Sotirios J. Vahaviolos - Chairman, President, and CEO Jon H. Wolk - EVP, CFO and Treasurer.

Andrew Wittmann - Robert W. Baird Saagar Parikh - KeyBanc Tristan Richardson - D.A. Davidson Matt Duncan - Stephens Incorporated.

Good day, ladies and gentlemen and welcome to the Third Quarter 2014 Mistras Group, Incorporated Earnings Conference Call. My name is Katina and I'll be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Sotirios Vahaviolos, Chairman and CEO. Please proceed..

Katina, thank you very much and good morning to all. Welcome to the Mistras Group earnings conference call. This is Sotirios Vahaviolos, Founder, Chairman and Chief Executive Officer of Mistras Group. Also joining me today is Jon Wolk, the company's Executive Vice President and Chief Financial Officer, who joined our company in November.

In today's call, we will review Mistras Group's financial results for the third quarter and first nine months of our fiscal year 2014 that will end on May 31 and discuss our prospects going forward. I will start by saying I'm pleased with Mistras' performance for the third quarter even though our profitability was less than expected.

Our Services segment had double-digit organic revenue growth despite unfavorable weather conditions that impacted our customers and our entire industry. As a reminder, our guidance for fiscal year 2014 includes organic year-over-year revenue growth ranging from 7% to 12%.

Organic revenue growth for the Services segment exceeded the range of 12.8% for the quarter and is well within that range at nearly 10% for the first nine months of fiscal year aided by our recent contract win in Alaska.

Our International segment experienced a modest organic revenue decline during the third quarter as recent customer wins were delayed to commence generating revenue. Organic revenue in the Products & Systems segment was even with the prior year third quarter.

Total companywide organic growth was 7% for the third quarter and we expect a strong fourth quarter that will enable the company to approach the lower end of the organic revenue guidance for the full year.

During last year's call, I was pleased to announce our five-year contract with BP to provide non-destructive examination inspection and support in Prudhoe Bay, Alaska.

This time, I'm pleased to announce that just last week we signed another important contract with a major integrated energy company with significant operations in the Canadian oil sands region.

These contracts provide strong evidence of our customers' confidence in Mistras to perform as a transit service provider in the most demanding and complex environments.

While the new Canadian contract is not exclusive, customer feedback indicates that we will have the opportunity to gain a representative share of this inspection activity and this could become one of the company's largest contracts. These multiyear contracts provide recurring revenue that comprise approximately 70% of Mistras' revenue base.

The company's revenues also include opportunistic contract wins to large capital projects, especially in the oil and gas industry, including pipeline construction.

While we're pleased with our revenue growth, we're disappointed in our profitability, which was adversely impacted during the quarter by shutdowns at numerous customers' worksites due primarily to weather, startup costs for both the new Alaska and Canadian contracts and a much lesser extent starting costs in advance of revenue commencement for the new contract wins in France.

As we stated in our press release, we plan to intensify our startup efforts in Canada during the fourth quarter to make sure that we're poised to perform extremely well out of the gate for such an important and impactful new relationship.

When also considering the unexpected costs we incurred during the third quarter, we have reduced our outlook for the remainder of the fiscal year. I will talk more about that in a few minutes, but first I will turn it over to Jon who will cover this company's summary financial results.

Jon?.

Thank you, Sotirios. I remind everyone that the remarks made during this conference call will include some forward-looking statements. The company's actual results could differ materially from those projected.

Some of the factors that could cause actual results to differ are discussed in the company's most recent annual report on Form 10-K and in other reports filed with the SEC. Also the discussions during this conference call will include certain financial measures that were not prepared in accordance with U.S. GAAP. Reconciliations of those non-U.S.

GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found in the company's current report on Form 8-K filed April 8, 2014. These reports are available on the company's website in the Investors section and on the SEC website.

Now, I will present the company's summary financial results for the third quarter and first nine months of fiscal 2014. Revenues for the third quarter of fiscal 2014 grew by 13.5% above prior year while revenues for the nine months grew by 15.5%.

The company's third quarter year-on-year revenue growth of $18.1 million or 13.5% was driven entirely by its Services segment, which grew by $18.6 million or 20% of which nearly 13% was organic growth. These gains were noteworthy in an environment where poor weather reduced revenues about 2% and at which competitors have grown at a slower pace.

Our International and Products & Systems segments experienced modest organic revenue declines during the third quarter, reducing the company's total organic growth rate to a bit over 7% for the quarter. Year-to-date our 15.5% revenue growth was driven by our Services and International segments.

Services revenues grew by more than $35 million or 13%, most of which was organic. International segment growth of $30 million or 34% was driven almost entirely by our prior year acquisition of our German subsidiary. FX rate movement has been negligible throughout the fiscal year.

Our third quarter gross profit grew 15% over prior year on a revenue gain of 13.5%. Gross margins were 25.9% in the third quarter compared to 25.6% in the prior year.

The improvement in the company's overall gross margin rate was driven by a 140 basis point improvement in Services gross margins as the combination of our International and Products & Systems segments was roughly flat with last year.

Year-to-date the company's gross profit grew by 15.2% compared with revenue growth of 15.5% and the gross margin rate was flat at 28.5%. The gross margin rate improved in both the Services and International segments by approximately 80 basis points each, but was offset by a decline in Products & Systems and by corporate eliminations.

The Services Q3 gross margin improvement of 140 basis points was inclusive of the combined impact of adverse weather and startup costs that reduced Services gross margin percentage by more than 150 basis points. We estimate that Services gross margin rate would have improved by approximately 300 basis points absent these items.

Our International Q3 gross margin rate improved marginally over prior year, but declined by over 400 basis points from the second quarter's high watermark that included a favorable sales mix.

While we had expected a significantly reduced International gross margin from Q2 to Q3, the decline was slightly more than anticipated driven by staffing costs in advance of work starting in France relating to several important contract wins.

Products & Systems Q3 gross margins were slightly lower than prior year, although they rebounded considerably from earlier in our fiscal year. Operating expenses, excluding acquisition-related costs, were 23.3% of revenues in Q3 compared with 22.8% of revenues in the prior year.

Large contract startup costs and one-time settlement costs with a former employee drove a portion of this increase, as did an increase in corporate expenses related primarily to higher insurance and recruiting costs. Operating income excluding acquisition-related items in Q3 was $4 million compared with $3.8 million in the prior year.

Excluding the approximate $3 million of reductions due to weather and startup costs, operating income would have been nearly double that of the prior year. Net income in Q3 was $1.2 million or $0.04 per diluted share.

This included the impact of acquisition-related items of $0.02 per diluted share, plus the impact of adverse weather and startup costs and the one-time settlement costs that reduced earnings by approximately $0.06 per diluted share. Exclusive of these items, our EPS would have been $0.12 per share, relatively close to the consensus earnings estimate.

The company's adjusted EBITDA of $12.5 million during the third quarter was flat with prior year results despite being adversely impacted by roughly $3 million due to these same items. During Q3 the company's top 10 customers represented 43% of revenues and no single customer accounted for as much as 10% of revenues.

Revenues from oil and gas industry customers increased over prior year by nearly 20% and comprised 53% of total revenues in Q3 with the strong growth driven by the company's new Alaska contract and by an increase in revenues from turnarounds. Finally, a few comments on the company's balance sheet and cash flows.

Mistras generated $22.6 million of operating cash flow during the first nine months of fiscal year 2014. The company used $11.7 million of cash for capital expenditures and also made non-cash outlays to lease an additional $8.1 million of capital equipment in the first nine months.

The company's aggregate capital investment during the first nine months of fiscal 2014 was $19.8 million, or 4.4% of revenue. The company's free cash flow, defined as cash provided by operations less cash used for capital expenditures, was $10.7 million during the first nine months of fiscal 2014.

The company's debt and capital lease obligations net of cash was $91.7 million at February 28th, 2014 compared with $70.2 million at May 31st, 2013, a ratio of roughly 1.2 times the current fiscal year expected adjusted EBITDA. As of February 28th, 2014, Mistras had an undrawn revolver balance of 58 -- $55.8 million.

And with that, Sotirios, I'll turn it back over to you..

Thank you, Jon. And now let me take the opportunity to brief you on some key developments and activities within each of our business segments. First, our Services segment.

The Services segment continues to grow, gain in new multiyear run and maintain contracts, capital projects, fleet-wide power plant inspections, and engineering services and is now expanding into the oil sands of Canada.

These projects will contribute to results in our upcoming fiscal year and then to our already strong position in oil and gas and power generation. As I mentioned earlier, I'm excited about our new three-year contract with a major integrated energy company with significant operations in the Canadian oil sands region.

Mistras was chosen to become one of a handful of this customer's inspection providers. We expect that our full portfolio of advanced engineering and inspection services and data management software will enable our customers to realize improved productivity, especially in areas where they currently have a very large maintenance spend.

We're also very pleased to be selected for two significant capital projects. One project is an LNG export facility and one is the first gas-to-liquid natural gas facility in the U.S.

Mistras was chosen for this project because of our new pre-developed asset integrity program, which incorporates our recently developed software tools, proven engineering capabilities, best practices, and baseline and advanced inspections.

These attributes enable Mistras to bridge the gap from design contractor to an end-user client during the build phase.

We believe our clients will realize substantial cost savings by developing an asset integrity management program in the pre-built stage, including reduced personnel exposure, more efficient inspection plants based on engineering inspection planning, and more cost-effective baseline inspections prior to planned startup.

We feel confident that our pre-developed asset integrity program will have great appeal for other capital projects as well. We also won a three-year project for an ethylene expansion for a global EPC contractor for a major U.S.-based energy company.

In power generation, we signed a teaming agreement with an internationally-recognized engineering, design, and consulting company that will expand the reach of both companies targeting the nuclear and fossil power generation markets and shortly expanding to transmission and distribution with our combined solutions.

We also secured a fleet contract for a major utility as a preferred supplier of energy services for their fleet of 60 fossil fuel plants throughout the country.

We expanded our services at an integrated gas-combined cycle, carbon dioxide capture, and storage project to include our AIMS, our acid integrity monitoring software, engineering services, and our acoustic emission monitoring systems.

Our AIMS software business group contracted a number of new and expansion projects requiring licenses, taken provision, and risk-based inspection service implementations in both the downstream and midstream segments. Finally, we have already solidified contracts for turnaround work in the fall of 2014 with several American refineries.

Next, our Products & Systems segment. Sales of our popular through valve leak detection instrument had record sales in the quarter as we continued to assist our refining industry clients in meeting environmental compliance requirements. We're pleased with the initial market acceptance of our recently released Tablet UT instrument.

Its high degree of functionality and portability, combined with support of multiple scanning sensors, including our automatic UT mini-scanner, is an excellent solution for service providers and end-users alike. We sold acoustic AMS boiler leak detection systems and remote monitoring to a large Australian utility.

This will serve as an entry point for us for sales to other utilities in the region that utilize coal-fired power generation plants. We also sold several AMS Heat Recovery Steam Generators, HRSGs, tube leak detection and remote 24/7 monitoring systems for gas turbine-based generation applications to a large U.S. co-op utility. Finally, a major U.S.

utility purchased our Acoustic Combustion Turbine Monitoring System, our ACTMS, to detect foreign objects in their gas turbine units. We're very excited about this application since it expands on our base success with starter blade crack detection opening up a large new market potential. And now let's discuss the international sector.

As Jon mentioned earlier, our international gross margin for the third quarter fell side of our expectations, driven by starting levels that preceded revenues related to important new contract wins in France.

Our operations in France are fully staffed to cover the six-year contract recently signed with a major oil and gas client for all of their refineries. Operationally, we're off to a good start, focused on top quality execution and project management based on the experience we have gained from our U.S. evergreen contracts.

We're now receiving requests for advanced technologies at these sites as we commence our long-term relationship. Additionally, we will complete turnarounds at three of the sites during the fourth quarter. In Germany, we expect increased aerospace industry business as the volume of quotation grows at our newly qualified laboratories.

During the quarter, we added advanced energy personnel to our German team and extended the spectrum of advanced services that we can provide to support the oil and gas petrochemical and other process industries.

Our German wind turbine business continues to expand, including blade and tower inspection, repairs using rope access, and engineering support. Our U.K. and German operations collaborate regularly to offer best-of-class services in these promising energy fields to Europe.

Recently, they have won several wind energy projects from multiple customers that are starting to establish Mistras as a full range provider to the new wind market.

Our newly established geography lab in the Netherlands will help us leverage our existing business with both mechanical contractors in the oil and gas sector, which are both very strong in this region.

In Russia, we sold several PCMS software licenses and in the fourth quarter, we'll complete the installation of a large-scale 24/7 AE online monitoring system at a major chemical plant. In Brazil, we expanded our rope access capabilities to provide our customers with very attractive cost savings compared with our using traditional scaffolding.

We also received a significant two-year offshore contract. And now for an update on our outlook and guidance. Our third quarter was a mixed bag. On the positive side, we continue to gain market share as evidenced by our Canadian contract signing and our double-digit organic revenue growth in services, considerably outpacing the industry.

On the negative side, our profitability was unacceptably low. Some of the reasons were unavoidable and others were due to choices we made to sacrifice short-term profitability for the opportunity to drive long-term business at healthy profit margins in the future.

These investments will continue without such offset in revenue in the fourth quarter, which was prompted as to reduce our adjusted EBITDA guidance for the remainder of the fiscal year to between $70 million to $74 million, while increasing the lower end of our revenue guidance to between $600 million to $615 million.

To those of you who have been listening to these calls before, you will be surprised -- you will not be surprised to learn that I am extremely bullish about our upcoming fiscal year that would commence in June 1. There are many reasons for my optimism. Here is a brief list of four reasons.

First, the Canadian oil sands contract has tremendous potential to become one of our largest contracts. Second, we have changed the company emphasis to growing profits at a rate faster than the revenues. Every Mistras operating location in the world will create, be measured and be compensated against operating plans to drive higher profit margins.

Third, we will see improvements in our international operations from ERP integration that we are currently undertaking. Fourth, I have asked Jon to work with IT and services teams to update our existing timekeeping and billing processes to make them electronically instead of manually-driven.

In closing, we are excited about our new customer contracts, and we are making the right investment to become even stronger in the future.

We believe that our continued focus on providing tremendous value to our customers combined with a global reach of our expansive and growing technical capabilities will continue to make Mistras the trusted vendor of choice for customer, operating in critical and complex environments.

We believe that our unique attribute combined with our growing markets will drive healthy revenue growth in all of our business segments. We also believe that our stable business model that focuses on recurring revenue combined with our initiatives and increased focus to achieve higher profitability will be very important for the company in 2015.

As I conclude this conference call, let me thank our 5,200 plus loyal employees, our loyal customers and our valued shareholders. That concludes our prepared remarks, and we would like to open the floor for questions. And I'm sorry for my cold here. Go ahead. Open to question..

Okay, okay, okay, Katina. Please open it up..

Thank you. (Operator Instructions) Your first question comes from the line of Andy Wittmann representing Baird. Please proceed..

Good morning..

Good morning, Andy..

Good morning, Andy..

Hi. I wanted to dig into the soil sands contract. I'm sensing a lot of optimism from you both. Maybe if you could just give us maybe a sense of the magnitude of that. It sounds like its going from probably a lot of players to fewer players.

What's the annual opportunity at this site with this contract? And how do you think investors should think about your share potential at this contract?.

Well, Andy, the total really that people are talking about is in the hundreds of millions of dollars of NDT business, because it's not only this one, there's also a lot more in line. A total sale for us, we'll try to capture as much as we can..

Yeah. I think that's right. I mean, you're talking about hundreds of millions of dollars of NDT spend in the Canadian oil sands region at the new particular customer. There's more than perhaps $100 million of spend at that particular customer.

And since we're one of a handful of qualified vendors for that site, we think we should be able to get a representative share. As we said in our remarks, this could become one of our largest contracts in the company..

Got it. So in terms of -- I mean, we heard last quarter that you are moving into Canada to take advantage of these types of opportunities.

How do you balance finding the personnel to staff this up knowing that this is a new geography for you; as well as, it sounds like the significant start-up cost that hit this quarter, can you give us a view as to how those will change over time as you get up to speed? And really kind of where are you on ramping this project right now, and just in terms of how we all should think about the contribution as we move into fiscal '15?.

Andy, my second answer will be basically the same as before is that we'll do the same thing we did in Alaska, we'll do it again. We have performed in many evergreens throughout the years and we'll perform again..

Yeah. In terms of the staffing, Andy, I mean, we've had to step up ahead of this in order to be a credible provider to this customer. Certainly, we had to have at least a certain amount of critical mass and gravitas to be able to justify confidence in our company to gain -- to get them assigned and on with us. So we've had to do that.

We've had to spend; we've had to do conversions of non-union personnel to union personnel as the year has gone on. So we've been quite busy. We're still layering in infrastructure to make sure that we can really get out of the gate strong.

So, I think in the fourth quarter certainly we've incorporated the initial start-up cost, which should be $2 million or $3 million, let's say, in the fourth quarter. But I think the goal is to really commence the revenue stream toward the end of the fourth quarter and be able to get into fiscal '15 having revenues that more than offset cost..

I think its important Andrew to stress also that these contracts are very attractive because they are not really short-term capital projects. They are really long-term contracts. So the employees know their future. So we did it in Alaska, we have done it many before, we'll do it again.

Now there is always a case where more the business the more trouble you'll have in recruiting people, but I think so far we have been successful in doing it. And we have convinced our customers that we have done it in the past and we'll do it again..

Yeah. That's a good point. It kind of feels like what's happened in Alaska and Canada is maybe not that dissimilar from what's going on with Total contract in your international business. It sounded like -- and maybe the question here is, it sounded like you're starting that one a little bit later than you thought.

Maybe can you give us a sense about what the annual revenue contribution is to that one? And this also seems like you're suffering -- not suffering, but you've taken the short-term pain as you're starting this one up. This seems like start-up costs are in excess of revenues.

What's that profitability ramp look like and what's the opportunity that investors should be thinking from that type of contract in the end of '14, moving into '15?.

Well, I think that the profitability opportunity is certainly very exciting for us in the new Canadian contract and in that region. So we're excited about, first of all, the relationship with the customer, the growth potential that it affords us, certainly the profitability opportunity, we're excited about all of it.

I hesitate to quantify anything right now only because we're in such an early stage. I mean we've literally just got the contract last week, and we'll be going up there later this month to get with the customer and really start to get launch.

So we don't really have a great visibility yet as we speak into what the slope of the line will be during the next couple of months. But I think given three, six, nine months from now we'll start to have very good visibility into what the revenue ramps going to be.

In terms of profitability, we're confident that the contract will certainly be at or higher -- in line with our corporate margins..

And it's really important, Andy, to also stress that this customer knows us because we have done a very good job for them before..

Right. Yeah, I was talking in the international business in France particularly. That seems -- you mentioned there's a start-up delay there, Sotirios..

Yes..

I just wanted some kind of your view on when those burn off and when me might see the profitability shine through in the international segment..

Yeah. The problems you have also in international is that whenever you really put new employees in a new contract like we had, it takes time because they have contracts and they really are delayed a lot more than they will be delayed in America.

In America we can get somebody in a week of two weeks in, but in France you might need three to six months of time..

Yeah. But to answer that question more specifically, Andrew, I think what you're looking for is the cost were a bit ahead of the revenues in Q3, maybe a $200,000 or so. In Q4, we'll be able to make a profit on that contract as the revenue start to flow, and beyond that we'll -- we should be nicely profitable.

In terms of the revenue size, it's quite material in France in terms of -- to Mistras overall. It's a good contract, certainly a healthy contract, but not one of our largest one corporate-wide..

Got it. Okay. Thank you. I'll leave it there, maybe jump back in later. Thanks..

Thank you..

Thanks you, Andrew..

Your next question comes from the line of Tahira Afzal representing KeyBanc. Please proceed..

Hi. Good morning. This is actually Saagar on for Tahira..

Hi. Good morning..

Good morning..

Hi, morning. So, I know lot of -- I know the first few questions tried to get some gauge around the size of the contract, and I'm pretty sure you guys don't want to give that out.

But can you give us some more color on maybe what the -- again, what the average size of a contract is in terms of annual contribution in your services segment, so we can get some idea of maybe the size, potential contribution from this contract once it does ramp up?.

I mean, on the average an evergreen contract for us might range in the $5 million to $10 million per year annual revenue range. And this contract has potential to be many times that..

Perfect. Thank you. And then, Sotirios, I know in your prepared remarks you went through each of the segments and gave all the color on the opportunities and why you guys have won, specifically within that you mentioned with your asset integrity program, LNG export facility and GTL facilities.

Can you just give us some more color on -- it seems like you've won your first two projects in that area, what the size of opportunity could be there going forward over the next few years?.

As we all know, really the oil and gas has a lot of capital projects in mind as these capital projects continue to emerge, because some of them, if you remember, were cancelled. So as these really come in, I think we're a key player in gaining our share of business.

And, in our case, we combine not only basic of the entity, but we also combine, as I mentioned, AIMS, asset integrity management software also in between..

Okay. And then lastly on my part, you also mentioned fall turnaround work pretty quickly saying that you've already secured work from some key sponsors.

If you were to look at this -- if you were to compare how you are looking at fall turnaround at this point this year versus the same point last year for the 2013 fall turnaround season, what would be your commentary about year-over-year?.

Yes. My commentary would be that this year will be better than last year..

Okay. Sounds great. Thank you very much..

Thank you..

Your next question comes from the line of Tristan Richardson representing D.A. Davidson. Please proceed..

Good morning, guys..

Good morning..

Good morning, Tristan..

Just kind of curious, I mean aside from the project in France and start-up costs there, I'm curious, Sotirios, you talked a little bit about Germany.

And I'm curious, is Germany growing currently, your operations in that region?.

Yes. The German business basically right now is not really growing, but it's not going down either. What we had done in that area is we certified two brand new laboratories and we have a lot of hope for that. Whenever you do destructive testing, you have to have [NATA card] [ph] and other certifications.

And sometimes in America it might take a year, abroad it might even take 18 months or even more. I think (inaudible), then we hope not this, the fourth quarter but starting with a new year we're hoping that this -- that's why I mentioned quotations. We're going to start doing a lot of work because the customer gets promises at work.

And that's why we made the investment that we made..

Sure. Now that's helpful. Thank you. And then, I guess the same question sort of when you look at Brazil, I mean obviously with the offshore contract the growth prospects there look better.

But I mean, should we think about Brazil as sort of a double-digit growth type opportunity next year, or is it still too early to say?.

Brazil, basically we have invested over the years and right now our strategy is very simple. Right now we want to see Brazil more profitable rather that more growing..

Okay..

Yes, yes. The growth prospects I think certainly are there. There's lot of bidding activity and so forth, but the economy in general, as everybody knows, is kind of hard time. And so, as Sotirios said, our focus right now is on making sure we can be quite profitable given the volume of business we have there..

Okay. Now that's helpful. And so, I guess I'm just trying to wrap that all up and think about where the biggest opportunity in your international segment is.

It seems as though it is this new contract in France seems to be in the most immediate near-term going to be the growth driver for the international segment, is that fair?.

Yes. Remember also that the nuclear energy in Europe also going to be growth for us. No longer in France, but also the same customer we have in France is now doing business in United Kingdom..

Okay. That's helpful. Thank you guys very much. I appreciate it..

Thank you..

(Operator Instructions) Your next question comes from the line of Matt Duncan representing Stephens Incorporated. Please proceed..

Good morning, guys..

Morning, Matt..

Morning. You made it..

I did. Just -- actually just jumped on, so I apologies if some of this has been asked. But I think you guys were asked about the size of the opportunity in Canada, maybe I can come at that a different way. The contract that you announced last quarter with BP, my recollection is a $40 million to $50 million opportunity.

Is the opportunity Canada similar to that in size?.

It can even be higher than that, but I think we really need -- these contracts don't happen. In Alaska we had been for almost four or five years, this contract doesn't happen all of a sudden. They ramp up, so -- and as a matter of fact, it’s the best approach to ramp up because you really train the people properly. Safety is an important issue.

And so, therefore, the ramping up is very, very important in this contracts. So I think based on that I think we'll take some time..

And Sotirios, how should we think about that ramp? You're adding the cost obviously now. The ramp will come as the resources that you add there get busy.

Is it something that could weigh on margins a little bit early in your fiscal '15 before it starts to level out, or how should we think about that?.

Yes. I mean definitely, in fourth quarter '14, as you know, and as we've talked about, we've reduced guidance because of that very factor.

In the first quarter of fiscal year '15 I think there's still a possibility of some drag due to that reason, but as we get further into the fiscal year that should burn off we should be able to more than offset cost with revenues..

Okay. Jon, sticking with cost for a minute, you've been in those drops about six months now.

As you've looked at the company's cost structure where do you see opportunities to maybe reduce some expenses and get some good operating leverage out of what should be an improving revenue growth environment going forward?.

Well, that's great question, Matt. I think the biggest opportunities have to do with our processes. And certainly, we're working to develop a strategy right now to really modify today's more manually based processes and to move more electronic and get mobile input.

And so, we're sort of forming this three-legged stool really centered around processes for the timekeeping and billing within the U.S. services and Canadian services business.

We've got the international side where, Sotirios alluded to in his comments; certainly we've got some cyclical things happening with the German labs getting certified, certainly with economies improving, with the French contract starting up.

But also to an extent if we need to do some rightsizing in some markets, for instance, potentially in Brazil, we'll be doing some of that as well. So I think there's considerable margin accretion possibilities in Europe. And then finally, back to the U.S. side, U.S. and Canada, we're very focused right now on margin growth.

Our team is extremely focused on driving improved margins, gaining additional leverage. We've made some investments during the current fiscal year, which are beginning to pay off in terms of some sites and people in order to grow the business.

And we'll be looking to realize on those investments while limiting cost growth from here on our fiscal year '15. So I think there's several levers that we're looking to pull..

Okay. So well, Jon, I certainly understand you're not ready to give guidance for fiscal '15 yet. It would be safe to assume that there are good margin improvement opportunities out there for you in fiscal '15 then..

Yes, I'm excited. I mean, I think that in fiscal '15 and beyond we have ample opportunities to really grow margins from here..

Okay. And then, last thing for me guys. So Sotirios, if you could give us an update on the M&A environment.

Did you guys close any acquisition during the quarter or may be subsequent to the quarter and what are you seeing out there on the M&A landscape right now?.

Matt, it continues to be robust in some cases. And we'll continue to really -- to get companies that are more of the bolt-on type companies for us. And we find something that really has some different market that we don't have. We'll go after it. And nothing really has changed on our strategy.

We hope that we probably can buy three or four, maybe six companies a year. But all of them basically have to fit our model. If don't fit our model, we're not going to make the acquisition..

Thanks guys. Appreciate it..

Thank you, matt..

There's no further questions at this time. I would now like to hand the call back to Mr. Vahaviolos for closing remarks..

Yes. I would like to really thank every one of you, and have a great day..

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day..