not change that. And so that's kind of what I assume is happening with your project scope gets scaled down. And so what -- I mean in the world of energy right now, there's been a pressure for efficiencies. Efficiencies probably never really existed before. And so as you kind of peace that back in, I'm just trying to understand, well it's never -- to me it doesn't sound like it's ever going back to well let's just change everything that we can see in our sights. I mean, you kind of have any comments or any thoughts to that to help me round that out?

I mean, -- this is Dennis. Customers are definitely trying to get smarter about what they spend, what they look at. A big part of our focus is, in the past we used to throw a lot of bodies at you are right, and they just manpower it up and throw bodies all over the place. Now they are trying to say where are the most probable failures or erosion and corrosion problems and let's look at that. And the people with the technology and the ability to do the engineering and the risk-based inspections and the online in all the things that we do, we can help them focus on that. We can help them either ones the target on it. And then by looking at some of these mechanical services pre and post inspection, there's still a lot of money being spent there that's not part of what we do, but part of the inspection cycle. So there's a lot more money to be spent inside that whole inspection spend that we could be a part of. So we don't see that getting smarter is going to hurt the business as long as we focus on what they need and what needs to be done and we marry up our capabilities with what they need.

No I heard of a -- I have a competitor say to me that it typically grows 10%, 15% coming out of a recessionary period, at which we kind of define this as being a recessionary period for refinery maintenance. My sense is based on kind of that backdrop. Does that kind of make sense to you that just because it happened before, it's going to happen again, just based on kind of the way the industry is kind of changed and morphed to what it has been historically?

Ed, its Jon. In the end, there's really no telling what the answer to that question will be. I think that the set of facts and circumstances that will exist as prices resume are going to be somewhat different from the last time there was a down cycle. I think that the direction is certainly going to be accurate, but it could be 15%, it could be 5%, it could be 20%, it could be 7%. I mean, none of us really know. And, on the other hand, there's no real data that will in the end prove out whatever the percentage ultimately is. So I think that certainly we are trying to right size, we certainly got the right operating disciplines and so forth. We are close to our customers. And then Dennis and the team are talking with customers all the time. There's a lot of really good dialogue going on in terms of the work scope going forward and selling cycles. So we feel really optimistic about, as we just get through the next three months and get into 2017 that things will look conservatively better. But in terms of what percentage it will be in this -- of line coming out, it's really hard to say.

All right. The refineries have a knack for getting you guys and I see you guys, I mean the industry, really a maintenance supplies really jazzed up in front of every season so that you kind of keep your staffing levels at a position where you are able to kind of execute that they need it to. And I know is challenging from a cost scenario, and you guys have really done a nice job on the margin, so maybe kind of talk to how you see those challenges and how you deal with those challenges. And maybe kind of talk about how you kind of look at the employment levels and what happened there?

This is Dennis. You got a great point. Balancing the workforce is something that we really spend a lot of time and effort on because customers will talk about what its potentials. We try to make sure our workforce is staff for what we know we have. And if we miss a $1 or $2 on the upside because they swing a little bit harder and fast than we anticipated, we'd rather to do that than have a bunch of bodies waiting around for something that was promised but not given. So we do spend a lot of time focusing on that workforce. But for me, right now in spring it would be hard for me to tell you how many bodies I need. But by the time we get to late December and start coming out around January, when you start needing bodies in February and March, we have a pretty good idea and that's where we have a bunch of recruiting folks that move bodies within our company and look if we need people outside. So as long as we have 4 to 5 weeks, which we normally can't get from the customers, we feel there's ample time to try to ramp up and down to what they do. But we're staying close to the customer, that’s the key.

Okay. Great guys. I appreciate it. Thanks so much.

Thanks, Edward.

Thank you. And that concludes our question and answer session for today. I'd like to turn the conference back over to Dr. Vahaviolos for closing remarks.

I would like to thank everyone for listening, and we wish you all a great day and to the Oil industry at higher price per barrel.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Have a great day, everyone.