Mistras Group Inc (MG) Second Quarter Fiscal Year 2015 Earnings Call Transcript

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Our products and system segment continues to focus on its business pipeline of aerospace, automotive, power and chemical industry opportunities, and focusing on higher margin product lines to improve second half profitability. A major elected utility ordered several of our advanced monitoring system solution packages to be integrated into their centralized monitoring and diagnostic center to perform online monitoring of their critical assets as various sites in their fleet. We also received repeat orders for worldwide deployment of our advanced ultrasonic automotive airbag canister weld inspection system.

Now,let us discuss the international sector. Progress continues on this challenging sector of our business based on the following strategy we have put in place the beginning of the fiscal year. Stabilize revenues to last year levels even with large foreign exchange impacts for poor economies and aggressive local competition. Finalize management changes, reduce unbillable labor, and place more emphasis in profitability growth rather than revenues. Opportunistically, value and pursue the implementation of the USA evergreen-based business model in EMEA and South America.

Now, with some news that will help us better perform in the second half of the year. Our service division in France has successfully completed a major turnaround at the refinery where we won the run and maintain evergreen contract. Based on outstanding performance, the customer awarded us two of the turnaround contracts that are scheduled for Q4. Our relationship with EDF, Électricité de France, continues to expand in the nuclear sector due to our integrated solutions and efforts of our recently hired new manager.

Our fatigue and fracture mechanics lab started to deploy the two large strategic projects that we want in Q1 to perform testing on Airbus programs. In Germany, we continue to grow our relatively new advanced NDT solutions business and based on current results we are confident we will achieve the revenue targets we have set. It is worth noting that we were awarded our first German bridge monitoring project that we will deploy with a support of our experienced infrastructure center of excellence based in our Cambridge office. In Germany’s main business of materials destructive testing, we continue to expand our unique relationship with fewer players in the composite industry, mainly to support the ramp up of the Airbus A350 program that is now evolving into the production phase.

In Benelux, we were awarded a five-year evergreen contract at a major worldwide energy company where we will deploy our full range of entity services. MISTRAS was chosen for its key performance indicator driven evergreen management methods that ensure both MISTRAS and the client that services are deployed safely, thoroughly, and economically.The U.K. group continues to grow profitably with the new center of excellence in Aberdeen for the offshore business. This is in addition to its onshore testing and inspection business as well as the remote-based monitoring applications work for bridges, wind turbines, and other structures using MISTRAS’s unique proprietary web-based information system.We continue to closely monitor our Brazilian operations and are beginning to see an improvement driven by the renewed government investments to Petrobras coupled with aggressive cuts in expenses and unbillable labor. Our strong and expanding railroad ultrasonic inspection services also offer us unique opportunities for our business, enabling us to diversify our market.

Now, for my closing remarks. Following a difficult first quarter, the second quarter results are very gratifying to me. We set several important new quarterly performance records and did show while meeting and exceeding demand in market and customer expectations. We also did so with a new mindset that emphasizes growing profits faster than revenues.

Every MISTRAS location in every country is prioritizing growing more profitability and making these decisions within this framework. Our services team had a terrific record breaking performance and yet our management team knows that we are capable of doing even better in the future. Our products and systems team has reduced its cost base and is poised to improve its results in this quarter to come. Despite a difficult economic and FX environment, our international subs are making important improvements in their margins and costs for a better second half.

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