Good day, ladies and gentlemen. And thank you for joining MISTRAS Group's Conference Call for its Fourth Quarter and year-end 2021. My name is Howard and I will be your event manager today. We'll be accepting questions after management's prepared remarks. Participating on the call for MISTRAS will be Dennis Bertolotti, the company's President and Chief Executive Officer. Ed Prajzner, Executive Vice President, Chief Financial Officer, and Treasurer, and Jon Wolk, Senior Executive Vice President and Chief Operating Officer. I want to remind everyone that remarks made during this conference call will include forward-looking statements. The company's actual results could differ materially from those projected. Some of those factors that can cause actual results to differ are discussed in the company's most recent annual report on Form 10-K and other reports filed with the SEC. The discussion in this conference call will also include certain financial measures that were not prepared in accordance with U.S. GAAP. Reconciliation of these non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found in the tables contained in yesterday's press release and in the company's related current report on Form 8-K. These reports are available at the company's website, in the Investors section, and on the SEC's website. I will now turn the conference over to Dennis Bertolotti.

Thank you, Howard. Good morning, everyone. Thank you for joining us today. In the fourth quarter, revenues exceeded expectations for the third consecutive quarter, reinforcing our confidence in our strategic initiatives and addressing the COVID-19 market challenges. Adjusted EBITDA for the fourth quarter was in line with our expectations. It was truly a great finish to a year of strong top and Bottom-line growth. Revenues for the full year increased over 14% and gross profit dollars were up over 10%. Selling general and administrative expenses were up only a small fraction relative to the revenue increased due to our continuing focus on overheads. As a result of operating income and net income improved substantially year-over-year with adjusted EBITDA up over 21%, significantly more than our increase in revenue. Illustrating the operating leverage built into our business model. These results were achieved while also continuing to invest in our growth initiatives throughout '21, including OneSuite, Sensoria, and Mistras Digital which I will elaborate on more in a few minutes. A very crucial aspect of our recovery is the significant free cash flow we generated. In fact, we generated over $16 million in the fourth quarter alone, which we used to pay down our outstanding debt a year-end, and we will continue to focus on rapidly reducing our debt. We have now paid down just over $90 million of debt over the last three years, significantly strengthening our financial condition. By staying focused on paying down debt through the rest of '22, we anticipate that we will gain flexibility in our capital allocation strategy and be in a position to potentially restart acquisitions by 2023, in order to enhance and accelerate our growth initiatives, our end-market diversity and add increasingly smart and predictive data - centric solutions to our existing portfolio. Mistras…

Thank you, Dennis. And good morning, everyone. We're certainly pleased to report another strong quarter reflecting an ongoing gradual recovery where we are in our financial performance is steadily approaching pre -pandemic levels. MISTRAS keeps getting stronger each quarter and this quarter we exceeded our top-line guidance and generated adjusted EBITDA that was inline with our expectations. We exited 2021 with strong momentum and we expect that we will maintain throughout 2022, particularly in the second half of this year. Turning to the results for the quarter, consolidated revenue increased 6.5% over the prior year to just over $171 million. Revenue growth in the fourth quarter was driven primarily by industrials, aerospace, and defense, and other process industries. As Dennis mentioned earlier, we are pleased to see the success of our strategy to diversify our revenue based beyond our core in the energy market. Gross profit for the quarter was $49.6 million, a very nominal increase as compared to the year-ago period. Gross profit margin was 29% down from 30.7% a year ago, primarily due to higher benefit costs in the U.S. and lower Canadian wage subsidies in the current year quarter compared to a year-ago. Selling general and administrative expenses in the fourth quarter of 2021 were $42.8 million up from $40.5 million in the fourth quarter of 2020. This increase was due primarily to the removal of temporary COVID-19 cost reductions in August of 2021, which had been initially implemented in 2020. Despite this added cost, we were able to limit our full year overhead increase to just 2.7%, which was significantly below our annual revenue growth rate. Again, improving the operating leverage in our model. On a full year basis, operating income was up substantially to just over $18 million and on a non-GAAP basis, it was…

Alright. Thanks, Ed. Fiscal 21 was a year of rapid recovery from the twin challenges of COVID-19 and the collapse of the energy markets in 2020. We grew the business; improved profitability and we strengthened our financial condition. Now we're preparing for even greater opportunity. First, we're transitioning the business to a more data centric organization, delivering an enhanced ROI for customers who are demanding more be done for less. Once we add Sensoria, our most visible changes in an organization as increasingly looking different today than it did just a few short years ago. We strongly believe the expanding acceptance of MISTRAS digital can add value to all our evergreen projects making us more firmly to choose of owners for their industrial assets. This growing portfolio should expand our growth opportunities and deliver better margins. Second, we're looking at alternative market such as renewable energy, private space, and many others for the need for our services are emerging. Increased regulation, compliance requirement, and the drive to optimize the performance of valuable assets is driving industries to increase the market for NDT and our other related services. Third, we are dedicated to reducing outstanding debt. I am proud that we have paid down just over $90 million of total debt over the past 36 months. Which equates to roughly $3 per share, although this has not been reflected in our equity valuation over this period. Once we pay down to historic metrics, we intend to consider strategic acquisitions to potentially enhance and accelerate our growth. Finally, we are focused on optimizing our own efficiency, improving the operating leverage in our business, and generating increased shareholder returns with adjusted EBITDA expected to grow faster than revenues over the course of '22. You can clearly see our commitment to this objective. The…

[Operator Instructions] Our first question or comment comes from the line of Brian Russo from SIDOTI. Your line is open.

Hi. Good morning.

Morning Brian.

Just first on the first quarter of 2022 guidance of low single digit revenue growth. Could you just kind of compare contrast what you saw in the fourth quarter and the services segment, I believe there's 11% overall growth. Could you kind of drill a little bit deeper. How that growth and might've been dispersed between energy versus aerospace and defense versus industrials. And then what you're seeing in the first quarter of 2022, that kind of trying with the low single digit guidance.

I'll take it on, throw it to Ed and Jon, I'll take a quick comment on that. So in the fourth quarter, it's always a little bit volatile with our customers. Sometimes in the energy market having their budgets exceeded or spend will come off of the year quicker than normal. It didn't happen in 2021. We seen the signs of that in previous years such as 2019 where late November, very early December, you'd start having customers pulling back people, or hours, or the capital. They stayed quite a bit later almost into the holiday season. So that was one of the things that helped us, and we did have a lot of activity inside private space and somebody other sectors. Coming back into this year, what we're seeing is at a lot of customers from six months ago when we were looking at our budget and our planning and all that, there was a lot of activity in the spring, but there was a lot of piling on in certain areas on certain times, and I think that just exceeded the capacity on the local workforce, not only in NDP, but all the sectors that support it. And I think there has been a lot of corrections to that that made some of it move around a little bit. Jon, if you want to give a little bit more

Yeah, sure. Thanks Dennis. I think as Dennis said in his comments, we had some projects that ran a little bit longer and stronger in Q4, and from the seasonal perspective versus the prior year's Q4, we had a nice uptick. So, the industries there were -- in particular, were probably energy-related just with that activity. So, you have some seasonality there which kind of worked in our favor and some projects which ramp up. In the first quarter, I think we're looking for a similar industry mix, but as Dennis said in he's prepared comments, I think from a seasonality perspective but also just given a little bit what's happening in the macro energy markets right now. The turnaround activity that we're expecting for Q1 is kind of in line with what would've been in last year's Q1. Originally, we might have thought it might have been a little bit advanced versus last year's Q1 from a seasonality perspective. But as Dennis said, things seem like they may have moved a little bit out of -- a little bit later in the year so that's why our first-quarter increase were still good in low-single-digits. We might have thought it might have been a little bit higher when we entered the year, still thinking it's going to be good.

Okay, great. And then just on Sensoria, and your comments on the global market opportunity, clearly going from a hundred to turbine capacity or service in the market specific to MISTRAS 2000 supports, considerable amount of growth. But if you just look -- if you just look at the number of wind facilities in operation in terms of megawatts, and the number of turbine and operation. And then also just the nearly 29,000 or 30,000 megawatts of new wind capacity fore - casted by the EIA it even seems that a thousand turbines is only a small fraction of the U.S. market potential. If you could just add some insight there, whether be it quantitatively or qualitatively, that would be appreciative.

It's Jon, I can give that one a shot and let perhaps Dennis had add on. But yes, I think we are, as Dennis said in his prepared comments, we are in a number of ongoing trials with some name brand customers. These are going very well, but we're in the early stages of proving ourselves. And I think that as we continue to prove ourselves, the commercial orders are starting to come but we're not trying to rush that process as much as we are trying to make sure that with every step we take, our ability to perform, our ability to never over promise is sacrosanct because the credibility that we need to have in this very important market it's just really key. So we're taking a step by step. We're not rushing these processes with customers. We did have a great commercial installation in Q1 that just just finished. So activities are ongoing and we're really excited about it. I think that in other numbers we presented it probably with regard to capacity, may proved to be somewhat conservative, but again, we're trying to under promise and over deliver with our customers and with you folks on this call.

Yes. Brian, one more comment. It's Dennis key and on a word capacity right now we know the technology works and we can prove it out and we're doing that with the [Indiscernible]. concept projects that we have. But what's going to happen is as we nail the software and automated lot mark capacity will go up. So what we're really looking at is making sure that we got probably the protection nail. We want to make sure that we have automation of signal enhancement and bringing that to the website. Right now, there's a mix of automation and manual verification. So once we get past all that, get the proof-of-concept more in the rear-view mirror, that's where our capacity to grow and to your point, you know, the numbers much better than most want to tax quoting capacity and [Indiscernible] a lot out there. So we're not worried about how much growth potential we have, we just want to make sure, like Jon said, that the system is working right, the probability of touching is high enough that we're going to capture them. And right now we're still really focusing strictly on the land-based. We haven't got into the offshore where they are bigger and we believe that the same technology will work. We just have to prove that it can reach a little further out on a blip. But we don't see at this point any reason that it should be that much different.

Got it. Understood. And then just quick on aerospace and defense, clearly, commercial aerospace is lagging, you know that. You guys have been mentioning that for a couple of quarters, but when you look at the aerospace and defense revenues in 2019 of about $94 million, do you think the recovery gains momentum in the second half of 2022? Do you think you can reach that level for the full year of 2023?

Dennis, you want to turn that or?

[Indiscernible].

Yeah, I'll start. Yes. Great question. Great question. I mean, we are as Dennis said, we're very strong right now in private space. The other area that we're doing very well is defense. So within aerospace and defense that used to be when we talked about this two or three years ago, we were almost exclusively talking about commercial air. And nowadays, commercial aero is certainly still the biggest portion of this category for us when it's lagging, as you say, with the growth in defense and private arrow I think absolutely we can approach that level in the latter part of '23. And we're trying really hard to get there sooner.

Brian, I will say if our customers from casting foundry houses, OEM manufacturing, anything else, they believe that by midyear peak in May, June, July in that range, that the volume in production will be at a point outside of the wide-bodies will be at a point that it's going to be getting back to some normalization. So there has been a lot of activities in discussions with our customers about what can you do to ramp up not only us, but we hear from machining and everything else out there is starting to become stress in the industry. So there is an expectation that the volume will get back to a much stronger on the commercial side by mid-year and start to carry through '22 and '23.

Okay. Great. Thank you very much.

Thank you. Our next question or comment comes from the line of Mitchell Pinheiro from Sturdivant and Company. Your line is open.

Good morning.

Good morning.

Just a follow up on the wind turbine business. So I mean, what does revenue look like when you have a thousand turbines under monitor -- monitoring? What's -- I mean, is it -- is it meaningful? Is it, you know?

So Mitchell, I'll give it to you this way. We are going to have different types of revenue coming in from those turbines. You're going to have the installation which you're talking the installation per turbine, less than five digits. So it's going to be some thousands of dollars per turbine to do the hardware and do the actual boots on the ground, get them installed and put them into the blade. We're getting quicker and quicker on that and we can do a couple of turbines a day if we're in a farm or we could have access to more than one at one time. So there's some money there, there's going to be the monitoring of the annual isn't going to be that high in money because [Indiscernible] fairly and tight economics. So we will be making some money on that as well, but we multiply it times 1,000 and obviously there is good money there because of the automation such, but we'll have subject matter experts working with the customers to understand the data and all that. So it won't be free money coming in, but it will be good margin. And that you're also going to have the third tranche of money coming at it is when we're looking at this stuff and working with the customers and when the data is representative, something with the asset not with the equipment itself, not with the sensors or that then we could be going out there and finding the damage and repairing and on the sensor farm that Jon was just talking about that we're finishing up we actually had found some damage on blades that they didn't know about. So there's a lot we can do some of it was actually even visually that they haven't seen, some of it from repairs previously that weren't done right. So a lot of the money is going to come -- probably the bulk of the money will come from being hands-on and doing those repairs and things that our present business already has and does, and then the other part will come from those other two streams. So I mean, I don't know if I want to get into the exact dollar per but you're going to have those three different levels and obviously the installation will be a one-time. The reoccurring will be the monitoring and then the payments.

No, that's helpful but and then you had mentioned that listen you still have a lot -- you have a lot to prove here in the -- to your wind customers. I mean but what do you being compared to? I mean, what do you have to prove, that you show up one time or to install things or do you have -- or is there some more significant proof that needs to happen? So I'll cash in and Jon wants to elaborate. Its a good question. There's two things when you say compared to there isn't really technology comparable for the monitoring that we've seen. There are people that can put video cameras on there and pointed out at 24/7 if you want or some kind of microphones and things like that, but nothing really directly attached to the blades that makes sense. You can do things on the blades attached at a hub and to the axles and all that and do vibration and alignment all that. But that's an indirect idea of what's happening with the blade. So comparable, we don't really see much out there, especially when you bring in effect that we will do the manufacturing, the installation, and monitoring and then the maintenance. The proof is the one that we're trying to ensure to customers that our technology, when you see the signals and not only sees the signals on a basis from the base down to the tip or down far enough down the tip at a high enough sensitivity that it picks up anything that is significant to the blade, if it's a small pinhole or something is a very tip and it's not caused any damage or growing. Are we worried about that versus something as you get closer and closer to the blade, obviously the leverage on the defect is greater and greater and it's more important? So we're trying to prove that out. We're trying to prove that we can find all the different types of damage perforations, lamination, delaminations, laminations, crack installing, lightning strikes, anything that occurs to it that does it and be able to tell them what the different damages, just not that there's a signal that looks wrong.

Identify their characteristics and most importantly, is that damage growing and is it becoming significant to the blade. So all those 3 things and anticipation of where you'd be thinking, we've proven all those signals were proven that we can see them. Now we just got to prove that we can see them consecutively, we can nail them with the software. That's where I talked about the probability detection and make sure that we can see them on a high end of probability that regardless of where to detect and orientation as we can see it and the grows. Most importantly, accounting monitor and give them data that's not only is there something there, but it's becoming to a point where you need to start thinking about your planned maintenance. And that's what's important. We can tell them. Not only do you have a problem, but how rapidly do you have to work on it and do something with it? Best when it becomes valuable to the customer because they can plan their outage time and what they're like. Anything else they want to keep their assets running and keep utilization as high of a percentage they can, so that's where this technology really comes in.

That's helpful, Dennis. Thank you. And then back to the sort of the energy markets. When energy prices are low, budgets are tight and when energy prices are high, no one wants to stop shorter turnaround. Where is there a sweet spot? Is there ever a sweet spot where things just sort of run normally is part 1. Part 2 is, over the last several years, there's got to be pent-up demand for all sorts of maintenance and even new equipment. Can you give us a little color on the extent to which there is pent-up demand or will this pent-up demand just get pushed off forever?

So great questions. Quick way of looking at from a customer point of view, I don't know if they'll ever tell you there's a sweet spot. But I think to their point of view, the volatility is not great for them high, low because it's hard to plan capital allocations. Many people have asked, well, it's at a 130, a couple of days ago with a 116 a barrel. Now, how does that affect? When you're looking at the upstream and down, especially. Let's just take the down on midstream, really. If you look at those 2, their capital budgets are put out a year or so in advance, right? 6 months in advance. So they're pretty much locked into what they're going to spend. Certainly when you get extreme high crack spreads and things like that, they're going to take a little bit of advantage of it, like we're talking about possibly into spring turnarounds, you could see in China snip off a little more front and back and and pare down to just those essentials again. So they can do something like that, but they really can't change too much 30 years. they're planning and all that. Barrel price changes in a week or 2 wouldn't make up for the differences and removing contractors and the timing of turnarounds around, unless it really could make a major difference. So they reacted that way. When you look at upstream and crackers and things like that, certainly those are drilling the wells. That's where we see the largest amount of change probably happening from these higher prices. You see it happening for long. Whether it's 113 or 116 or 100, if they see it in triple-digits at the prices are going up and drilling holes for those facilities that are…

Yeah. And then so, I haven't seen the breakdown for the fourth quarter. You haven't released your K yet but, as you look at the energy market and your energy business for 2022, is that on a global basis, is that expected to be up year-over-year?

Yeah, absolutely. Yeah, this is Jon and thanks for the question Mitch. Absolutely. We're expecting virtually all of our sectors to be up to some degree in 2022 versus 2021 in the energy sector. We see certainly the commodity prices are good for budgets, they're good for encouraging customers to, as Dennis said, if they were thinking about CapEx, assuming that they've got operating window to implement it, certainly the cash flow is going to be there. So our expectation is that we can be positive in energy revenues in 2022.

And then just last question for Ed. I mean, you're looking at gross profit, I know I realize you're -- you've mentioned about the first quarter from last year, some of the onoffs. What -- should we -- is -- obviously there's going to be maybe some labors of higher cost pass throughs. How do we expect -- how do we look at gross margin for the full year 2022?

We would certainly expect to hold serve with 2021, when the gross margin is overall, if not, hopefully get a little incremental benefit. There is good seasonality though, Q1 of any year gross profit is lower than the other three quarters. That's without bail and has been for the last three-years running, mix of business there. Q2 is generally a much longer gross profit period and Q3 is a little dip, a little from there Q4 is a little weaker than two and three. So you do -- it's not linear, you do see that trajectory changing throughout the year and you've seen that for years, seasonality affecting that. But we are pushing for gross profit expansion. We're not showing the basis point improvement this year that we've shown for a number of years running. Again, there was some additive costs this year and there were some subsidies last year so when you normalize that, you do actually see that we were able to actually improve gross profit ever so slightly. Want to true proforma apples-to-apples basis '21 versus '20 still a lot, yes, we are going to lean into it for '22, but obviously inflation is here. There is cost pressures. We are trying to maintain and push through any higher costs as soon as best we can. So that's real pressure, we can't deny that. But we do expect to hold margins this year, if not, maybe have a little incremental benefit if we possibly can. But again we're earning back last year's tailwinds incentives and became a headwind this year as well as the higher cost that was restored to the business in August of '21. All that has to be earned back this year, so don't lose sight of that. That's working the opposite direction, this year becoming a headwind [Indiscernible] last year's tailwind.

Okay. Thank you very much. I appreciate it. That's all the questions I had.

Okay. Thanks Mitch.

Thank you. Again ladies and gentlemen, if you have a question or comment at this time, [Operator Instructions]. Our next question or comment comes from the line of Chris Sakai from Singular Research. Your line is open.

Hi, good morning. I just had a question for Sensoria and once we -- what are the profit margins on them?

Alright Chris, I'll take it and I'd like to thank you and welcome you to -- on the call and for picking up coverage for us. Appreciate it. So, anytime you start talking about Sensoria, OneSuite and things like that. Because it's data - centric and that's why we'll be bringing out more of some data metrics for you guys [Indiscernible] the 22 numbers. Data is always got the richest margins for us. You're doing a lot of things with automation. You're doing a lot of things of high value for the customer. So it does have a much better blend for that. So anything in Sensoria, anything in all the MISTRAS digit or all those -- those will definitely help our margins a lot of inflow through much better. Multiples above what you would see on field.

Okay. Great. And for Sensoria, how did you get from your -- you say a hundred, you're going from a hundred to a thousand by 2023. How did you get to that number?

So again, Chris, what we're looking at there is our capacity to get to that number. We believe that the part of selling it is a different issue. We believe there's enough volume out there, there's enough customers that we're talking to that we can get there. But what we're talking about is right now we're limited to how many weaken add on because we're still having a blend of automation and manual. Once we get past all that and we automate the software and get them hope proof-of-concept behind us, we're going to have all the signals being characterized automatically. The signals will give a discreet type of identifier to the customer based on their returns. Sometimes it's purely just the detrimental to the blades, sometimes they mix the detriment with the blade mechanics and financials for it so they get an ROI before they want to look at shutting it off. So we'll make sure we have all that setup and then that's what our capacity can get into from three-digit kind of monitoring to four-digit, five-digit. So it's more of the capacity is not so much that we're saying we have a customer waiting on the line, but we believe there's enough capacity out there that we can certainly add customers and grow it and do it. So we're just trying to basically say we will be at a point where we're going to be ready to bring online not unlimited lot of customers got a much greater volume than we can handle right now.

Okay. Great. And one question on your inventory levels. How was your supply chain? Have you -- are you running into new problems there or and are you comfortable with your inventory levels?

It's Jon, I'll take that one. From an inventory levels perspective I think they're adequate. We have had some elongated lead times for chips and so forth just as much as the world is experiencing right now across many different industries but so far we're finding it manageable.

Okay, great. Well, thanks.

Thank you.

Thanks, Chris.

Thanks Chris

Thank you. I'm sure no additional questions in the queue. I'd like to turn the conference back over to management for any closing remarks.

All right, Howard, thank you. I would like to thank everyone for your continued interest in MISTRAS and for joining our conference call today. Please have a safe and productive day and we look forward to updating you during our next call in a few months.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone. Have a wonderful day.