Sotirios Vahaviolos - Chairman, President and CEO Jon Wolk - EVP, CFO and Treasurer Dennis Bertolotti - EVP, Services Americas.

Andy Wittmann - Robert W. Baird Edward Marshall - Sidoti & Company Andrew Obin - Bank of America Merrill Lynch Matt Duncan - Stephens Jeff Volshteyn - JPMorgan Tahira Afzal - KeyBanc Capital Markets.

Good day, ladies and gentlemen and welcome to the Mistras Group Quarter One Fiscal Year 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

With us on today's call is, Sotirios Vahaviolos, Chairman and CEO; Jon Wolk, Executive Vice President and CFO, and Dennis Bertolotti, Executive Vice President and President of the Company's Service segment. I would now like to turn the call over to Sotirios Vahaviolos, sir you may begin..

Theresa, thank you very much and good morning to all. In today's call we will review Mistras Group's financial results for the first quarter, for our fiscal year 2016 that ended on August 31st and discuss our prospects going forward.

I'm very pleased that Mistras started its new fiscal year with results that are strongly improved compared to prior year. In our last conference call we described a number of actions that we took to reduce our cost and improve accountability across all of our business lines and locations.

And we stated that these improvements will start with the first quarter. Our team took this message to heart and profit margins were substantially improved not only in all three of our segments, but also in every country in which we operate. Overall we gained strong bottom-line leverage.

Mistras’ adjusted EBITDA grew by 9 million to 66% over the prior year's first quarter, and a revenue increase of 8%. Our adjusted EBITDA margin improved by 400 basis points, most of this improvement was driven by the changes we have made, but we also got some benefit from changes in traditional seasonality patterns.

As I mentioned in our last call we benefited from two small turnarounds in the first quarter. Overall our market has been significantly impacted by the oil price declines and by last winter's refinery labor strike. The oil price decline has affected organic growth as oil and gas customers seek to reduce their spending levels.

The refinery strike affects traditional seasonality patterns, while our Q1 turnaround were an unusual [positive] [ph] factor our fall turnaround season looks to be lighter, but our Q3 turnaround activity should be stronger than prior year.

Overall turnaround volumes look to be similar to the prior year, but with different seasonality and therefore different comparisons to prior year results. When we spoke with you last quarter we described in detail the difficult [staffing] [ph] action we have taken.

We made these choices because they were necessary to achieve profitability levels that we collectively expect and demand from our company. As any of our managers will tell you we've been very focused on delivering much higher profits and we've been taking actions now for several quarters.

I'm very pleased that we delivered a quarter that demonstrates we’re making good progress, but we’re far from finished and there is a lot more to come. Jon will now explain our results in more detail and then Dennis will provide more color on our operations, afterwards we’ll 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 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 yesterday. These reports are available on the Company's website in the Investors section and on the SEC website.

First, I’ll summarize our financial results and then I will comment on our initiatives to improve profit margins. Revenues for the first quarter of fiscal year 2016 were $179.9 million, 8% higher than the prior year's Q1. Net revenue increase was 13% on a constant dollar basis had foreign exchange rates been unchanged from prior year.

Services revenues grew by 13% over prior year driven by a high single-digit acquisition growth and mid to high single-digit organic growth offset in part by the impact of a weaker Canadian dollar.

International segment revenues declined by 8%, but this result is misleading as high-teens foreign exchange declines coupled with the impact of dispositions masked a double-digit improvement in organic growth. Product and systems revenues enjoyed a 32% increase over prior year driven by improved sales volume and improved sales mix.

The news is even better from a profit margin perspective. The Company's gross profit margin improved by 330 basis points reaching 28.5% compared with the prior year's 25.2%. Services segment gross margin improved by 220 basis points reaching 26.6% compared with the weak prior year comp.

Most of this improvement can be attributed to sound execution in managing contracts, improved staff utilization, tightening up on processes and better matching of changes in labor rates with changes in pricing. The first quarter turnaround that Sotirios mentioned improved organic growth and also aided margins.

It's worth noting that the first quarter's improvement of 220 basis points follows Services’ 150 basis point year-over-year gross margin improvement in our previous Q4 indicative that the good work done by Dennis and his team is being sustained.

Gross margins improved by over 500 basis points in both our International and the Products & Systems segments compared with the prior year's first quarter. International gross margins were favorably impacted by about 200 basis points related to sales of products, but even without this benefit exceeded prior year levels by more than 300 basis points.

While it's too early to declare a victory we feel confident that the actions we took to reorganize operations and to eliminate redundant staffing and related costs are working as intended. As well some of the organic growth that we planned to achieve has begun to occur which has also boosted our gross profit margin.

It's worth noting that some of the largest improvements in the International and Products & Systems segments occurred at the two units where we recently changed CEOs. Products & Systems segment results tend to be lumpy reflecting the varying mix of customer solutions that we’re able to deploy.

Our Q1 results benefited from both higher volume and improved sales mix. Our operating expenses reflected significant improvement for the third consecutive quarter. Total operating expenses were in line with the prior year's first quarter even though revenues improved by 8%.

Consequently operating expenses were favorable as a percentage of sales by over 175 basis points compared with last year's first quarter.

Operating expenses in both our Services and International segments improved by over 75 basis points while Products & Systems improved by far more than that, as Products’ operating expenses were $0.3 million lower than in last year's Q1 on revenues that were 32% higher. The Company's total EBITDA margin was 12.4% in the first quarter.

Our operating income and EBITDA margins each improved by over 400 basis points compared with the prior year's admittedly low comp. This improvement bodes well for further year-over-year improvements. Cash flow was yet another strong positive.

The Company nearly doubled its operating cash flow to $17.7 million in the first quarter, compared with $9.2 million in the prior year's Q1. Free cash flow more than doubled reaching $13.2 million compared with $5.3 million in the prior year's Q1.

Total CapEx including non-cash capital leased outlays were $5.1 million or 2.9% of revenue compared with 3.5% in the prior year's Q1. Total debt and capital lease obligations net of cash was $112 million at August 31, 2015 compared with $155 million nine months ago.

Net debt-to-adjusted EBITDA was 1.5 times at August 31st down from over 2 times last year. The drivers to our improved cash flow were the improved profit levels as well as a reduction in days sales outstanding of approximately 1.5 days.

Our accounts receivable balance at August 31, 2015 was more than $8 million lower than one year ago despite our 8% revenue increase.

Our cash flow focus has worked well and this in turn has created more flexibility in our capital structure enabling our team to consider using our strong cash flows and conservative balance sheet to enhance shareholder value.

Because we believe our stock is trading well below its intrinsic value we have obtained approval from our Board to commence a stock buyback program of up to $50 million.

These favourable comparisons have not been easy to achieve in this difficult and uncertain market but they are precisely what is needed considering the realities of today's environment. They have been driven by decisive actions and strong execution by our entire team in every country and in every line of business.

I have previously mentioned our key initiatives which have been our game plan to achieve these improvements. These include contract operational reviews, focus on SG&A costs, reducing unbillable time, improvement in the Canadian oil sands region and pricing discussions with customers.

Of these five the least impactful has been pricing which reflects both the market's challenges and our team's strong focus on driving improvements from these other areas. The second least impactful area has been the Canadian oil sands region although there are positive signs that Dennis will discuss next.

Before that I will briefly update the Company's financial guidance.

As Sotirios mentioned earlier our first quarter revenues benefited impart from unusual seasonality that we expect will impact results negatively in the second quarter and positively in the third quarter as well the year-over-year impact from previous acquisitions has almost been entirely realized in the first quarter.

So we continue to expect that revenues will be in the range up from $710 million to $725 million inclusive of a combined $20 million reduction due to foreign exchange and dispositions.

Our adjusted EBITDA for Q1 exceeded prior year levels by nearly $9 million, our guidance for the remainder of the fiscal year which includes a likely year-over-year second quarter decline compared with prior year's record results is now at the high-end of our previously stated $72 million to $78 million range.

And with that I'm pleased to introduce Dennis Bertolotti, our Executive Vice President and President of the Services segment to this call..

Thank you, Jon. I'm pleased to participate on this call and provide updates on our Services segment as well as our International and Product segments. I'm proud of our team and its resilience in a tough market. Our plan is working in North America and all of our key countries as reflected in the performance numbers that Jon just shared with you.

I'll provide some color on key developments in our business. In our Services segment it's no secret that the oil and gas market remains subdued. My team and I are regularly meeting and speaking with our customers exploring ways to improve their productivity and gain even more value from our wide ranging inspection services.

In these discussions we're also cross-selling other value-added services that can save money for our customers. In some cases we're introducing on-shore services such as inspection to offshore customers and in others we're introducing offshore services to on-shore customers.

In addition we have a strong sales pipeline in the petrochemical, power generation and aerospace sectors. Part of the organic growth in Q1 came from supporting a large LNG storage facility that is being built in the Gulf region.

Providing best-in-class productivity and responsiveness and providing our customer with the best value give in their demanding requirements. This multimillion dollar award positions us well as similar facilities are built in the future. As you know, we have made a considerable investment to service large customers in the Canadian oil sands region.

For many reasons that we have discussed previously this effort did not achieve the traction that we initially expected. However our sales levels are gradually increasing and we have been awarded some fall turnaround work which could lead to even more work in the future.

We are encouraged by our profit margin improvement in Services and are continuing to implement the actions that Jon described earlier. The improvement realized by our International business reflects the rigor of our team has undertaken to eliminate efficiencies, and to contribute to our success.

Our new CEO in France has driven a terrific combination of cost reductions in organic growth which has improved our utilization of service technicians and better improved profits. Our UK subsidiary experience organic growth primarily from its wind business line providing services and products to both offshore and on-shore customers.

Our Brazilian subsidiary has made a remarkable improvement despite the continuing challenges presented by their economies. Our GM there has done a good job in changing our mix of work performed for Petrobras to be more mandatory and less discretionary. Improving our utilization of people and reducing the risk of work stoppages.

And in Germany we have begun to receive more work from Airbus and other key customers, improving our sales mix and positioning us well for future growth. Also we expect the benefit from increased NDT inspection and turnaround work. As Jon mention, our significant improvement in International results was also helped by stronger product sales.

But International gross margins improved by over 300 basis points exclusive all these sales and we expect that International results would be favorable to prior year in each of our quarters to come. And with that Sotirios I turn it back over to you..

Thank you Dennis, in closing we are running our business assuming that the present oil price rats would be the new normal for the foreseeable future. If anything recent announcements by other participants in our space, nearly share to confirm, what we already knew about market conditions.

In this environment, we are focused on appraising as efficiently as possible, maximizing our stock utilization and minimizing our capital outlays. Finding incremental value for our customers and driving our profitability initiatives around stock priorities.

We have made and implemented difficult decisions to reduce our cost base and we will continue to be vigilant in doing what the market demands of us. In fiscal 2016, we have a big opportunity to improve our overall profitability and we are very focused on achieving this goal.

As Jon mentioned, we have obtained unanimous approval from our work to commence a stock buyback, we believe that our stock price offers a compelling value at this low prices and we plan to utilize a portion of our free cash flow for this purpose.

But we will also continue to make acquisitions when we find competitive opportunities and can be aggressive to our operations and provide more value to our customers. In conclusion this conference call we thank our loyal employees for their commitment to safety and quality, our loyal and value customers and our loyal and value shareholders.

That concludes our prepared remakes and Theresa please open the floor for questions..

Thank you. [Operator Instructions] Our first question comes from the line of Andy Wittmann with Robert W. Baird. Your line is now open..

As given that the margins were I think one of the really key stories for the quarter, I wanted to start there and particularly just kind of think about, get your thoughts on where we are on the cost reduction efforts or the margin improvement efforts recognizing that we saw I think you said 150 basis points in fourth quarter more than that here.

Can you talk about what are the initiatives that you have been putting in place for the four quarter were there other initiatives that went into affect partly through this quarter and what are some of the continuing actions that you see for the balance of the year and how could that affect your margins from here?.

Yes, thanks, Andy, I’ll take that, it's Jon.

I think that as I indicated in my comments, the changes that Dennis and his team have made in Services really have been in place now for a couple of quarters and if anything what we are now starting to do is just see the benefit of some of those actions but it's going to a continuing story, there is no finish line here.

We are going to continue to react proactively to what we foresee in the market and what customers expect of us and therefore we are going to try to run as leanly and as efficiently as we can, given the market environment.

I think on the International side, that’s a more recent improvement story and those are much more derivative of the actions we took at the end of our last fiscal year and we are seeing direct benefits of that now.

I think that our expectation is, is that we are going to continue to utilize our labor and be as efficient as we can there but seasonality plays a role, so Q3 is always a more of challenge for us which is still going to be a little bit of a lumpy business but I think that - look a lot of the benefit, to answer your question as directly as I can, a lot of the benefit we have realized at this point it’s into the numbers so you can see in the performance.

But there are still actions that will be forthcoming to the extent that the market demands us to take them..

Would you consider your utilization rate companywide here in the first quarter, higher than normal as a result to some of the unusual summer turnaround activity and can you quantify what the financial benefit of some of what you would consider the unusual summer turnaround was in terms of the utilization or margin or profits in general?.

I think from a financial perspective Andy, we probably saw our organic growth in Services it was probably maybe half attributed to some of the summer turnaround work and half attributed just to other project timing and so forth.

And it did help lift margins but if Services margins went up pretty considerably and I think that was a small portion of the story, I’ll let Dennis comment on the utilization of personnel..

Andy, in Services group we always have a high focus on personnel, we always -- we want to make sure that the amount of time to billable versus non is the key to making that business go.

Another part that we gained in our margins this last couple of quarters is just keeping an eye on our contract management, keeping an eye on just the fundamentals of the business.

So we're doing a lot more work on making sure that everything we do within the contracts is maximized what we can do for the customer and for us and I think that’s been a benefit certainly utilization is always a part of that and it becomes a bigger focus especially in your off quarters that it does in your busier quarters..

Yes, okay.

One final question from me then I'll jump back in queue but I wanted to just get a better sense of the growth outlook from here and particularly around you mentioned Jon in the prepared remarks about some of the construction projects that you're participating and now you mentioned the LNG but more broadly speaking for new construction projects, what is that looking like today on a year-over-year basis and what's the pipeline, do you expect in other words like the backlog is growing in that business or is that more of a flattish type of business right now?.

Andy, I think the market is flattish at best in terms of I don’t know that I’d say it’s growing, I think that what I'd say and Dennis could comment on this too is I think that we're seeing a greater share of those projects in terms of biding activity.

I think our business development team has been a lot more active in the last 12 months at really aggressively trying to find those opportunities and be considered for those opportunities, so it might work out fairly well for us although it’s too early to say what we might take on..

Yes, it is Dennis, I believe that right now it is still somewhat of a tight market, customers are going to spend on what they need to do for mandatory; the discretionary part of their spend is something that they look at much more closely.

So capital projects that are already been funded and planned are certainly underway, but you got to wonder about how many new ones are going to be put on the table, so it’s just a function of where were they in the planning process..

Yes, and if I summarize basically what Dennis and Jon said run and maintain was really our business; the last couple of quarter’s events maybe more than a few quarters but now concentrate also in some projects.

Because this is really project work and it says one-time kind of an event and so that’s how here we have improved, but we're not only improving it in America we're also improving abroad..

Thank you. Our next question comes from the line of Edward Marshall with Sidoti & Company. Your line is now open..

So I just wanted to ask for some clarifications, I think you said guidance on the 2Q you said there would be a weaker 2Q turnaround but did you mean that on a year-over-year basis and not necessarily compared - I mean it's not comparable on a sequential basis.

And if I remember correctly 2Q last year was unusually strong too so it’s no surprise but some clarification around that?.

Yes, and that’s exactly it, and again we are not commenting on the market per se just our own experience around customer base. Last year we had a good turnaround volume we also has some considerable project volume that also benefited our Q2.

So we had a record quarter, we don’t see the same level of project volume or turnaround activity in our second quarter that we're in the midst of right now. Although we think it’ll be a good quarter it just probably won’t approach the same levels as last year.

However, some of that turnaround work that we had on last year's Q2 will move into our Q3 this year. So again the seasonality patterns are a little bit disrupted but we still think turnaround volume overall will be close to what it was last year for us. Q2 a little bit weaker Q3 a little bit stronger..

And Q2 you expect to be slightly better than Q1?.

It should be considerably better than Q1 just from a seasonality perspective; it just probably won't quite approach the Q2 levels of last year..

And you talked about baking - and we talk about the costs and I'm wondering how much more you can squeeze out of this business I mean when you look at kind of the margin profile and maybe some of the other names in the space, I mean 200 basis points discrepancy between you and maybe some of the other players.

And I'm wondering how much volume necessary that you need assuming that currency is kind of the spring factor too.

But how much more volume do you need in the business to actually get that 200 basis points and is that achievable?.

Well, I mean we had a really strong year-over-year comp but last year's comp was low. I mean if you would have had a normalized first quarter last year we still had a better first quarter this year than a normalized quarter would have been in last year's Q1 and we probably -- it was higher probably by about 200 basis points.

I think that as we look at our profit engine and our margin engine and so forth there is probably another 100 basis points or two that we can get out of our operation just by continuing to act on the actions that we got in place.

We're still in the early innings of process improvement and really standardizing best practices across our entire operation. And we have got a lot of run room still to go there, so I think that certainly we can continue to improve profit margins in a consistent operating environment, absent the market getting better or worst.

But certainly if the market were to improve that would help as well..

And I noticed in the cost discussion and in the release last night there wasn’t a lot of discussion around Canada. And I'm just kind of curious as to what's going on there? How successful are you at achieving I guess your plan B but also I think those were some more positive developments around plan A and so.

What are the next steps here and how should we be thinking about the Canadian business?.

Hi this is Dennis. We went to a relatively new market geographically speaking for us up there in that part of Canada and just a little bit of time more than we expect the biggest attraction.

We’re actually online with the traction we were expecting to get out of the market it's a rich market in terms of NDT spend, inspection spend and just took us a little bit more time than we expected to get it going. We do see it coming along. We had a lot of startup cost that we overcome and gotten back into and what we consider more of a normal run.

So while that is a depressed area compared to year-over-year for us it's a new markets, so there is a lot of potential for us and we see a lot of potential growth in the next year or so..

Just to add more color to what Dennis just said. I would say that he is right in terms of momentum. It’s going in the right direction for us, and as dilutive as sort of holds the plan A and plan B as we have described them earlier. But it's still early for us out there in terms of the market share that’s attainable.

So I don't want to leave with the impression that this is as good as it gets I mean hopefully we can continue to grow from here is just incrementally approving at this stage..

That was my follow-up. So there is market share opportunity there still that’s good. So when I think about the repurchase I wanted to know what that means from the capital outlays.

I mean does this mean that acquisitions potentially are off the table in the near-term?.

No, not at all, I mean last year we generated a little bit north of $35 million of free cash flow and we used almost all of that to fund acquisitions.

In this current fiscal year and really since that big acquisition that we made in the first quarter of last year we've been paying down debt and using our free cash flow to pay down the debt that took on with that acquisition.

I think at this stage of the game what we’re kind of realizing is, is that we really have three alternatives to use for our cash flow. We can either continue to pay down debt, we could make acquisitions or we can buy back stock.

We just felt that now that the balance sheet feels more comfortable to us at 1.5 times EBITDA we've got more flexibility than we had year ago and really we’re looking at the stock price which has just traded well below what we think it’s worth. So we've added that to our potential arsenal of deployment opportunities for the cash flow.

I think going forward we’re going to be opportunistic. At times like this when the stock price is well below we feel our intrinsic value is we will be in the market we’ll be buying which is not to say that if a compelling acquisition or acquisitions come our way that we won't seriously take a look at those and deploy cash on that avenue.

And if neither is available debt pay downs are still an option too. So I would see a scenario quite frankly where we do some of all three and sometimes the balance swings in one direction or the other depending upon what seems the most compelling opportunity to us..

Neither what we think?.

Yes so tree is just a greater viewing quite tapered off..

Yes you took a stab at EBITDA for the year.

Could you kind of think about maybe your free cash flow targets for the year what you think that you could be generating?.

Well we generated a little bit north of $36 million last year. My expectation is we’ll generate north of $40 million in this fiscal year that we’re in right now, and obviously the higher is better..

Thank you. And our next question comes from the line of Andrew Obin with Bank of America Merrill Lynch. Your line is now open..

So the stock is up 20% on the open, what does that mean for the buy backs?.

It means that we won't be able to buy quite as many shares as we could have yesterday..

So the question is sort of a deeper question.

As you guys it seems the Company is in the midst of significant changes, can you talk about the challenges and opportunities for changing the culture inside the Company and are there any specific challenges to sort of how you need to run International operations seems big significant improvement, but just wondering longer term what cultural changes you need to institute to make it sustainable?.

I think Andy we already made the changes internationally because we said we changed CEO in a place and we've made all the changes necessary now we really wanted to continue the performance that they show us in the first quarter, okay that’s really where we are.

We've made all the changes, and now we’re looking for results and I think our team because we had several meetings our team is behind all the changes that we’re making both here and abroad..

Jon what do you think?.

Well okay look I think that we’re all about creating value for the customers and offering the broadest set of compelling solutions to the customers as we can, providing a terrific environment for the employees so they can further their careers and also generate great returns for the stockholders.

I mean we’re trying to really get all three constituencies and provide what they really need. And that's been true since before I joined the Company it will be true well over years to come.

I think of many things these initiatives that we’re doing are just really emphasizing that third constituency to a greater extent than maybe we had before, but we've always been about whether that the customers are getting superior value and that the employees are getting a great place to work and a great environment..

This is Dennis from the Services point of view. I mean we do have our focus on we know what this market is we know it's a tighter market, so we have to be careful on what opportunities we go after.

We judge that day-in day-out with the thought of we've to be more careful on which projects we go after, and with this even changing center program for the management team to be more focused on the profitability.

So our culture is to ride with this market and make sure that what we’re doing are the higher value returns and I think that’s paying off so far..

I’ll ask another question just in terms of your customer base the work we're doing suggests that the customer base is quite strapped for cash. How does it change their behaviour and does it mean there is more long-term opportunity for outsourcing..

I think that Andy in the oil and gas space at least there's a high….

Yes, that's specifically what I was referring to, sorry about that..

Yes I mean I don't think there's, I think that there's a high percentage of the work that's being outsourced in our space today, so if you're talking about inspection services, it's been, it's got a high penetration in terms of outsourcing but to your point look customers are looking to be more frugal in the oil and gas space in general so discretionary projects that were nice to do or good idea in the previous environment are being re-evaluated and deferred in today's environment, but having said that day-to-day inspection, that's going to be persistent and it needs to continue just because it's a risk mitigation and they just can't afford to take on levels of risk that are unhealthy.

So as I look forward and I try to get a sense of are there going to be a change in the trends, I think that for as long as this present oil price environment persists we'll have a stable environment.

I think customers will continue to look to be frugal and it's up to us to continue to be creative at finding productivity and finding ways that we can help them get as much value as possible from their spend..

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

So I want to drill down a little bit on the margin outlook but I think it's a guidance, it's sort of hard to get into the EBITDA guidance range I think if we assume that the margins that you had this quarter are achievable again in the future so I want to make sure we understand sort of what you guys are thinking is going to happen with gross margins, you've talked some about sort of shifts in seasonality in the business.

Are you thinking the gross margins may be a little bit lower for the balance of the year I mean you almost have to, to get to the EBITDA guidance and if so why?.

Well Matt, I think from a seasonality perspective, third quarter's always a challenge for this industry.

You've got fewer business days because of holidays, you've got seasonality, you've got winter weather and so forth, and to compound that this year, the offshore part of the business is really being hit hard just by the lower oil prices and customers are really trying to reduce spending in that sector.

So I think because of all those reasons it just makes us cautious particularly on Q3 challenges, that are, we will face, and some of them are traditional, some of them are a little bit additional now are incremental because of the current environment.

So I think you know with that backdrop we're just looking to be cautious, I mean as we model out the fiscal year, certainly we guided it to the upper-end of the EBITDA range because we do feel that based on how we're performing that there certainly is every chance that we could exceed the range, but we just feel comfortable at this early stage of the fiscal year just keeping our powder dry and waiting this out, let's see how it develops..

And then last thing from me just on the buyback.

How should we think about how opportunistic you're going to be here, is there a certain share price that you have in mind, where you might shift more from buying stock to acquisitions or debt pay down or how are you looking at sort of the decision tree on capital use?.

That's a good question.

I mean we see the intrinsic value at quite a bit higher than where it closed yesterday and even where Andy said it’s opened up this morning, so I think that we're buyers, it certainly at the price range that certainly we closed at yesterday or even where we apparently have opened today and I think we just have to really play it by year in terms of how we see the future discounted cash flows to the Company and where we see the likely intrinsic value to be versus today's environment.

So I don't think I'd set a specific price out there as much to say that look in the mid-teens we think this is a screaming buy as you get into the high 20s it's less so, with today's environment. So it really will depend..

Thank you. And our next question comes from the line of Jeff Volshteyn. Your line is now open..

My first question is on product sales. You saw some benefit in this quarter.

But I wanted to understand if, first of all if you can expand on why they are so successful and secondly was it more of a one-time benefit or more sort of sustainable type improvement?.

Jeff there is nothing that we can point to that would say that there is an event or some kind of unusual occurrence. I think there's an ebb and flow to the product sales and we just had a few opportunities came our way that we've been working out for a while. Some of them came to fruition in the first quarter.

We're always, we have got a pipeline going and it was really just a timing thing..

Make sense. And in the M&A scenario, I know you're still actively interested.

Would, when you say attractive does it mean inside of the oil and gas industry or is it outside of the oil and gas industry, to diversify away from it?.

don’t think that, I think it really depends, if you can get the right dynamic the right entrepreneurs, the owners, or the customer base, the potential of the business going forward, and especially given our present footprint, and how we built it out, the applicability that we could let's say enhance our platform with another set of services may be to apply to our large customer base that could be very compelling too.

So I think within or without is not as big a question to us as what the type of opportunity it is..

And the last one from me more on the housekeeping side, can you update us on what’s implied in your guidance for D&A, for interest expense and tax rate?.

Yes sure, for D&A it should be steady as she goes. For interest expense it will decline, it was unusually high in the first quarter it will decline by about $700,000 per quarter going forward. And for tax rate I think give or take around 37%..

Thank you. [Operator Instructions] Our next question comes from the line of Tahira Afzal with KeyBanc. Your line is now open..

So I guess as I look at how you have guided in essence qualitatively for the rest of the year and Matt already touched on this, it seems as we go later out in the year you have probably built a little bit more caution would that be the right way to think about it?.

That’s exactly the way to look at it..

Exactly the way you look at it..

Got it, and given your fiscal third quarter comps although easy because the refinery strike was happening.

I guess more so precaution in a sense is really built into the fourth quarter?.

Tahira I'm not sure I'd say that. I think Q3 because of the offshore outlook for this winter about this is I'd say it's on our minds..

And that sounds like a fair assumption given the environment.

The second question for me really is in regards to as we look beyond this year, you'd have seen essentially two years of sort of pretty mixed spending clearly partly because of what’s happening on the oil and gas side in general, but also partly because there seems to be a lot of deference of maintenance for whatever reason.

As you look past this fiscal year and I know it's too early qualitatively speaking do you think at some point organic growth has to start picking up again or have you seen a permanent destruction of some of the maintenance work?.

This is Dennis inspection work is also lumpy there is always a base amount of work that has to be done due to regulatory or insurance requirements..

Right..

But there is always the differences in capital and things like that as the market expands I believe we can get back to our historic organic growth levels very easily..

And last question from me and that's really in regards to again a question that was asked around really obviously your stock is depressed right now, hopefully it gets into the mid 20s and then you're all happy and you have other places to spend your money. Where would you be spending your money let’s say a year out from now.

Would it be, are there any end-market that look appealing given everything's getting hit now?.

I am sorry, so the stock price went up and we weren't doing stock repurchases, is that really the question?.

Yes I mean as you look maybe a year out from now let's hope everything plays out well and you revisit your cash allocation strategy, are there any end-markets for NDT testing that seem attractive with the valuations might have become a little more amenable a year from now let's say?.

Tahira it's Dennis. There's a lot of diversification we can do into power and other markets, obviously the best [Multiple Speakers] in oil and gas and chemical and there's a lot of service line expansion we can do within those same customers.

So we believe we've still got a lot of growth not only just what we do in NDT but how we expand, how we work with the customer and the service lines we do with them.

So we really see diversification as an issue but as you see every year not only do we diversify our segments but our growth in oil and gas is so big just because of so many opportunities it kind of keeps the balance where it is..

Yes and the other thing I'd add to that Tahira is that while the mid 20s might seem like a really good place compared to the mid-teens and admittedly it is, everything's relative. We don't see that as the end game and/or certainly some kind of a goal of ours. So I mean we have aspirations well beyond that..

And I think besides basically doing NDT there's a related things like the one for instance that we're doing to make sure the commonly we acquired in the offshore industry, it was not in NDT, and so in making these acquisitions where we can really expand our NDT line will be very beneficial to us..

Thank you. I am showing no further questions at this time, I would now like to turn the call back to Sotirios Vahaviolos for any further remarks..

Theresa, thank you very much and I would like to thank everyone for listening and we wish you all very great day, thank you very much..

Ladies and gentlemen thank you for participating in today's conference, this concludes today's program, you may all disconnect. Everyone have a great day..