Good morning, ladies and gentlemen. And welcome to the Mistras Group earnings conference call for its second quarter ended November 30, 2016. My name is Liz 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 Sotirios Vahaviolos, Chairman and CEO; Dennis Bertolotti, President and Chief Operating Officer; and Jonathan Wolk, Senior Executive Vice President and CFO. I will now hand the conference over to Dr. Vahaviolos.

Liz, thank you very much. And good morning to all. In today’s call, we will review Mistras Group’s financial results for the second quarter of our fiscal year 2017 that ended on November 30, 2016. For the last two years, I have been speaking about challenging market conditions imposed by low 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 great value for their inspection services spend. Second, reducing our cost by eliminating wasted time, wasteful processes, and in some cases managers who choose not to focus on either of these top two priorities. And third, pursuing new multi-year evergreen contracts like the Safran contract that we announced last year. Our performance in the second quarter of fiscal year 2017 was somewhat weaker than we expected in North America, but better than we expected internationally. Global revenues declined 9%, reflecting lower customer spending and shorter duration turnarounds within a weak overall market. Our gross profit margins held and even improved somewhat, although adjusted EBITDA margins contracted on the lower volume and our cash flow remained strong. Our long-term outlook remains very promising. Customer assets are ageing, inspection and maintenance needs are growing, and projects that were recently deferred cannot be deferred indefinitely. Our conversations with existing and prospective customers indicate the potential for organic growth, for market share gains [indiscernible] in all of our vertical markets. Our acquisition pipeline is promising and our balance sheet provides us with many options for future growth. As Dennis will explain in more detail, we’re becoming more optimistic that growth will resume in calendar 2017. Jon will now explain our results and then Dennis will provide more color on our operations. Afterward, I will close. And then, we will take your questions. Jon?

Thank you, Sotirios. I’ll 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 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. The discussion in this conference call will include certain financial measures that were not prepared in accordance with US GAAP. Reconciliations of those non-US GAAP financial measures to the most directly comparable US 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 Investors section and on the SEC website. Revenues for the second quarter of fiscal year 2017 were $176.6 million, 9% below the prior year's Q2. The decline was organic as the negative impact from foreign exchange was offset by a small amount of acquisition-related revenue growth. Services Q2 revenues declined 12% compared with prior year, driven by negative organic growth stemming from the timing of customer projects, shorter duration turnarounds, and the lower overall market NDT spend. International segment Q2 revenues grew by 10% as low-teens organic growth was slightly reduced by foreign exchange. Products and systems revenues had an organic contraction in Q2, driven by lower sales volume. Despite the challenges imposed by lower revenues, the company’s profit picture remains strong. Net income for Q2 2017 was $7.7 million or $0.26 per diluted share. Gross profit margin exceeded prior-year levels for the sixth consecutive quarter, reaching 29.5% or 30 basis points higher than one year ago, while the company's adjusted EBITDA margin improved slightly over Q1 to 12.7% of revenues. Breaking this down by segment, Services operating income, excluding special items,…

Thank you, Jon. And I’ll provide updates on our business segments. Our global team has continued to perform well in this tough market. I’ll provide some color on key developments in our business. In our Services segment, approximately 60% of our Services revenues are in the oil and gas sector, and this market became more challenged as 2016 progressed. As a comparison, a review of the results of publicly traded global competitors in the testing, inspection, and certification space reveals a 12% year-on-year decline in their revenues serving industrial customers through September 30. Our Services segment has been impacted by this dynamic, but was able to achieve mostly flat revenues until the second half of calendar 2016, with a 10% revenue decline over the last two quarters. In addition to a overall market in 2016, our Services segment was adversely impacted by the timing of customer projects, which benefited the fourth quarter of our prior fiscal year that ended in May of 2016, but we had the opposite impact in the first half of fiscal year 2017. Additionally, customer turnarounds in fall 2016 were of a shorter duration in scope, which may bode well for our calendar 2017. As we progress through our budgeting process, we feel optimistic that growth will resume in calendar 2017, driven by some increases in work scope and some modest lift from acquisitions. In addition, we gained a new North American evergreen contract in the oil and gas space during Q2. During the quarter ended November 30, we completed an acquisition of $7 million company that performs mechanical services outside of the oil and gas sector and we also completed acquisitions of two small Canadian inspection companies. As Jon mentioned, our balance sheet is in great shape and our acquisition pipeline contains some very interesting…

Thank you very much, Dennis. We continue to study this market and, more importantly, we work with our customers and our new prospects to determine the best way forward. As the founder and CEO of Mistras Group, I have always managed the business with the goal of delivering long-term value built upon our foundation to always deliver the best value to our customers. We believe our strategy of providing the best value, productivity and safety through our diverse network of thousands of multi-certified technicians is the right one in good markets and in challenged markets. Two years ago, we were routinely asked why we weren't getting rid of our International business. Instead, we implement a plan to upgrade management and integrate both business. Today, the International segment is realizing terrific improvement, led by a strong management team and gains market share because it is creating strong value for its customers. Poor results like we had overseas two years ago were frustrating, but when you play the long game, you reinvest and make a step-by-step approach to improve a business that delivers good value to its customers. Although our Services segment suffered a negative comparison to the prior-year for a couple of quarters, I remain optimistic for many reasons. First, I'm confident in our team. Second, we are delivering good value to our customers and we’re focused on delivering productivity at their sites and in our offices. Third, our customers need their assurance on the value proposition that our inspection and life maintenance services provide them on their aging infrastructure assets. Fourth, we have the financial resources to continue to invest in building a base of value-added services. And fifth, at some point in the near future, starting with calendar 2017, the market will turn positive instead of negative, enable significant revenue and profit growth to be realized. We feel we are well-positioned to benefit from this expected market upturn. Our customers have big challenges and we’re the solution provider that can be counted on the project to protect their assets. As always, I extend my personal thanks to our management team, our loyal employees and their commitment to safety and quality, and to our loyal and valued customers and shareholders. We now open the floor for questions.

[Operator Instructions] Our first question comes from the line of Matt Duncan with Stephens. Your line is now open.

Hey, good morning, guys.

Good morning, Matt.

So, just want to dive in a little bit more about the outlook commentary. So, it sounds like you guys are seeing things maybe bottoming here and expecting growth in calendar 2017. Can you talk about what you’re hearing from your customers both for the spring and fall turnaround seasons? And is this going to be growth through the entire year or does it start slower and then gain a little momentum? How do you see the year shaping up just at a high level?

Okay, Dennis. Go ahead, Dennis.

Okay, Matt. This is Dennis. In talking to our customers, we see 2017 spring being closer to what we would consider a normal spring, and we think that the fall has the opportunity with them getting a chance to do more budget planning and planning for having a stronger market for them. We think the fall can be a little bit stronger. We’re seeing projects in January and February, which isn’t un-typical, but it's a good sign because last year, those kinds of things were – we weren’t sure what was going to happen. So, basically, we see average or so, spring with a stronger fall, for sure.

So, Dennis, does that translate to maybe low-single-digit, mid-single-digit growth in the spring and something more significant in the back half of the year. I don’t know, Jon, maybe if that’s for you. How should we be thinking about growth?

Yeah, it’s Jon. I’ll take that, Matt. I think between Dennis and I and the team, we’re still trying to figure that out. It’s early. We’re just starting on the – just really pre-spring season, but we’re planning for it. I think that you have a couple of positives in there, as Dennis was saying, but we have FX going against us and with the euro, the pound, the Canadian dollar. I think probably we have a flattish sort of a spring, considering all those variables, is kind of our rough expectation. But as the year rolls on, as Dennis was saying, we see the opportunity perhaps for a positive fall.

Okay. That helps. And then, obviously, with the fiscal year change, you guys haven’t updated your prior guidance, but since we don't have historical financials for the new fiscal year yet, we have to model still using the old one. So, just kind of helping us think through relative to your old guidance, you guys fell – it sounds like a little bit short of your expectations in the 2Q. Should we be thinking maybe you’re trending towards the lower end of that old guidance, if we’re modeling a May year-end until we get those historical quarterlies for the new breakdown?

Yeah. I think, Matt, we did fall a little bit lower in Q2 than we expected to, both top and bottom line. So, we haven't done a lot of thinking about, “Gee, had we not changed the fiscal year, what would be the May continuation guidance have been?” But I think we probably would've dropped it just a scosche on the bottom line and maybe been at the lower end of the revenue guidance, how do we maintain the May fiscal year?

Okay, that helps. And last thing for me, just on acquisitions, you guys did some small ones in the quarter, what’s the total annual revenue contribution from the deals you did? They are in the 2Q. And then, looking forward, how are you guys thinking about M&A right now? Are you hoping to maybe get some bigger deals across the finish line or what type of deals are you looking at?

Yeah. Matt, it’s Jon again. The run rate of the acquired companies would approximate $10 million in revenue, give or take. And as Sotirios mentioned in his comments, we are looking at some kind of exciting ways to expand our footprint in terms of service coverage into something that Dennis has talked about in these calls before as well as Sotirios. We’re kind of excited about some of those opportunities out there to extend what we do and to maybe some beyond oil and gas just a little bit more or the types of services we’re providing and maybe for a little bit bigger bite than typically we would go for. So, these three small acquisitions had about $10 million of revenues and we’re looking at potentially companies that would have revenues higher than that in some of these acquisitions.

Okay, great. Thanks, guys.

Thank you.

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

Good morning.

Good morning, Andrew.

Just a question about what would have been the second half of the fiscal year. Given that you sort of missed the macro this quarter, what gives you confidence that you do have a good grasp of the second half or for the next six months, that it’s not worse than you expected?

It’s Jon. I’ll start with this and maybe Dennis or Sotirios might want to chime in. I think what gives us a little bit of confidence, Andrew, is that in the fall it just seemed like everything was shorter duration than we would have thought. It’s not like we lost business, but it just seemed like if we were on projects for some reason, they went a week or two shorter, about several of them that we would have thought. And we’re not hearing about the same thing for the spring. That’s my part of it.

I think, Jon, what is really important, and Andrew, is that our customers, in our discussion, more opportunities than we discussed before. So, they seem to be a little bit more optimistic than they were a year ago. And that really gives us – basically, gives us the ability to tell you what we are telling you.

So, just a follow-up question, in this environment, could you just comment about just the pricing environment and the willingness of your customers to keep jobs inside, internally, or to outsource it to you? So, first question on pricing. Second, what’s the outsourcing trend in this environment? Thank you.

Andrew, it’s Dennis. On pricing, you mean pricing for us or are you talking about…?

Yeah, pricing for you guys. Yes.

Yeah. There is certainly still pressure by customers to want to get value out of it, but I think the conversations are a lot more in value than just strictly pricing. So, if you were to ask me that question a year ago, I would have – gave you a more definite, there was a lot more look at the pricing. But I don’t think it’s as strong and I think it’s now leveled off to how do we get the total spend down and what do we get more for the total spend. And I’m sorry, your second half was on the…

Just people – again, on the outsourcing trend by our customers.

Oh, yeah. They are doing the same thing everybody else is looking, is trying to find ways to [indiscernible]. So, I don't see anybody out there that isn't looking to do more contracting and outsourcing so they can run with the highs and lows and not have to carry overhead. So, I don’t see that getting – and especially, when you go through periods like this, they really tend to shake out a lot of their overhead in engineering and inspection and places like that. Sometimes can get hurt and it takes a while for them to build it back up. So, when you go through something where they are compromising their market, they definitely take some time to build their internal capabilities back.

Terrific, thanks. Thank you.

Thank you, Andrew.

Our next question comes from the line of Andy Whitman with Robert W. Baird. Your line is now open.

Hi there. Thanks for taking my questions, guys. I wanted to talk about – hear about your contract wins and losses during the quarter. Was there any contracts that were lost in the quarter? Were there any net gains in contracts? And can you talk about the level of outstanding proposals that you have today versus an equivalent time a year ago, so that we can have a sense about where your new business or your net new business direction is headed?

Okay, Dennis.

Andy, it Dennis. For the most part, the contracts are still within the oil and gas industry, although we do have other smaller ones outside of that. I would say, overall, there is always a little bit of puts and takes on it, but I don’t know of any significant losses that we had in the quarter. I’m sure there was a few bodies here and there. So, I think, overall, if anything, we’ve got a stronger, what we call, an evergreen or run and maintain base than we used to have previously. It’s just – a lot of times, in the last few quarters, they were worried about total spend, they were worried about the end of December and stuff like that. We don’t see that anymore. So, we think we have a stronger base and we definitely believe, as the market comes back, we’re in a good position to come back with it. We have a lot of discussions with bids as well as the acquisitions, so there’s a lot of contracting opportunities out there. And you don’t always get them all, but the more they are out there, just by percentage, you know you’re going to have a better outcome. So, we feel good about where it’s going.

Great, thanks. And then, maybe, Jon, for you, it sounds like you mentioned FX in the context of your International segment. It sounded like there was an FX gain, like a one-time item from realization of maybe a financial instrument or something. I don’t know. Can you talk about what was in FX, like one-time gain from an accounting perspective versus a translation impact? Because I always think that…

We have some – within our UK subsidiary, we’ve got some receivables that are not denominated in pounds. They are denominated in euros. And so, they have some gains on that particular subsidiary’s books because of that dynamic.

Got you. Okay. And then, can you just – what was the dollar impact of FX in total for the company, so we can just calculate the organic growth rates a little more closely?

Something like 1%, something like that.

Got you. Great. Great, I think I’ll leave it there.

Okay. Thanks, Andrew.

Our next question comes from the line of Matt Tucker with KeyBanc Capital Markets. Your line is now open.

Good morning, gentlemen. Happy New Year.

Happy New Year.

Same to you, Matt. Thank you.

First question on the quarter, you attribute some of the weakness to the timing of customer projects. Was that more in reference to favorable timing last year creating some tough comps or were there some projects you expected to occur this quarter that didn’t?

Matt, actually a little bit of both. They did take advantage of some timing last quarter that did help us out, things that fell in that we didn’t expect from previous year. And really, for this year, again, we knew of work – and it’s not so much that a lot of things got totally canceled, but they really got – they pulled them back and they closed up and got back to operations much faster than typical. So, to your comments earlier that eventually they are going to have to catch up with all this, they can engineer out some of the timing and some of that, but eventually things have to come back. So, there was a little bit of both, actually to your question.

Thanks, Dennis. That’s a good segue to my next question. With respect to the customers that are indicating they’re going to spend more in 2017, why do you think that is? Is it more because they have been deferring spending and just can’t continue to do that anymore? Or is it more because they are feeling better about the environment and have bigger budgets given where oil prices are going?

Matt, actually, you make it easy on both. The answer is yes on that. They are – there was some deferral. And like I say, what they were looking at were their ROI and pushing that hurdle up a lot higher. They are eventually going to have to get back into looking at the things that have the less criticality, but still have overdues. And, yeah, the oil prices have stabilized the market, with things that just happened in November and everything else. I think a lot of our customers are a lot more comfortable that they’re going to see a $50 range for longer, where last year it was lower for longer was the mantra of all the oil companies. Now, I think they feel more comfortable in the $50 range and they’re probably not going to be trying to shorten all these turnarounds and pulling people back off. They always have maintenance people, but it’s the level of maintenance people. I don’t think they’ll be retracting as much as they did in 2016 for us.

Got it, thanks. And then with respect to some of the headcount changes you’re looking to make and repositioning some labs, given that you are expecting things to be better in 2017, maybe you can provide a little more color on what you’re planning to do there?

Yeah. Matt, it’s Jon. I think more of that commentary refers to a couple of European subsidiaries. We’ve been on sort of a multi-year journey of really getting efficiencies into their businesses and the results are – we’re getting some of the results of that now. But we’re still not completely through ferreting out as we get more refined, as we’ve integrated them on to our corporate ERP system. We’re still realizing opportunities to become more efficient. And I think that some of those staffing actions will be the byproduct of some of that.

Thanks, Jon. That’s actually a good segue to my last question. Your International operating margins have been higher than Services in the first half of this fiscal year and that really hasn’t been the case for several years. Are there things that you’ve been doing their – is that primarily a result of the end markets or are there things that you’ve been doing there that have been successful with this turnaround in International that maybe you can bring to bear more here in North America?

It’s a good question. And we ask ourselves similar questions all the time. When it was the other way a couple of years ago, the question used to be, will International ever get to Services margins? And now, at this point, they’ve been a little bit higher, as you point out. Really, they are two different – they are related and similar, but different businesses. The clientele in International for us is more aerospace and less oil and gas. And aerospace is in a better part of its cycle right now than oil and gas is. The other thing about the International operations is that it’s more shop-type business where parts come to us and we are doing the testing, non-destructive and destructive testing, as opposed to our people going out to client sites and incurring reimbursable costs that don’t really have much, if any, margin on them. So, the margin structure fundamentally in International should be better at least at the gross margin level and we’ve certainly seen that now because the businesses are starting to realize that potential.

Thanks, Jon. Appreciate the color.

Sure thing. Thank you.

[Operator Instructions]. Our next question comes from the line of Edward Marshall with Sidoti. Your line is now open.

Good morning, guys.

Good morning, Ed.

So, I guess, I wanted to speak to the optimism a little bit. Maybe the degree that you are feeling because where some of the peers have been more aggressive in their comments, I think I hear you being a little bit more reserved. And some of the conversations I’ve had with some of the majors have said that, the 2017 budget period is really coming up for air. And I just wanted to kind of – and looking for return on their investment before they really see a major capital spend. And so, when I think about 2017 shaping up, that kind of is consistent with what you’re saying in the back-half recovery for 2017 in predominantly the fall. Is your outlook really contingent on oil prices and the sustainability of this above $50 price in order to kind of keep this optimism in check? And how optimistic are you from a degree perspective?

Ed, Dennis here. We’re not predicting the oil prices, but if there was a sudden crash in oil prices, I do think the major bulk of our customers would react to that. Would they get back into the panic buying and focusing on trying to get new contracts? Probably not. But I do think they would react to their maintenance spend if they lost 25% or 20% of their commodity pricing. So, to an extent, the answer is, yeah, it’s definitely going to – as long as it stays healthy, that business will stay healthy for us. But, eventually, as I said earlier, you can only defer so much. So, part of the base has to get done. But there is always going to be some discretion. So, as long as it’s a $50 or above range, I don’t see any reason that we shouldn’t be optimistic at this point.

Right. I had another question. I’m curious if you’re saying that there is a coiled spring waiting to happen and you expel a lot of pent-up surge of investment or if you just expect it to kind of recover to normal periods?

Yeah. I’ve got that mattress quote before. I think where we’re at is we believe that spring is going to be good, but I don’t think anybody can plan that far that quick to get a spring difference of major. I think there is some larger contracts coming on for builds on coastal areas for other projects, LNG and other things, and I think there is other planning for maintenance that gets stronger. But I don’t know if it’s going to be double digits or a 40% increase. We don’t really have that kind of feel.

Yeah. It’s Jon. It’s a great question. It’s one that’s tough for, I think, anybody to really answer because there is not this ready fact base that’s just out there cataloging all the maintenance needs of all the clients. Our sense is that we were doing – the whole industry was doing less. As Dennis said in his comments, NDT spend for industrial companies was certainly down double-digits through September. So, there’s been less activity going on, but we don’t believe, in a macro sense, that there needs to be less. There should probably be at least as much activity, if not more. So, logic would say that there is some level of deferrals out there that are going to have to be recaptured, as Dennis said in his comments. The big question is when and at what rate. We believe some of that – there is certainly potential for some of that to happen in 2017. As the year goes, we think the potential only grows as, hopefully, confidence grows.

Got it. Now, the last question about the cost and what you have learned in the International business and bringing that back to the Services business, I think was a very good question. It was one of mine, in fact. And I think about kind of aerospace kind of get lumped into the International business and I think timing-wise that kind of – that contract win a year ago or so really played into well with what you’re doing from restructuring. When I think about the Services business, are you seeing any price degradation in the business there at all that may be affecting the margins, so the disparity between, say, Services and International is wider than normal?

Edward, it’s Dennis. No, I think where Jon was leading to earlier is aerospace plays a more significant part of their business. And the oil and gas they got, they are not into these regular contracts that have a lot more oversight. So, I just think there is just a lot more room to run in the International. So, I think they are kind of finding their run rate back to where we think they could have been and should have been. But it’s not so much that we are having degradation. It’s just they’re having less revenues. So, that’s where the differences came. I think everything else stayed pretty much flat.

And your aerospace business, is it wide-body aircraft or narrow-body aircraft? And what’s the percentage of the total sales there, International, at present?

Aerospace in the Service in the North America is probably in the mid-single digits, 4%, 5%. In America. In Europe, it’s higher. It’s like something like 35%, 40% is what we think it is. So, there’s a significant difference. We’ve got a lot of aerospace in North America. It’s just that the difference in the spend just overwhelms it from oil and gas.

And is it large aircraft or the 737s…?

Oh, I’m sorry. We’ve got a lot that’s on the landing gear as we have some that’s on the engines for both large and small body and then we also have some on the composites, which is typically going to be on the larger, double aisle [indiscernible]. So, it was a combination there.

Okay. We could follow up and discuss that at a later point. And then, finally, the debt balance increased about $30 million or so. And I noted that you bought back some stock. So, I didn’t see a full cash flow statement, but can you kind of talk about where the cash was spent?

Ed, net debt went up about $8 million or $9 million. So, we did repay some debt, we have some more cash, etc. But net debt changed less than $10 million.

Got it. That’s great. Now, I see it. Is that in anticipation of some of the acquisitions you talked about?

No, not at all. It was a reflection of about $7 million spent for acquired businesses and repurchasing $7 million worth of stock.

I’m talking about the cash sitting on the balance sheet, the additional, say, $13 million on a quarter-to-quarter basis.

Sorry. That’s reflecting really of just more profit being generated overseas.

Got it. Okay, thanks, guys.

Thank you.

I’m showing no further questions in queue at this time. I’d like to turn the call back to Dr. Vahaviolos for closing remarks.

Yeah. I would like to close by stating that we feel very good about our business. We are close to winning multi-million, multi-year inspection contracts for organic work. And we are excited about the acquisition pipeline. I would like to really stress that. I also would like to thank everyone for listening and we wish you a great day and a healthy and successful 2017.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone, have a great day.